Anyone who doubted the U.S. Securities and Exchange Commission isn’t serious about expanding its scope across crypto might want to check out a lawsuit the agency filed this week.
On Monday, the SEC alleged crypto influencer Ian Balina sold unregistered securities in 2018 in the form of SPRK tokens. The agency claims that because Ethereum transactions occurred in the U.S. they are subject to U.S. securities laws.
The suit, which was filed in U.S. District Court in Austin, Texas, said nodes that confirm and order transactions “are clustered more densely in the United States than in any other country.”
Crypto supporters immediately cried foul. “Rather than take on a simple case, the SEC is trying to use this to set precedent claiming that ALL OF CRYPTO is under SEC’s jurisdiction,” Adam Cochran, partner at Cinneamhain Ventures, said on Twitter. “This is an absolutely unacceptable overstep that will have to be pushed back against aggressively.”
The lawsuit is among several targeting malfeasance in so-called initial coin offerings, or ICOs, during their boom in 2018. During initial coin offerings, companies issue newly minted tokens to fund nascent projects.
According to the SEC, Cayman Islands-based company Sparkster, Ltd., conducted an unregistered securities offering “of crypto asset securities” called SPRK tokens in 2018. The SPRK ICO raised almost $30M from some 4,000 investors, per the SEC.
Balina was one of several early investors to purchase SPRK, which he did with a 30% bonus in exchange for his promotion of the token on his popular YouTube channel, the SEC alleges. Balina did not disclose his deal with Sparkster while promoting the tokens, the SEC said.
Separately, Balina organized an investing pool of 50 people, including some in the United States, to whom he sold his allocation of SPRK.
“Balina purchased SPRK tokens from Sparkster in an unregistered offering, with a view to distributing the tokens in his own offering,” the SEC argues.
Balina took to Twitter to defend himself this week.
“Excited to take this fight public. This frivolous SEC charge sets a bad precedent for the entire crypto industry,” he wrote. “If investing in a private sale with a discount is a crime, the entire crypto VC space is in trouble. Turned down settlement so they have to prove themselves.”
The crypto community decried the SEC’s categorization of Ethereum transactions as US-based.
“He communicated in the English language, which is most densely spoken in the United States,” Leighton Cusack, founder of crypto protocol PoolTogether, wrote sarcastically on Twitter. “As a result, this crime took place in the United States.”