On Wednesday, a Texas federal court judge ruled in favor of the U.S. Securities and Exchange Commission (SEC) in the case against cryptocurrency influencer Ian Balin. The case is part of the Sparkster saga that began in 2018.
A case against an influential cryptocurrency
In 2022, influencer and CEO of Token Metrics Ian Balina was charged with violating securities laws. The SEC charged Balina with his involvement in an initial coin offering (ICO) of an unregistered security.
According to the court documentssoftware development company Sparkster Ltd conducted an unregistered securities offering using the Sparkster token (SPRK) between April and July 2018. The ICO raised approximately $30 million from 4,000 US and international investors.
The Commission claims that Balina violated Art. 5 lit. a) and art. 5 lit. c) the Securities Act after selling and offering for sale unregistered securities through its Sparkster Pool. Moreover, they alleged that the cryptocurrency influencer failed to disclose “applications received” from purchasing and promoting the token, violating Section 7.
In the lawsuit, the SEC said Balina agreed to receive a 30% bonus from Sparkster for purchasing 43,333,333 SPRK tokens at a price of $0.15. This bonus was part of a deal between the cryptocurrency influencer and the company’s CEO, Sajjad Daya.
Daya and Balina allegedly negotiated a deal in May 2018 under which YouTubers would purchase and promote SPRK tokens on their platforms. In the following months, Balina supported his “Sparkster private sales whitelist” among Patreon and Telegram members.
However, the influencer did not fulfill the contract with the company when promoting the token. Instead, he stated that “it was not a paid endorsement” and that “Sparkster did not pay him” on various occasions.
The referee awards SEC victory
Balina stood by the SEC’s claims in November 2022. He argued that he “was defrauded by Sparkster,” adding that he lost money after purchasing the crypto tokens, as did the rest of the pool members.
He also denied receiving compensation for recommending SPRK tokens. The influencer claimed to have received a “bulk discount on a private pre-order purchase,” the same “discount typically received by other buyers in the industry.”
Moreover, the defendant requested that the Court “grant summary judgment in its favor” because SPRK tokens are not securities. Similarly, court documents show that the YouTuber found that “liability would not arise in the United States” because he was outside the country during the promotional period.
On May 22, Judge David Alan Ezra ruled in favor of the SEC. The Court awarded the Commission a partial victory and dismissed Balina’s motion for summary judgment.
Excerpt of Judge Ezra's ruling. Source: CourtListener
According to the document, the Court found that the influencer’s connections to the US were sufficient to show that he “intentionally targeted” American investors. This decision was made due to the exploit of US social media platforms and the greater participation of US investors in the Sparkster pool.
Judge Ezra also found that Balina violated securities laws because there was “sufficient evidence to show that Sparkster was seeking money from investors” and the STRK tokens met the Howey test.
Ultimately, the SEC failed to prove that the influencer violated Art. 7. The court found that there were factual inconsistencies as to whether there was a pre-existing agreement regarding remuneration in exchange for promotion. As a result, the court refused to resolve this issue in a default judgment.
Total crypto market cap is at $2.47 trillion in the weekly chart. Source: TOTAL on TradingView
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