SEC Triumphs Over Crypto YouTuber Ian Balina in Unregistered ICO Case

A federal judge has ruled against Ian Balina, finding that he violated securities laws by promoting and selling unregistered Sparkster (SPRK) tokens to U.S. investors.

In a significant legal victory for the U.S. Securities and Exchange Commission (SEC), a Texas federal court judge has ruled that crypto YouTuber Ian Balina violated securities laws by participating in an unregistered initial coin offering (ICO) of Sparkster (SPRK) tokens. The court determined that Balina’s actions involved the sale of unregistered securities, impacting U.S. investors.

On May 22, Judge David Alan Ezra issued an order stating, “The Court has determined, as a matter of law, that U.S. securities laws are applicable to Balina’s actions and that SPRK tokens qualify as securities.” This ruling grants a partial victory to the SEC, which had filed a lawsuit against Balina in 2022.

The court concluded that the SPRK tokens constituted an investment contract under the Howey test, wherein investors pool money into a common enterprise with the expectation of profits driven by the efforts of others. The judge concurred with the SEC’s stance that Balina “purposefully targeted United States investors” and rejected his summary judgment claim that the SEC lacked jurisdiction because the sales occurred overseas.

However, the SEC did not succeed in all its claims. The court found inconsistencies in the SEC’s assertion that Balina failed to disclose a compensation agreement with Sparkster CEO Sajjad Daya.

According to the SEC’s lawsuit, Balina purchased $5 million worth of SPRK tokens between May and July 2018. He then promoted these tokens across various social media platforms and created a Telegram group to form an investment pool. The SEC alleged that Balina did not disclose a 30% bonus he received for purchasing the tokens, which he claimed was merely a standard volume discount in a private presale deal.

Sparkster, a blockchain application development platform, conducted its SPRK token ICO from April to July 2018, marketing itself as a “low-code” solution for developers. In September 2022, Sparkster settled with the SEC, agreeing to destroy its remaining SPRK tokens and delist them from trading platforms without admitting or denying the regulator’s claims. The SEC also mandated Sparkster to pay $30 million in disgorgement, $4.6 million in interest, and a $500,000 civil penalty.

Balina has not yet responded to requests for comment on the ruling.

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