The SEC filed charges against popular crypto Youtuber Ian Balina from Token Metrics for failing to disclose payments he received from Sparkster in exchange for publicly advocating its tokens and for failing to submit a registration statement with the SEC for Sparkster coins he resold. Both Sparkster and Daya agreed to a settlement and paid over $35 million to a fund that would be used to compensate affected investors.
A cease-and-desist order was issued on 19 September 2022 by the Securities and Exchange Commission (SEC) against Sparkster Ltd. and its CEO, Sajjad Daya, for the unregistered offering and sale of securities backed by cryptocurrencies from April 2018 through July 2018. The SEC further requested injunctive relief, disgorgement plus prejudgment interest, and civil penalties against Mr. Balina.
According to the SEC’s complaint, Sparkster and Daya generated $30 million from 4,000 investors in the US and internationally through the promotion and sale of SPRK tokens, which are crypto asset securities. This money was used to fund the growth of Sparkster’s “no-code” software platform. Mr. Balina purchased $5 million worth of SPRK tokens between May and July 2018 and touted the purchases across his social media platforms, encouraging other investors to buy tokens.
The court found that Sparkster and Daya made promises to investors about the value of SPRK tokens increasing, the management of Sparkster continuing to make changes, and the availability of the tokens on a cryptocurrency trading platform. The order further finds that the SPRK tokens were securities in the form in which they were offered and traded, that they had not been registered with the SEC, and that they were not excluded from registration.
The SEC can return a sizable sum of money to investors thanks to the resolution with Sparkster and Daya, according to Carolyn M. Welshhans, Associate Director of the SEC’s Division of Enforcement: “The resolution with Sparkster and Daya requires additional measures to protect investors, including the disabling of tokens to prevent their future sale.” The SEC’s complaint against Balina seeks to hold an alleged promoter of bitcoin assets accountable for violating federal securities laws, further protecting investors.
Reaching a Ruling and Settlement
The SEC ruled that Sections 5(a) and 5(c) of the Securities Act of 1933’s offering registration provisions were broken by Sparkster and Daya. Without admitting or opposing the SEC’s charges, Sparkster agreed to destroy its remaining tokens, request their removal from trading platforms, and announce the SEC’s order on its website and social media channels. Daya voluntarily agreed to postpone participating in offerings of crypto asset securities for five years without disputing or acknowledging the SEC’s findings. The SEC requests payment from Sparkster in the amounts of $30 million in disgorgement, $4,624,754 in prejudgment interest, and $500,000 in civil penalties. Daya will pay a $250,000 fine under the SEC’s order, which he will challenge.