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ICO Promoter Ian Balina Faces Lawsuit From SEC for Unregistered Securities Offering

3 mins
Updated by Ryan James
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In Brief

  • Ian Balina, founder of token metrics has been accused by the SEC for not disclosing key facts surrounding a 2018 ICO.
  • Balina denies the charges.
  • He first rose to fame in 2017 as an ICO investment guru.
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The U.S. Securities and Exchange Commission charges Token Metrics CEO Ian Balina with offering unregistered securities in 2018.

According to the SEC complaint, Balina promoted SPRK tokens while failing to disclose compensations he received from the issuer of the crypto asset, Sparkster Ltd. Furthermore, the SEC alleges that Balina signed a contract binding him to invest $5 million in Sparkster’s Initial Coin Offering in return for a 30% bonus and to promote the asset on social media. Balina had failed to disclose the 30% bonus to the SEC, according to the agency.

He also allegedly failed to file a registration statement with the SEC for selling the SPRK tokens to members of an investment pool.

Balina, a 33-year-old Ugandan with American citizenship, rose to fame after publicizing a spreadsheet in 2017 with information on all his investments that were reportedly accessed by over one million investors monthly. This initiative morphed into Token Metrics, a crypto investment research company, over which he currently serves as chief executive. The spreadsheet dubbed the “ICO spreadsheet” contained a list of what Balina deemed were the most lucrative Initial Coin Offerings of a particular year.

SEC Allegations against Balina

An initial coin offering is the cryptocurrency analog of an initial public offering and is used to raise funds for the issuer of a new cryptocurrency. The issuer offers the new crypto assets in exchange for bitcoin, ether, or fiat currency and often relies on the promotional efforts of prominent social media influencers.

According to the SEC, Sparkster’s Initial Coin Offering occurred in 2018 on the Ethereum blockchain. The company’s whitepaper stated that the funds raised would fund a “no-code” software programming application, an MIT-inspired initiative designed to teach coding to children. The application would run on a type of decentralized cloud.

Sparkster tapped Balina to promote the ICO early on. An internal Sparkster chat revealed the CEO’s intention. “Ian Belina [sic] took an ICO from 12 million tokens sold to 36 million sold in 1 day . . . Because it came up high on his spreadsheet . . . Getting Ian is gonna be easy.”

Following Sparkster’s winning of a contest hosted by Balina, Balina asked Sparkster to grant him a larger allocation of SPRK than was allowed by other investors in the region of $3,500,000. Subsequent negotiations resulted in Balina signing a contract to purchase $5,000,000 in SPRK which included a 30% SPRK bonus. The influencer then earmarked SPRK as the top ICO for that year on his spreadsheet.

According to the SEC, Balina failed to comply with federal securities laws by not disclosing that he received funds from a securities issuer with the associated amount. He also fell afoul of federal law after offering roughly 50 people a share in his bounty of SPRK by contributing ETH to an investment pool, a move dubbed by the SEC as an unregistered securities offering.

The SEC requests a judgment forbidding Balina from violating Section 17(b) of the Securities Act [15 U.S.C. § 77q(b)] and participating in securities sales. Further, the agency advocates the disbursement of fraudulently-acquired funds and the payment of civil penalties.

Show me proof, says Balina

“Excited to take this fight public. This frivolous SEC charge sets a bad precedent for the entire crypto industry. 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,” Balina tweeted in response to the charges.

In a 2017 interview, Balina said, “From my YouTube channel, I got a big following…But nobody had really distilled ICO investing in a very thorough yet simple manner.”

Until now, the SEC had not flagged any of Balina’s earlier ICO activities.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...