The Securities and Exchange Commission today announced charges against Australian citizen Craig Sproule and two companies he founded, Crowd Machine, Inc. and Metavine, Inc., for making materially false and misleading statements in connection with an unregistered offer and sale of digital asset securities.
According to the SEC’s complaint, Sproule, who referred to himself in social media postings as the “Man behind the Machine,” claimed to have raised $40.7 million through his companies, collectively referred to as “Crowd Machine,” in an initial coin offering of Crowd Machine Compute Tokens (CMCTs). In this offering, which occurred between January and April 2018, Sproule told investors that the ICO proceeds would be used to develop a new technology that would enable Metavine, Inc.’s existing application-development software to run on a decentralized network of users’ own computers. Instead, Crowd Machine and Sproule began diverting more than $5.8 million in ICO proceeds to gold mining entities in South Africa – a use that was never disclosed to investors.
The SEC also alleges that Crowd Machine and Sproule did not register their offers and sales of CMCT tokens with the Commission and knowingly sold CMCTs to “ICO pools”—groups of investors, including individuals in the U.S.—without determining whether the underlying investors were accredited.
“As alleged, Sproule and Crowd Machine misled investors about how they were using ICO proceeds, spending funds on an entirely unrelated scheme,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. “We will continue to hold accountable issuers of digital asset securities who fail to provide fulsome and truthful disclosure to the public.”
The SEC’s complaint, filed in the United States District Court for the Northern District of California, charges Sproule and Crowd Machine with violating the antifraud and registration provisions of the federal securities laws. Without admitting or denying the allegations, Sproule and Crowd Machine have consented to judgments permanently enjoining them from violating these provisions and participating in future securities offerings, ordering undertakings to permanently disable the CMCT tokens and seek their removal from digital asset trading platforms, and as to Sproule, prohibiting him from serving as an officer or director of a public company, and ordering him to pay a $195,047 civil penalty. Disgorgement, prejudgment interest, and civil penalties as to Crowd Machine will be determined by the court at a later date.
Without admitting or denying the allegations, relief defendant Metavine Pty. Ltd., an affiliated Australian entity, has consented to a judgment ordering it to pay, on a joint and several basis with Crowd Machine, such disgorgement as the court orders against Crowd Machine, up to the amount it received, plus prejudgment interest thereon. The consented to judgments are subject to court approval.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.