Cryptocurrency ‘entrepreneurs’ beware: US regulators haven’t forgotten about your dodgy initial coin offering (ICO). The SEC has just charged the head of a crypto startup for allegedly cheating investors out millions of dollars by lying about non-existent partnerships.
The SEC’s complaint claims that between August 2017 and April 2018, UnitedData founder Eran Eyal fraudulently sold unregistered securities via an ICO for “Shopin Tokens.”
Capital raised by selling Shopin Tokens was supposed to be used to create shopper profiles that track purchase histories across online retailers, which were purportedly to be maintained by a blockchain.
According to the SEC, Shopin never created a functional platform, despite raising $42 million. Authorities allege that both Eyal and Shopin repeatedly misrepresented “partnerships” with well-known retailers, as well as the supposed involvement of a prominent figure in the digital asset industry.
They’ve also claimed Eyal misappropriated investor funds for his own needs — including at least half a million dollars that he allegedly used for rent, entertainment, shopping, and even a dating service.
“[T]he SEC seeks to hold Eyal and Shopin responsible for scamming innocent investors with false claims about relationships and contracts they had secured in support of a blockchain-based universal shopper profile,” said the head of the SEC’s New York office.
They added: “Retail investors considering an investment in a digital asset that meets the definition of a security must be afforded the same truthful disclosures as in any traditional securities offering.”
The SEC has charged Eyal and Shopin with violating the antifraud and registration provisions of US federal securities laws. If successful in its suit, an officer-and-director bar would be placed on Eyal, and he would also be restricted from participating in any future offering of digital asset securities.
Permanent injunctions, disgorgement with interest (which means repaying investors), and civil penalties are also being sought. Investors who contributed funds to the Shopin ICO are advised to contact the SEC, presumably for potential refunds.
With this action, there’s no doubt plenty of goons who raised money by hyping similarly non-existent “partnerships” getting very sweaty right about now. The SEC hasn’t forgotten.