On Thursday, the Securities and Exchange Commission (SEC) announced that it had initiated proceedings against an Australian man and two companies he founded, Crowd Machine Inc. and Metavine Inc. The Northern District of California complaint alleges that Craig Sproule and the companies made materially false and misleading representations related to the sale of digital assets which they called “Crowd Machine Compute Tokens” (CMCTs).
The lawsuit said that between January and April 2018, the individual and company defendants, alongside their subsidiaries, raised more than $33 million from hundreds of investors domestically and abroad through an unregistered initial coin offering (ICO). In addition, the SEC alleges that the defendants misrepresented how the proceeds would be used.
According to the defendants claimed that investor funds would be put to developing a global, decentralized peer-to-peer network, or “Crowd Computer” that would purportedly run “no-code” application-development software from a network of user devices instead of traditional centralized servers. In addition, the defendants said that CMCTs would be used to remunerate device owners for the use of their additional processing power and to pay developers for making source code available for use in new, custom applications.
In fact, the SEC contends that the defendants “never operationalized the Crowd Computer, CMCT purchasers were never able to use the tokens within the Crowd Computer ecosystem, and the secondary market for CMCTs all but disappeared, along with any value that CMCTs might once have held for token holders.” The complaint adds that the defendants surreptitiously funnelled more than $5.8 million to South African gold-mining companies during the ICO and thereafter.
The complaint alleges that, to date, defendants have recovered next to none of the misappropriated millions and the mining operations have returned no revenue. The complaint states several claims for relief for both fraud and the offer or sale of unregistered securities.
The SEC’s press release says that without admitting or denying fault, the parties have agreed to judgments, subject to court approval. Among other prohibitions, the defendants must permanently disable the CMCT tokens and facilitate their removal from digital asset trading platforms.
Sproule faces an officer and director bar and must pay a nearly $200,000 civil penalty. Finally, the companies must pay, jointly and severally, disgorgement, interest and penalties to be determined at a later date.