The U.S. securities watchdog has charged an initial coin offering (ICO) issuer with fraud for a 2018 ICO that raised close to $41 million. The watchdog claimed that Crowd Machine conducted an illegal ICO and then committed fraud in using the proceeds.
In its charges, which it filed at the District Court for Northern California in San Jose, the Securities and Exchange Commission (SEC) accused Craig Derel Sproule and his company Metavine Inc. of conducting the illegal ICO between January and April 2018. Sproule raised funds by selling Crowd Machine Compute Tokens or CMCTs.
Sproule allegedly represented to the investors that the funds would go towards funding the development of a global decentralized peer-to-peer network or a Crowd Computer. This network would run his company’s existing ‘no-code’ application-development software from a network of users’ own devices instead of the traditional centralized servers.
Sproule further claimed that once sold, the CMCT tokens would be used as compensation to users who contributed their surplus processing power to the network, according to the regulator. The tokens would also supposedly be used to pay software developers for availing source code that users could compile into custom applications at speed.
Sproule, who referred to himself as the ‘Man behind the Machine,’ pledged to continue working and marketing the company’s technology and increasing the tokens’ demand, creating extra value for the holders of the CMCT tokens.
However, as the SEC found, Sproule and his company never worked on the projects they promised investors. CMCT turned out to be worthless tokens whose ecosystem had little to use them on, the regulator said.
Sproule allegedly channeled $5.8 million of the funds he raised in the ICO to gold-mining companies in South Africa in the form of loans or exchange for equity interests, according to the SEC. None of the companies he invested in ever returned any profits.
The SEC has charged Sproule and his companies with violating the registration and antifraud provisions of the federal securities laws. The defendants consented to the judgment without denying or admitting the allegations. They pledged to permanently disable the CMCT tokens and seek their removal from trading platforms.
Sproule will also have to pay $195,047 as a civil penalty and must not serve as an officer or director of a public company. He still awaits a court ruling on the disgorgement and prejudgment interest he and his company must pay.
“As alleged, Sproule and Crowd Machine misled investors about how they were using ICO proceeds, spending funds on an entirely unrelated scheme. We will continue to hold accountable issuers of digital asset securities who fail to provide fulsome and truthful disclosure to the public,” Kristina Littman, the chief of the SEC’s Enforcement Division’ Cyber Unit, remarked.
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