Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 1 of 22
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`Adam B. Gottlieb (New York Bar No. 4399135)
`gottlieba@sec.gov
`(202) 551-8299
`
`Attorney for Plaintiff
`U.S. SECURITIES AND EXCHANGE COMMISSION
`100 F Street, NE
`Washington, DC 20549
`Facsimile: (301) 847-4705
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN JOSE DIVISION
`
`U.S. SECURITIES AND EXCHANGE
`
`
`COMMISSION,
`
`
`
`
`
`Plaintiff,
`
`
`Case No. ___________________
` v.
`
`
`COMPLAINT
`CROWD MACHINE, INC., METAVINE, INC, and
`
`CRAIG DEREL SPROULE,
`
`
`
`
`Defendants,
`
`and
`
`METAVINE PTY. LTD.,
`
`
`
`Relief Defendant.
`
`
`
`
`
`Plaintiff Securities and Exchange Commission (“SEC”), for its Complaint against
`defendants Crowd Machine, Inc., Metavine, Inc., and Craig Derel Sproule (collectively,
`“Defendants”), and relief defendant Metavine Pty. Ltd., alleges as follows:
`SUMMARY OF THE ALLEGATIONS
`
`Between January and April 2018, defendant Craig Derel Sproule and his
`company, Metavine, Inc., together with its subsidiaries Crowd Machine, Inc. and Crowd
`Machine SEZC, raised more than $33 million from hundreds of investors in the United States
`and abroad through a fraudulent and unregistered “initial coin offering” or “ICO” of digital asset
`securities, which they called “Crowd Machine Compute Tokens” or “CMCTs.”
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`SEC v. Crowd Machine, Inc., et al.
`COMPLAINT
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 2 of 22
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`Defendants represented that ICO proceeds would be used to fund the development
`of a new technology—a “global decentralized” peer-to-peer network, or “Crowd Computer”—
`that Defendants claimed would run their existing “no-code” application-development software
`from a network of users’ own devices instead of traditional centralized servers. Defendants
`further represented that, once sold, CMCTs would be used by users to compensate device owners
`for the use of their surplus processing power, as well as to pay software developers for making
`available source code that users could compile into custom applications “with unparalleled
`speed.”
`
`
`Defendants also represented that they would market this new technology, grow a
`“community” of CMCT holders, and work to increase demand for the tokens, thereby increasing
`the secondary market value of CMCTs on digital asset trading platforms.
`
`In reality, 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.
`
` To make matters worse, Defendants materially misrepresented how it intended to
`use ICO proceeds. Beginning during the ICO, Defendants sent more than $5.8 million to gold-
`mining companies in South Africa, purportedly in the form of loans or in exchange for equity
`interests in these mining operations.
`
`To date, Defendants have recovered almost none of the $5.8 million they
`misappropriated, and the South African gold mining operations have returned no revenue.
`
`Despite claiming total ICO proceeds of over $40 million, at least $33 million of
`which Defendants actually collected, Defendants now purport to lack sufficient capital to fund
`continued operations, in no small part because of these undisclosed payments to gold-mining
`companies with no connection to the underlying project for which Defendants purportedly
`conducted the ICO in the first place.
`
`The CMCTs Defendants offered and sold to investors were “securities” under the
`federal securities laws, which define “security” to include various investment vehicles, such as
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`SEC v. Crowd Machine, Inc., et al.
`COMPLAINT
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 3 of 22
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`stocks, bonds, and “investment contracts.” Like the offer and sale of CMCTs, investment
`contracts are transactions involving the investment of money in a common enterprise with a
`reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of
`others. Numerous courts have found specifically that offers and sales of digital assets like
`CMCTs are investment contracts, and therefore that such digital assets are “securities” under the
`federal securities laws.
`
`Defendants never filed with the SEC a registration statement for their offer and
`sale of CMCTs, and this offer and sale did not qualify for an exemption from the registration
`requirements of the federal securities laws.
`
`VIOLATIONS
`
`By virtue of the foregoing conduct and as alleged further herein, Defendants have
`violated Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 (“Securities Act”) [15
`U.S.C. §§ 77e(a), 77e(c), and 77q(a)], Section 10(b) of the Securities Exchange Act of 1934
`(“Exchange Act”) [15 U.S.C. §§ 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
`
`Unless Defendants are restrained and enjoined, they will engage in the acts,
`practices, transactions, and courses of business set forth in this Complaint or in acts, practices,
`transactions, and courses of business of similar type and object.
`
`NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT
`
`The SEC brings this action pursuant to the authority conferred by Section 20 of
`the Securities Act [15 U.S.C. § 77t(b)] and Sections 21(d)(1) and (d)(5) of the Exchange Act [15
`U.S.C. §§ 78u(d)(1) and (d)(5)].
`
`The SEC seeks final judgments:
`(a) permanently enjoining Defendants from violating the federal securities laws
`and rules they are alleged by this Complaint to have violated;
`(b) permanently enjoining Defendants from participating, directly or indirectly,
`including, but not limited to, through any entity controlled by them, in any offering of
`securities, including any digital asset security;
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`SEC v. Crowd Machine, Inc., et al.
`COMPLAINT
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 4 of 22
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`(c) imposing upon Defendants civil money penalties pursuant to Section 20(d) of
`the Securities Act [15 U.S.C § 77t(d)] and Section 21(d)(3) of the Exchange Act [15
`U.S.C. § 78u(d)(3)];
`(d) requiring Defendants Crowd Machine, Inc. and Metavine, Inc. and Relief
`Defendant Metavine Pty. Ltd., jointly and severally, to disgorge ill-gotten gains and to
`pay prejudgment interest thereon;
`(e) permanently prohibiting Sproule from serving as an officer or director of any
`company that has a class of securities registered under Exchange Act Section 12 [15
`U.S.C. § 78l] or that is required to file reports under Exchange Act Section 15(d) [15
`U.S.C. § 78o(d)], pursuant to Securities Act Section 20(e) [15 U.S.C. § 77t(e)] and
`Exchange Act Section 21(d)(2) [15 U.S.C. § 78u(d)(2)];
`(f) requiring Defendants Crowd Machine, Inc. and Metavine, Inc.to undertake to
`(i) permanently disable all Crowd Machine Compute Tokens (“CMCTs”) in their
`possession or control within 10 days of the entry of the judgment, including any CMCTs
`owned by, beneficially owned by, or held in the name of Sproule; (ii) publish notice of
`the judgments on their websites and social media channels, in a form not unacceptable to
`Commission staff, within 10 days of the entry of the judgment; and (iii) issue requests to
`remove CMCTs from any further trading on all digital asset trading platforms where
`CMCTs are or may be trading, including any that they previously contacted to request
`trading of CMCTs, and publish notice of such requests on their websites and social media
`channels, in a form not unacceptable to Commission staff, within 10 days of the entry of
`the judgment; and
`(g) requiring Sproule to undertake to cooperate with, and not object to, efforts by
`Crowd Machine, Inc. and Metavine, Inc. to disable any CMCTs owned by, beneficially
`owned by, or held in Sproule’s name.
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`SEC v. Crowd Machine, Inc., et al.
`COMPLAINT
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 5 of 22
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`JURISDICTION AND VENUE
`
`This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331, Sections
`20(b), 20(d), and 22 of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and 77v], and Sections
`21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
`
`Defendants, directly and indirectly, have made use of the means or
`instrumentalities of interstate commerce or of the mails in connection with the transactions, acts,
`practices, and courses of business alleged herein.
`
`Venue in this district is proper pursuant to Section 22(a) of the Securities Act [15
`U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. §78aa(a)]. At all relevant
`times, defendants Metavine, Inc. and Crowd Machine, Inc. were headquartered in this District.
`Many of Defendants’ transactions, acts, practices, and courses of business constituting the
`violations alleged herein also occurred within this district.
`
`DEFENDANTS
`Craig Derel Sproul, age 55, is a citizen of Australia. Sproule is the founder,
`
`principal, and controlling shareholder of Metavine, Inc.
` Metavine, Inc. was incorporated in 2013 in Delaware as “Wasp Software Inc.,”
`which changed its name to Metavine, Inc. in 2014. Its principal place of business is 100
`Enterprise Way, Suite B104, in Scotts Valley, California. Metavine, Inc. is controlled by Craig
`Sproule, who holds approximately 30% of the equity in Metavine, Inc. and is its largest
`shareholder. Metavine, Inc.’s remaining equity appears to be divided primarily among private
`equity firms and their privately held investment funds.
`Crowd Machine, Inc. was incorporated in Delaware in 2018 and is owned
`
`entirely by Metavine, Inc. It shares its principal place of business with Metavine, Inc., in Scotts
`Valley, California.
`
`
`RELIEF DEFENDANT
` Metavine Pty. Ltd. is an Australian proprietary limited company based in
`Queensland, Australia, and is owned entirely by Metavine, Inc. Metavine Pty. Ltd. has been
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`SEC v. Crowd Machine, Inc., et al.
`COMPLAINT
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 6 of 22
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`registered to conduct business in Australia under the names Metavine Australia and Crowd
`Machine.
`
`RELATED ENTITY
`Crowd Machine SEZC is a Cayman Islands special economic zone company
`
`that is owned entirely by Metavine, Inc. Crowd Machine SEZC is no longer operational and is
`currently subject to voluntary liquidation proceedings under Cayman Islands law under the
`control of independent, third-party liquidators.
`
`FACTUAL ALLEGATIONS
`A. Background on Digital Tokens
`
`An “initial coin offering” or “ICO” is a fundraising event in which unique digital
`“coins” or “tokens” like CMCTs are offered and sold in exchange for consideration (often in the
`form of virtual currency—most commonly Bitcoin and Ether—or fiat currency, such as U.S.
`dollars). The tokens are issued and distributed on a “blockchain,”1 and may entitle its holders to
`certain rights related to a venture underlying the ICO, such as rights to profits, shares of assets,
`rights to use certain services provided by the issuer, and/or voting rights.
`
`ICOs are typically announced and promoted through public online channels and
`promotional events and conferences. To participate, investors are generally required to transfer
`funds to the issuer’s address, online wallet, payment processor, or other account.
`
`At some point after the completion of the ICO, the issuer will distribute the tokens
`to the participant’s unique “wallet” address on the blockchain. Tokens are sometimes transferred
`
`                                                            
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`A blockchain is a type of distributed ledger or peer-to-peer database that is spread across a
`
`computer network and records all transactions in the network in theoretically unchangeable, digitally
`recorded data packages called “blocks.” Each block contains a batch of records of transactions, including
`a timestamp and a reference to the previous block, so that the blocks together form a chain. The system
`relies on cryptographic techniques for securely recording transactions. A blockchain can be shared and
`accessed by anyone with appropriate permissions. Some blockchains can record what are called “smart
`contracts,” which are, essentially, computer programs designed to execute the terms of a contract when
`certain triggering conditions are met.
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 7 of 22
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`between users, and may also be “listed” on online digital asset trading platforms, popularly
`known as virtual currency, cryptocurrency, or “crypto” exchanges, which facilitate secondary
`market transactions in which the tokens may be traded for other digital assets or bought with and
`sold for fiat currencies.
`
`B. Defendants’ Offer and Sale of CMCT Tokens
`
`Established in 2013 by Sproule, Metavine, Inc. is a technology company that
`developed and distributed “zero-code” software intended to enable customers without computer
`coding experience to assemble custom computer applications using preexisting components.
`
`In late-2017 and early-2018, Sproule established two new companies—Crowd
`Machine SEZC and Crowd Machine, Inc., respectively—solely for the purpose of conducting an
`initial coin offer. These new companies were owned entirely by, and operated as divisions of,
`Metavine, Inc., with no separate offices or employees, and employees of all three entities held
`themselves out as working for what they themselves referred to as the “Crowd Machine Group”
`(or “CMG”) without drawing any distinctions between the three legal entities.
`
`In November 2017, Defendants began marketing the initial coin offering of
`Crowd Machine Compute Tokens or CMCTs as an effort to fund the creation and development of
`a new technology—a decentralized “Crowd Computer”—to host Metavine’s zero-code software
`and promote the development and exchange of software components using blockchain
`technology.
`
`At all relevant times, defendants Metavine, Inc., Crowd Machine, Inc., and Crowd
`Machine SEZC did business under the umbrella name “Crowd Machine,” and Defendants drew
`no substantive distinction between actions undertaken on behalf of Metavine, Inc., Crowd
`Machine, Inc., and/or Crowd Machine SEZC in connection with the CMCT ICO.
`
`Defendants used CMG’s website, hosted within the United States and accessible
`at http://www.crowdmachine.com to internet users worldwide (including user in the United
`States), to promote the CMCT ICO and distribute information and documentation to prospective
`investors.
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 8 of 22
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`Every page on CMG’s website and nearly every document made available
`through this website displayed the same logo, copied below, which consisted of a multicolored
`circular design adjacent to “Crowd Machine” in stylized text, without reference to any specific
`legal entity or actual corporate name.
`
`
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`The “Terms of Use” and “Privacy Policy” pages on CMG’s website began with
`the following definition: “Crowd Machine SEZC, Crowd Machine, Inc., and Metavine, Inc.
`(collectively ‘Crowd Machine’, ‘we’, ‘us” or ‘our’),” leaving no doubt that all three entities were
`operated jointly and did business under the general name, “Crowd Machine.”
`
`The more conversational “Frequently Asked Questions” page on CMG’s website
`emphasized this point by including the following question, without any reference to the actual
`legal names of the underlying entities: “Why is the name of the company Crowd Machine?” In
`response, CMG’s website stated, “The name reflects our commitment to enabling everyone in
`the world, regardless of their location, to be rewarded for their participation in the decentralized
`app economy.”
`
`As such, all relevant conduct of CMG personnel, including Sproule—who
`directed and controlled all of CMG’s activities—was undertaken on behalf of, and attributable
`to, Crowd Machine, Inc., Crowd Machine SEZC, and Metavine, Inc., without distinction, doing
`business as “Crowd Machine.”
`
`According to “white papers” first posted to CMG’s website in November 2017
`and authored by Sproule to “outline[] the current and future developments of Metavine. Inc.” and
`solicit ICO investors, the “Crowd Computer,” as conceived, would solve two problems: “The
`need for software apps is outpacing their creation, while at the same time, device memory and
`processor capacity remains largely underutilized.”
`
`As marketed to investors, CMCTs would be used within the “Crowd Machine
`Ecosystem” to reward “device owners participating on the Crowd Computer . . . each time their
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 9 of 22
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`devices’ computing resources are utilized to run app content, as well as software “developers
`who place Patterns or apps into Crowd Share . . . each time that content is executed on the Crowd
`Computer.”
`
`Although Metavine’s zero-code software was operational and in use at the time of
`the ICO, it was hosted on centralized servers and users relied on application building blocks
`developed and made available by Metavine, Inc. The decentralized “Crowd Computer,” which
`would purportedly incentivize the creation and exchange of new application components by
`allowing contributors to earn CMCTs, did not exist and, therefore, CMCTs had no use at the time
`they were offered.
`
`Defendants also marketed the CMCT ICO through messaging applications, like
`Telegram, and on social media platforms hosted in and accessible to users in the United States,
`including Facebook, Twitter, Medium, and YouTube.
`
`A running list of all social media platforms Defendants used to market the CMCT
`ICO was compiled by CMG personnel and regularly broadcast to all members of the “Official
`Crowd Machine Telegram Group.”
`
`This social media list was also “pinned” within the Telegram channel to keep it
`readily accessible to interested parties. Copied below is a Telegram post by one of CMG’s
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 10 of 22
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`authorized Telegram administrators using the Telegram username “Crowd Machine,” with an
`example of this social media list from December 6, 2017.
`
`
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`CMG personnel, including Sproule, also participated in and hosted live in-person
`events in the United States, as well as live-streamed “webinars” to promote the CMCT ICO and
`generate interest in the underlying technology.
`
`As described in the white papers, the CMCT ICO would be held in two phases.
`Between January 28 and April 20, 2018, in what Defendants called a “private presale”
`(hereinafter, the “First Phase”), CMG and Sproule would offer CMCTs through “Simple
`Agreements for Future Tokens” (“SAFTs”). These SAFTs, which Defendants have
`acknowledged were investment contracts, entitled investors to an unspecified allotment of
`CMCTs, once issued, in exchange for the a payment of Ether, Bitcoin, or U.S. dollars.
`
`Pursuant to the terms of the SAFTs they executed, First Phase investors would
`receive their token allotments once tokens were distributed to the general public, with the
`amount of their allotment to be determined based on an “exchange rate” or token valuation to be
`determined twenty days after public token distribution.
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 11 of 22
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`Notably, First Phase investors were allocated “bonus” CMCTs, calculated as a
`percentage of their total purchase, which ranged from 100% to 400% based on the date of their
`investment. In other words, investors who executed SAFTs early enough to receive a 400%
`bonus were promised four additional CMCTs for every one CMCT they paid for. These bonuses
`effectively slashed the per-token price paid by First Phase investors as compared with the price
`paid by later purchasers.
`
`At the same time, between April 1 and April 20, 2018, CMG and Sproule also
`began offering and selling CMCTs on less favorable terms in what they called a “public presale”
`(hereinafter, the “Second Phase”).
`
`Purchasers in the Second Phase did not execute SAFTs, and those who purchased
`tokens within the first ten days received a bonus, which, at 50%, was significantly lower than the
`bonuses awarded to First Phase purchasers. Thus, Second Phase investors paid up to five times
`the price for each CMCT as did early First Phase investors.
`
`In an apparent effort to avoid or circumvent the registration requirements of the
`federal securities laws, Defendants claimed publicly that the First Phase of the ICO was limited
`to foreign investors and accredited investors in the United States. Defendants also claimed
`publicly that participation in the First Phase required a minimum investment of $100,000. In
`reality, neither of these claims were true.
`
`To secure the bonuses offered to First Phase investors, groups of investors—
`known in the digital asset community as “ICO Pools”—pooled resources to meet the $100,000
`threshold and transferred them to accredited investors who then purchased CMCTs on their
`behalf in the First Phase of the ICO.
`
`These ICO pools included U.S. investors, who were not required to and did not
`verify their identities or establish their accredited status before investing in the ICO.
`
`Defendants were aware that investors representing ICO Pools purchased CMCTs
`in the First Phase of the ICO on behalf of their underlying investors, but did not require or even
`request documentation to ascertain or confirm the underlying investors’ identities or their
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 12 of 22
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`accredited status. In some instances, CMG employees and agents knowingly solicited and
`facilitated investments by these ICO pools.
`
`In fact, Sproule himself served as the representative of at least two ICO Pools, and
`as such, he collected funds, executed SAFTs, and received CMCTs on behalf of the individual
`investors, to whom he subsequently distributed them. Neither Sproule nor other CMG
`employees or agents required or requested from the underlying investors in these ICO Pools
`documentation to ascertain or confirm their identities or accredited status. Instead, Sproule
`provided CMG only with an image of his passport to prove his own identity and documents
`establishing his own accredited status.
`
`In the Second Phase, neither CMG nor Sproule purported to limit participation to
`accredited investors, and they made no public statements even suggesting that U.S. investors
`were to be excluded. In fact, CMG personnel repeatedly wrote in CMG’s Telegram channel that
`U.S. investors could participate in Phase 2 of the ICO, regardless of accredited status.
`
`In total, Defendants claimed to have raised the equivalent of USD $40.7 million
`through the sale of CMCTs to over 900 investors ICO, nearly all of which came from First Phase
`participants.
`
`In addition, $7.25 million of the proceeds CMG purportedly raised during the ICO
`was attributed to a single purchase—by far, the largest single purchase by any ICO investor—by
`a Malaysian gold mining company, but only $250,000 was actually collected from this purchaser.
`The remaining $7.25 million, which CMG appears to have extended to the purchaser in credit,
`was never received, and the corresponding CMCTs were never distributed.
`
`Thus, actual proceeds from CMCT sales appear to have been less than the $40.7
`million that CMG and Sproule claimed to have raised. Based on the market values of ETH and
`BTC at the time of the ICO, CMG actually collected the equivalent of only USD $33.5 million.
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 13 of 22
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`C. Purchasers Had a Reasonable Expectation of Future Profits Derived From the
`Entrepreneurial Efforts of CMG and Sproule
`
`
`Defendants’ offering materials, including two versions of a document titled
`“Crowd Machine Compute Token (‘CMCT’) Sale Structure” aimed at First Phase and Second
`Phase investors, represented that ICO proceeds would be used for “[s]ustaining engineering and
`feature enhancement of the [Crowd Computer technology], [Development of a global developer
`community, [s]ales and marketing, [p]roduct and community support, [and[ [o]ther normal
`business functions, and was accompanied by the following graphic:
`
`
`
`
`In these and other documents, Defendants emphasized that the “success of the
`project” was dependent on the “sales and marketing” efforts of CMG’s management and
`employees to “establish[] a recognized brand to engender global community participation” and
`“promote the project and product consumption,” which would increase demand for CMCTs.
`
`CMG explicitly compared its project to Amazon Web Services and Microsoft
`Azure, and then projected the future value of CMCTs based on Amazon Web Services’ success,
`stating the token could be worth anywhere from $10-$600 per token “excluding the speculative
`pricing of CMCTs on secondary markets” and “$295/CMCT” was the “target price at full
`
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`13
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`SEC v. Crowd Machine, Inc., et al.
`COMPLAINT
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 14 of 22
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`utilization of the network. In contrast, most investors who purchased CMCTs in the ICO paid
`the equivalent of between $0.03 and $0.22 per token (accounting for any bonus tokens awarded),
`and the trading price of CMCTs on secondary digital asset trading platforms never exceeded
`$0.18 per token.
`
`CMG and Sproule represented throughout the offering that CMG would work to
`develop and promote its “community” as well as its technology. They made several statements
`linking the success of the ICO to the development of CMG’s technology and underlying
`community and touted on its website the qualifications of the management team undertaking
`these efforts.
`
`In offering materials, CMG stated that it would create “Crowd Machine centers of
`excellence” to “promote the Crowd Machine brand,” which, it stated, would lead to “the
`successful adoption of [the Crowd Machine] technology.”
`
`In one Facebook post promoting the ICO, CMG wrote, “[i]ts [sic] important to
`know WHO you are investing in when you invest in a product. Meet Craig Sproule - the man
`behind the Machine.” CMG included a link to Sproule’s biography, touting his 30 years of
`technical experience.
`
`In addition, Defendants deliberately capped the total amount of CMCTs, which
`they claimed would create a “reservation demand for investment (speculation)” that could cause
`the token to “appreciate significantly.”
`
`To enable investors to profit from such appreciation, CMG also promised that it
`would work to create a secondary market for trading in CMCTs. In an interview posted on
`YouTube during the offering, Sproule stated that “we expect” the token to be listed on
`“secondary exchanges.” CMG and Sproule also stated in Offering Documents that it had to be
`“cautious” due to “regulatory restrictions surrounding solicitation to exchanges,” but confirmed
`CMG’s “intent is to use listing on regulatory secondary marketplaces” for CMCTs. CMG further
`acknowledged that First Phase participants expected “the relevant liquidity to exit their position
`in CMT [sic]” and “SAFT investors provide investment (as a security) for the purpose of
`obtaining a significant ROI.”
`
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`SEC v. Crowd Machine, Inc., et al.
`COMPLAINT
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 15 of 22
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`CMG also enticed investors by misleadingly touting the already-successful
`development the project’s underlying technology as indicative of future success. In offering
`materials and on social media, CMG claimed that its technology had been “battle tested” by
`“Fortune 500 companies” including GE and Anthem. In a newsletter sent to prospective
`investors, CMG wrote that “ICO’s [sic] for companies who don’t have a product yet are all about
`financial speculation – investing in an idea.” “In contrast,” Crowd Machine claimed to “have a
`live, commercial product that we really want our loyal users and community members to be able
`to invest in.”
`
`In reality, none of the technology related to the Crowd Computer was functional,
`and the only technology that had been “battle tested” by any third parties was Metavine, Inc.’s
`existing application development software
`
`Based on these statements, it is no surprise that many investors who purchased
`CMCTs in the ICO did so primarily because they hoped that the tokens would appreciate, and
`they felt confident that they would profit both because of CMG’s representations regarding the
`state of its existing technology in use by Fortune 500 companies, as well as promises that
`experienced management would undertake to build the Crowd Computer community, increase
`demand for CMCTs, list CMCTs on secondary markets, and work towards realizing investors’
`expectation of a “significant ROI.”
`
`The “Crowd Computer” platform was, after all, expected to be the only place that
`CMCTs could be used. Yet despite raising millions from CMCT purchasers to develop this
`platform, CMG never ultimately operationalized its “crowd computer,” and thus CMCT holders
`have never been able to use the tokens for any purpose.
`
`D. Defendants’ Offers and Sales of CMCTs were Illegal Unregistered
`Offers and Sales of Securities
`
`
`The CMCT offering was an offer and sale of “securities” as defined by Section
`2(a)(1) of the Securities Act because it constituted the offer and sale of investment contracts.
`
`As detailed above, Defendants offered and sold CMCTs as part of a general
`solicitation that included investors in the United States, and took no steps to ascertain or verify
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`SEC v. Crowd Machine, Inc., et al.
`COMPLAINT
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`Case 5:22-cv-00076-SVK Document 1 Filed 01/06/22 Page 16 of 22
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`the accredited status of U.S. persons who invested as part of ICO pools or in the Second Phase of
`the offering. Investors, including U.S. investors, purchased their CMCTs in exchange for value,
`by transferring to CMG either U.S. dollars or digital assets like ETH or BTC.
`
`Also as detailed above, CMCT purchasers bought into a common enterprise—the
`Crowd Machine “community”—and from their investment in the Crowd Machine ecosystem.
`CMG and Sproule represented that they would use the proceeds of the CMCT offering to build
`an ecosystem that would create demand for CMCTs, which CMG and Sproule said would
`increase their value.
`
`As shown above, CMG and Sproule made numerous statements that gave rise to
`token purchasers’ reasonable expectation that they would profit from the success of CMG’s
`efforts to develop the ecosystem and related rise in the value of CMCTs.
`
`Investors’ profits were to be derived from the significant entrepreneurial and
`managerial efforts of others—specifically Sproule, CMG, and their agents—who were to create
`the ecosystem that would increase the value of CMCTs and facilitate secondary market trading.
`
`The CMCT offering was structured to encourage speculat