The U.S. Securities and Exchange Commission (SEC) is pressing charges against the founder of a cryptocurrency investment research firm in connection with an alleged backroom deal that saw him promote an initial coin offering (ICO) after receiving undisclosed incentives to do so.
In a complaint filed Monday, SEC alleges that Ian Balina, a crypto influencer and CEO of Token Metrics, received a large sum of the digital token SPRK in 2018 ahead of the ICO from the company that created the coin, Sparkster, Ltd.
According to the SEC, the undisclosed agreement saw Balina invest US$5 million in SPRK, receiving a 30% bonus of tokens with his purchase. Without properly disclosing details of the agreement, the SEC claims Balina later promoted the coins on his social media platforms and website.
Balina is a self-described blockchain and crypto investor, advisor and evangelist, with over 140,000 Twitter followers and over 110,000 YouTube subscribers to date. He also began operating a public website called ianbalina.com in 2017, which published a free ICO spreadsheet that ranked what he considered the top ICOs of the year.
The SEC case filing references an internal chat dated April 4, 2018, in which Sparkster’s CEO Sajjad Daya wrote, “Ian Balina [sic] took an ICO from 12 million tokens sold to 36 million sold in 1 day . . . Because it came up high on his spreadsheet … Getting Ian is gonna be easy.”
The SEC also alleges that before paying for his SPRK tokens, Balina had agreed to resell them to an investment pool of about 50 people, which he organized on Telegram. Both Sparkster’s agreement to sell SPRK to Balina and Balina’s resale of the tokens occurred before the actual ICO and required registrations with SEC that were never filed, the agency said.
After receiving Balina’s endorsement, Sparkster’s initial offering between April and July 2018 raised approximately US$30 million from nearly 4,000 investors. The SEC stated that a number of buyers, including Balina and his investor pool, were American residents, despite Sparkster’s official paperwork stating that U.S. residents were not eligible to purchase SPRK.
After the initial sale, Sparkster prohibited the use and transfer of the tokens for almost a year. When the coin was listed on an exchange, it was met with issues concerning its smart contract. The existing SPRK tokens were swapped for new tokens, with the value of SPRK dropping precipitously, according to the SEC.
The agency sent a cease-and-desist order to Sparkster and its CEO Sajjad Daya on Monday in relation to the unregistered offer and sale of the SPRK tokens. The company immediately settled, agreeing to pay US$35 million into a fund for harmed SPRK investors and to request removal of all remaining tokens from exchanges, SEC announced in a statement.
While the SEC’s complaint didn’t identify Balina’s firm, he founded Token Metrics in 2018, an Austin-based firm that claims to provide AI-based cryptocurrency ratings and price predictions.
On his verified Twitter account, Balina said he denied a settlement with the SEC and linked to an official statement responding to the charges. The statement refers to the charges as the first time a private pre-sale purchase of a digital asset token has been accused of being “compensation” in exchange for publicity.
The statement also claims that Balina bought US$106,915.50 — not US$5 million — worth of SPRK tokens and helped publicize Sparkster only after the company won a pitch competition he hosted and helped judge in 2018.
“Mr. Balina did not receive compensation, and there is ZERO proof of said allegations. Nor did Mr. Balina profit from his purchase of Sparkster tokens. If anything, Mr. Balina is a potential victim of fraud and misrepresentation from the Sparkster team, like other investors,” the statement said.