SEC Files Lawsuit Against Operators of 'Unregistered' $33M Crowd Machine ICO

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Australian Craig Derel Sproule, alleging his company "fraudulently and unregistered" sold "digital asset securities" in an initial coin offering conducted in 2018.

Sproule’s company, Metavine, Inc., which ran an ICO for Crowd Machine (CMCT) from January to April 2018, sold unregistered securities and never made the project live, the SEC said in a Jan. 6 complaint. operations, and "made material misrepresentations about how it intends to use ICO proceeds."

In total, Sproule raised at least $33 million, but he now lacks "sufficient capital to continue operations," the SEC said. The reason for his lack of funds is at the heart of the SEC case.

Sproule agreed to terms barring him, Crowd Machine and Metavine from making any further securities offerings, according to the SEC's Jan. 6 announcement on the case. They must also "permanently deactivate CMCT tokens and seek to remove them from the digital asset trading platform." According to CoinGecko, CMCT can currently only be traded on HitBTC.

Sproule was barred from being an executive of a public company and ordered to pay a $195,047 fine.

While Sproule told investors that the proceeds of the ICO would be used to fund the development of a decentralized peer-to-peer network, the complaint states that $5.8 million in ICO funds were used as a loan or equity in a South African mining company.

So far, none of those funds have been recovered, nor has Sproule received any return on investment.

The indictment also details how CMCT tokens were supposed to work within the Crowd Computer ecosystem to pay device owners for using their computer power and to pay software developers for writing code. However, these tokens were never put to use in the ecosystem.

The SEC alleges that CMCT is an investment contract, classified as a security, and that Crowd Computer and Metavine did not register their sales with the Commission.

“Many courts have made clear that the offering and sale of digital assets such as CMCTs are investment contracts and, therefore, such digital assets are “securities” under the federal securities laws.”

The question of whether cryptocurrencies should be classified as securities or commodities has become a center of debate in some circles. SEC Chairman Gary Gensler has urged cryptocurrency companies to "talk" to him about the legal status of cryptocurrencies under securities laws.