The United States Securities and Exchange Commission has filed suit against Craig Derel Sproule, an Australian citizen, for the alleged “fraudulent and non-registered” sale of “digital asset securities” during an Initial Coin Offering that his company ran in 2018.
In a Jan. 6 complaint, the SEC claims that Sproule’s company, Metavine, Inc., which ran the ICO for Crowd Machine, (CMCT), from Jan. 2018 to April 2018, sold unregistered securities, never made it operational, and “materially misrepresented” how it intended to use ICO proceeds.
Sproule has raised at least $33,000,000, according to the SEC, but he does not have “sufficient capital” to continue operations. This is the crux of the SEC case.
The SEC announced Jan. 6 that Sproule had agreed to terms which prevent him, Crowd Machine, and Metavine performing any further securities offerings. They also need to “permanently disable CMCT tokens” and request their removal from digital asset trading platforms. According to CoinGecko, CMCT can currently only be traded on HitBTC.
Sproule has been banned from being an officer in a public company. He was also fined $195,047
Sproule claimed that ICO proceeds would go to the development of a peer-to-peer network. However, the complaint alleges that $5.8million of the ICO funds was sent to a South African mining company as a loan or equity. Sproule has not made any returns on his investment and none of the funds have been recovered.
The complaint details how Crowd Computer tokens (CMCT) were supposed to become operational to pay device owners for their use of computer power, and software developers for writing code. The tokens were not made operational within the ecosystem.
According to the SEC, CMCTs are investment contract, which are classified under securities. Crowd Computer and Metavine have not registered their sale with them.
“Numerous courts have ruled that sales and offers of digital assets such as CMCTs constitute investment contracts and that digital assets can be considered “securities” according to federal securities laws.
Related: SEC Chair has a new senior advisor for crypto
For a while, the debate over whether cryptocurrency should be classified either as commodities or securities has been raging in certain circles. Gary Gensler, chair of the SEC, urged crypto companies “come in to talk” about crypto’s legal status as it relates to securities laws.