Sparkster will pay $35 million for marketing unregistered cryptocurrency securities.
The Securities and Exchange Commission (SEC) said on Monday that software business Sparkster and its CEO Sajjad Daya had agreed to pay more than $35 million in total and to submit to a cease-and-desist order for the offering and sale of unregistered cryptocurrency securities.
According to the SEC's order, Sparkster and Daya offered cryptocurrency tokens in an unregistered securities offering from April to July 2018 that raised $30 million from 4,000 domestic and international investors.
According to the order, the presale of tokens started in May 2018 and the crowdsale in July 2018 for Sparkster, which at the time was looking to generate money.
The SEC noted in a news statement that the tokens "as offered and sold were securities, were not registered with the SEC, and were not applicable for a registration exemption."
Sparkster agreed to request the withdrawal of its tokens from trading platforms, destroy any remaining tokens, pay $30 million in disgorgement, around $4.6 million in prejudgment interest, and a $500,000 civil penalty without admitting or disputing any wrongdoing.
Daya consented to a five-year ban from taking part in offers of cryptocurrency securities and to pay a $250,000 civil penalty without acknowledging or disputing the SEC's conclusions.
For failing to disclose payments he received for publicly endorsing Sparkster tokens and for failing to submit a registration statement for the tokens he resold, the SEC separately announced charges against crypto influencer Ian Balina.
According to a statement from Carolyn Welshhans, associate director of the SEC's Division of Enforcement, "the resolution with Sparkster and Daya allows the SEC to return a significant amount of money to investors and requires additional measures to protect investors, including the disabling of tokens to prevent their future sale.The SEC’s action against Balina further protects investors by seeking to hold accountable an alleged crypto asset promoter for failures to follow the federal securities laws."
According to the SEC's lawsuit against Balina, a "security" is a broad category of investment instruments and vehicles, including "investment contracts."
The Ethereum blockchain was used for the Sparkster service. The SEC alleged in its lawsuit that donations made by American investors to Balina's pool were "validated by a network of nodes on the Ethereum blockchain, which are clustered more densely in the United States than in any other country As a result, those transactions took place in the United States.."
The ruling presents a scenario in which the SEC thinks Ethereum falls under its purview.
After learning about the SEC investigation in August 2019, the business reportedly evaluated its know your customer policies and found a "handful of participants that could possibly have been Americans that slipped through."
The company declared: "Moving forward, Sparkster is directing its efforts to the development of decentralized technologies and the pursuit of its mission. Rest assured, the Sparkster team is continuing its developments in full compliance with regulatory requirements."
Sparkster consented to attest in writing the existence of proof of compliance with the provisions of the SEC order and to supply any further information the agency may request.
By fLEXI tEAM