SEC busts Crowd Machine ICO run by Craig Sproule

The Securities and Exchange Commission (SEC) has settled charges against the operators of Crowd Machine and Metavine for selling digital tokens in an initial coin offering (ICO).

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Crowd Machine was launched in early 2018 by Australian citizen Craig Sproule. However, the agency says that the company and its founder sold digital tokens, called CMCT, to US investors without registering their illegal $41 million securities offering.

The SEC claims that the offering ran afoul of securities laws because the vehicle being offered could be considered securities, and thus the principles should have registered with the commission as broker-dealers.

The SEC further alleges the ICO operators raised the funding between January and April 2018 after they misled investors that each token provides ownership in their cryptocurrency facility.

Sproule and Crowd Machine claimed that the funds would be used to finance a new technology that “democratizes” app development and removes the technical barriers associated with hosting and bringing any app to the market.

The defendants falsely advertises that the company has created a technology that allow anyone to create apps and also enables its existing software to run on a decentralized network of users’ own computers. Instead, they spent more than $5.8 million of ICO proceeds to invest in gold mining entities in South Africa.

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More penalties will be determined by the court

In addition to the fact that Sproule’s tokens are neither registered with the SEC nor qualified for an exemption to the registration requirements, he never disclosed to investors where their funds were actually spent.

“As alleged, Sproule and Crowd Machine misled investors about how they were using ICO proceeds, spending funds on an entirely unrelated scheme. We will continue to hold accountable issuers of digital asset securities who fail to provide fulsome and truthful disclosure to the public,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit.

The SEC’s complaint charges Sproule and Crowd Machine with violating the antifraud and registration provisions of the federal securities laws. They were also ordered to permanently disable the CMCT tokens and seek their removal from digital asset trading platforms.

The SEC orders impose financial penalties against the company and include undertakings to compensate harmed investors who purchased tokens in the illegal offerings. Without admitting or denying the allegations, Craig Sproule agreed to pay civil penalties of $195,047. Disgorgement, prejudgment interest, and civil penalties as to Crowd Machine will be determined by the court at a later date.

Since the crypto-boom, the SEC has periodically cracked down on a number of ICOs for fraudulent activity, while continues to warn investors of the potential perils of investing in the nascent sector. However, the regulator approved a few projects to file an application with the SEC to sell its tokens under the Regulation A+ exemption.