SEC settles with Sparkster ICO project for $35M, digital asset influencer charged

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The U.S. Securities and Exchange (SEC) is still hunting down ICO projects that raised millions of dollars in the 2017-18 ICO mania and meting out punishment. The latest culprit is Sparkster, a blockchain project that raised $30 million in its 2018 ICO, and Ian Balina, an influencer who pumped the tokens and dumped them later.

In a press release this week, the SEC revealed that it had issued a cease-and-desist order against Sparkster for selling unregistered securities in its ICO. It further charged Balina for failing to disclose that he had received compensation for promoting Sparkster’s tokens.

Filed in the Western District of Texas, the SEC’s complaint alleges that Sparkster started developing a no-code platform in 2016, publishing its white paper in April 2018. It claimed to run its network on decentralized cloud software using a network of smartphones, laptops, and other devices, which would then be rewarded with the SPRK token.

It conducted its ICO a few months later, and while it stated on its website that the tokens weren’t available to U.S. residents, it made no effort to enforce this (sounds familiar?). U.S. residents, including Balina, were able to invest millions of dollars in SPRK tokens.

Balina is alleged to have invested $5 million worth of the token, on top of which he received a 30% bonus in SPRK. Since the ICO was closed to U.S. residents, Balina’s sales agreement claimed he was Ugandan, complete with a Ugandan passport and utility bill.

The same day he made the purchase, Balina started to push the project relentlessly on his social media accounts, especially on his YouTube channel. He didn’t disclose any of this to the thousands of investors who took up his advice and purchased SPRK tokens. Private chats dated 2018 between Sparkster executives claim that on the first day of his promotion, SPRK sales tripled.

The SEC has ordered Sparkster to pay $30 million in disgorgement, an additional $4.6 million in prejudgment interest, and a $500,000 civil penalty. CEO Sajjad Daya has to pay $250,000 in civil penalties. 

Balina, who was charged with violating the Securities Act, has to pay injunctive relief, prejudgment interest, disgorgement, and civil penalties.

This is the latest action that comes at a time when the SEC is making every effort to become the official Bitcoin regulator. It faces stiff competition from the Commodity Futures Trading Commission (CFTC), which has the support of several Congressmen.

Watch: The BSV Global Blockchain Convention panel, Law & Order: Regulatory Compliance for Blockchain & Digital Assets