SEC Charges Individuals with Cryptocurrency Offering Fraud

On Sept. 11, the Securities and Exchange Commission (SEC) announced that it was filing charges against Atlanta-based individuals who allegedly perpetrated fraud in connection with a cryptocurrency initial coin offering (ICO). The Northern District of Georgia complaint accused film producer Ryan Felton, the individual accused of the most wrongdoing, of violating various provisions of the federal securities laws, according to an SEC press release.

The defendants are Felton, rapper and actor Chris Harris (also known as T.I. or Tip), and three other individuals involved in the film industry. Felton’s two companies, FLiK and CoinSpark, were also implicated in the proceedings. The complaint contended that between August 2017 and June 2018 Felton, through his entities, engaged in fraudulent and unregistered offerings of digital asset securities, making over $3 million in illegal profits from investors.

Specifically, Felton agreed to build a streaming platform for the cryptocurrency FLiK and a trading platform for CoinSpark. Instead, he allegedly took the investors’ money for himself and kept invested FLiK tokens, and sold them at a profit of $2.2 million. According to the complaint, Felton used the funds to purchase luxury goods including a million-dollar home, a Ferrari, and diamond jewelry for his wife.

T.I.’s social media manager, defendant William Q. Sparks, Jr., was accused of offering and selling FLiK tokens on T.I.’s social media accounts, while the other two defendants were charged with promoting CoinSpark tokens “without disclosing they were promised compensation in return,” according to the SEC’s press release.

These three defendants entered into settlements with the SEC, whereby they agreed to pay civil penalties and not participate in offerings or sales of digital-asset securities for at least five years. The SEC’s motion for entry of final judgment is currently pending.

T.I. was accused of offering and selling securities without having a “registration statement filed or in effect or qualifying for an exemption from registration,” according to an SEC cease-and-desist order filed on Sept. 11. For his transgressions, T.I. was ordered to pay $75,000 and agree to the same conduct-based injunction as the other three defendants.

According to the press release, a criminal case brought by the U.S. Attorney’s Office is proceeding against Felton. It also noted that the SEC’s Office of Investor Education and Advocacy issued a bulletin that advises investors contemplating celebrity-endorsed investments to proceed with caution.