`
`IN THE UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF GEORGIA
`ATLANTA DIVISION
`
`SECURITIES AND EXCHANGE COMMISSION,
`
`Plaintiff,
`
` v.
`FLIK,
`COINSPARK,
`RYAN S. FELTON,
`WILLIAM Q. SPARKS, JR.,
`OWEN B. SMITH, and
`CHANCE B. WHITE,
`
`Defendants,
`And
`HYPERION HOLDINGS LLC,
`STEPHANIE L. BROWN,
`DALE W. FELTON, and
`JENNIFER FELTON,
` Relief Defendants.
`
`
`
`
`
`Case No.
`
`JURY TRIAL DEMANDED
`
`
`
`
`
`COMPLAINT
`
`Plaintiff Securities and Exchange Commission (the “Commission”), for its
`
`Complaint against Defendants FLiK, CoinSpark, Ryan S. Felton (“Felton”),
`
`William Q. Sparks (“Sparks”), Owen B. Smith (“Smith”), Chance B. White
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 2 of 54
`
`(“White”) (collectively, “Defendants”), and Relief Defendants Hyperion Holdings,
`
`LLC (“Hyperion Holdings”), Stephanie L. Brown (“Brown”), Dale W. Felton
`
`(“Dale Felton”), and Jennifer Felton (collectively, “Relief Defendants”), alleges as
`
`follows:
`
`SUMMARY
`
`Between August 2017 and June 2018, Defendants FLiK, CoinSpark
`
`1.
`
`and Felton engaged in fraudulent and unregistered offerings of digital asset
`
`securities, collectively reaping over $3 million in illegal profits from investors.
`
`Shortly after each entity’s offering concluded, Felton misappropriated the funds
`
`raised in that offering and then moved on to his next venture. Despite promising to
`
`use the funds raised from investors to build the FLiK and CoinSpark online
`
`platforms, Felton instead used the funds to buy a Ferrari, a million-dollar home,
`
`diamond jewelry, and other luxury items for himself. None of the proceeds were
`
`used for any of the purposes described in the offering materials.
`
`2.
`
`From approximately August 20, 2017 to September 20, 2017, Felton
`
`and FLiK, a purported video streaming platform promoted by Felton as “Netflix on
`
`the blockchain,” conducted a so-called “Initial Coin Offering” (“ICO”), through
`
`which they raised approximately 539 ether (“ETH”), a digital asset worth
`
`approximately $164,665 as of September 20, 2017, in exchange for FLiK “tokens,”
`
`
`
`2
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 3 of 54
`
`which were digital assets offered as investment contracts, and therefore securities
`
`(the “FLiK ICO”). Defendant Sparks worked with Felton on the FLiK ICO and,
`
`with Felton and others, directly or indirectly offered and sold FLiK tokens through
`
`the FLiK ICO.
`
`3.
`
`On August 17, 2017, prior to the start of the FLiK ICO, Felton
`
`transferred 60 million FLiK tokens to an ethereum blockchain address that he
`
`controlled. Over the next two months, Felton fraudulently promoted FLiK,
`
`including by publishing materially false and misleading statements on various
`
`social media platforms and on the FLiK website. During this same time period,
`
`Felton offered and sold FLiK tokens to investors located all over the world and in
`
`the United States through his account at a digital asset trading platform. (These
`
`offers and sales, as well as offers and sales during the FLiK ICO and Felton’s
`
`subsequent offers and sales of FLiK tokens through June 2018, are referred to
`
`herein collectively as the “FLiK Offering.”) Felton made these sales anonymously
`
`and transferred the proceeds to financial accounts in his own name or under his
`
`control. Felton also diverted the proceeds of the FLiK ICO to his own personal
`
`accounts.
`
`4.
`
`In addition to using the proceeds to purchase a house, cars, jewelry,
`
`and high-end home furnishings. Felton also transferred portions of the proceeds to
`
`
`
`3
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 4 of 54
`
`the Relief Defendants, Jennifer Felton (his wife), Brown (his sister), and Dale
`
`Felton (his father).
`
`5.
`
`In October 2017, Felton began working with White and Smith on a
`
`second offering, this time for a purported digital asset exchange called
`
`“CoinSpark.”
`
`6.
`
`From February 14 through March 14, 2018, Felton and CoinSpark
`
`raised approximately 460 ETH (worth approximately $282,418 as of March 14,
`
`2018) in an unregistered offering of digital assets called “SPARK tokens”
`
`(“CoinSpark ICO” or “CoinSpark Offering”), which were offered and sold as
`
`investment contracts, and therefore securities. Defendants White and Smith
`
`worked on the CoinSpark ICO and, with Felton and others, directly or indirectly
`
`offered and sold SPARK tokens in the CoinSpark ICO.
`
`7. White and Smith promoted the SPARK ICO under false names,
`
`without disclosing that Felton had promised them full-time employment in
`
`connection with CoinSpark, if CoinSpark raised sufficient funds.
`
`8.
`
`On March 20, 2018, Felton transferred the ETH raised in the
`
`CoinSpark ICO to an ethereum blockchain address that he controlled. Felton
`
`subsequently transferred the ETH to other blockchain addresses he controlled, and
`
`converted the ETH to other digital assets and U.S. dollars, before transferring the
`
`
`
`4
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 5 of 54
`
`funds to financial accounts in his own name or under his control, including
`
`accounts of Relief Defendants Jennifer Felton and Hyperion Holdings. Felton also
`
`transferred all unsold SPARK tokens to a blockchain address under his control his
`
`own personal account, for his personal use.
`
`9.
`
`In early April 2018, Felton engaged in manipulative matched trades
`
`intended to create the false appearance of trading activity in SPARK tokens in
`
`order to artificially increase the trading price of SPARK tokens and to induce
`
`others to purchase SPARK tokens.
`
`10.
`
`In offering and selling FLiK and SPARK tokens, Felton, FLiK, and
`
`CoinSpark knowingly, recklessly, or negligently made and disseminated numerous
`
`materially false and misleading statements and engaged in other deceptive acts,
`
`including manipulative trading by Felton.
`
`11. The FLiK and CoinSpark Offerings were illegal offerings of securities
`
`for which no registration statements were filed or in effect, and as to which no
`
`exemption from registration was available.
`
`VIOLATIONS
`
`12. By virtue of the foregoing conduct and as alleged further herein,
`
`a.
`
`Defendants Felton, FLiK, and CoinSpark violated Section 5(a)
`
`and 5(c) of the Securities Act, and Section 17(a) of the Securities Act of
`
`
`
`5
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 6 of 54
`
`1933 (“Securities Act”) [15 U.S.C. §§ 77(e)(a), 77(e)(c), 77q(a)], and
`
`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].
`
`b.
`
`Defendant Felton aided and abetted FLiK’s and CoinSpark’s
`
`violations of Section 5(a) and 5(c) of the Securities Act, Section 17(a) of the
`
`Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5
`
`thereunder.
`
`c.
`
`Defendants Sparks, White and Smith violated Sections 5(a) and
`
`5(c) of the Securities Act [15 U.S.C. §§ 77e(a), 77e(c)].
`
`d.
`
`Defendant Felton violated Section 9(a)(1) of the Exchange Act
`
`[15 U.S.C. §78i(a)].
`
`e.
`
`Defendants White and Smith violated Section 17(b) of the
`
`Securities Act [15 U.S.C. § 77q(b)].
`
`f.
`
`Relief Defendants Hyperion Holdings, Brown, Dale Felton, and
`
`Jennifer Felton received funds from Defendant Felton for which they gave
`
`no consideration and to which they have no right or legitimate claim.
`
`g.
`
`Defendants, unless restrained and enjoined by this Court, will
`
`continue to engage in the acts, practices, transactions, and courses of
`
`
`
`6
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 7 of 54
`
`business alleged in this Complaint or in acts, practices, transactions, and
`
`courses of business of similar type and object.
`
`NATURE OF THE PROCEEDING AND RELIEF SOUGHT
`
`13. The Commission brings this action pursuant to the authority conferred
`
`upon it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and Sections
`
`21(d)(1) & (d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(1) & (d)(5)].
`
`14. The Commission seeks a final judgment: (a) permanently enjoining
`
`Defendants from engaging in acts, practices and courses of business alleged herein;
`
`(b) ordering Felton, FLiK, and CoinSpark, joint and severally, and Sparks
`
`separately, to disgorge their ill-gotten gains and to pay prejudgment interest
`
`thereon; (c) prohibiting Felton, pursuant to Section 20(e) of the Securities Act [15
`
`U.S.C. § 77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)],
`
`from acting as an officer or director of any public company; (d) imposing civil
`
`money penalties on Defendants 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)];
`
`(e) ordering Relief Defendants jointly and severally with Felton, FLiK, and
`
`CoinSpark to disgorge or return their ill-gotten gains and to pay prejudgment
`
`interest thereon; (f) prohibiting Defendants from participating, directly or
`
`
`
`7
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 8 of 54
`
`indirectly, in any issuance, purchase, offer, or sale of digital asset securities; and
`
`(g) ordering any other and further relief the Court may deem just and proper.
`
`JURISDICTION AND VENUE
`
`15. This Court has jurisdiction over this action pursuant to Sections 20(b),
`
`20(d), and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and
`
`Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e),
`
`and 78aa]. Defendants, directly or indirectly, have made use of the means or
`
`instruments of transportation or communication in, and the means or
`
`instrumentalities of, interstate commerce, or of the mails, in connection with the
`
`transactions, acts, practices, and courses of business alleged herein.
`
`16. Venue is proper because the transactions, acts, practices, and courses
`
`of business constituting violations of federal securities laws occurred in the
`
`Northern District of Georgia. Defendants Felton, Sparks, Smith, and White all
`
`reside in the District, and resided in this District at the time of the events alleged
`
`herein, and Defendants FLiK and CoinSpark have their principal place of business
`
`in this District. Relief Defendants Brown and Jennifer Felton reside in this
`
`District, and Relief Defendant Dale Felton traveled to the District during the time
`
`of the events alleged herein. Relief Defendant Hyperion Holdings has its principal
`
`place of business in this District.
`
`
`
`8
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 9 of 54
`
`DEFENDANTS
`
`17. Ryan S. Felton, age 46, resides in Atlanta, Georgia. Felton is the
`
`founder, sole owner, and sole officer of FLiK, CoinSpark, and Hyperion Holdings,
`
`which all have their primary place of business in Atlanta, Georgia.
`
`18. FLiK is an unincorporated entity that had its principal place of
`
`business in Atlanta, Georgia in 2017-2018.
`
`19. CoinSpark is an unincorporated entity that had its principal place of
`
`business in Atlanta, Georgia in 2017-2018.
`
`20. William Q. Sparks, Jr., 35, is the social media manager for rapper,
`
`actor, and producer Clifford Joseph Harris, Jr. (“Harris”) and resides in Atlanta,
`
`Georgia.
`
`21. Chance B. White, 41, works in the film and film-editing industry and
`
`resides in Atlanta, Georgia.
`
`22. Owen B. Smith, 40, works in the film and film-editing industry and
`
`resides in Atlanta, Georgia.
`
`RELIEF DEFENDANTS
`
`23.
`
`Jennifer Felton, 46, is the wife of Felton and lives in Atlanta,
`
`Georgia. Jennifer Felton received approximately $32,000 in jewelry purchased
`
`using the proceeds of the FLiK Offering, and approximately $25,000 in checks and
`
`
`
`9
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 10 of 54
`
`transfers and $11,400 in prepaid Bitcoin debit cards using the proceeds of the
`
`CoinSpark Offering. Jennifer Felton also received, jointly with Felton, a home,
`
`cars, furniture, and other luxury goods purchased by Felton with the proceeds of
`
`the FLiK Offering. As described below, these proceeds constitute ill-gotten gains
`
`because Jennifer Felton does not have a legitimate interest in them.
`
`24. Dale W. Felton, 75, is the father of Felton and lives in Navasota,
`
`Texas. Dale Felton received approximately $100,000 from the proceeds of the
`
`FLiK Offering, which, as described below, constitute ill-gotten gains because Dale
`
`Felton does not have a legitimate interest in them.
`
`25. Stephanie L. Brown, 53, is the sister of Felton and lives in
`
`Cartersville, Georgia. Brown received approximately $18,500 from the proceeds
`
`of the FLiK Offering, which, as described below, constitute ill-gotten gains
`
`because Brown does not have a legitimate interest in them.
`
`26. Hyperion Holdings, LLC is a limited liability company formed
`
`under the laws of Georgia, with its principal place of business in Atlanta, Georgia.
`
`Hyperion Holdings received approximately $124,250 from the proceeds of the
`
`CoinSpark Offering, which, as described further below, constitute ill-gotten gains
`
`because Hyperion Holdings does not have a legitimate interest in them.
`
`
`
`10
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 11 of 54
`
`OTHER RELATED INDIVIDUAL
`
`27. Clifford Joseph Harris, Jr., a.k.a. “T.I.” or “Tip,” 39, is an Atlanta-
`
`based rapper, actor, and producer.
`
`BACKGROUND ON DIGITAL ASSETS AND ICOS
`
`28. The term “digital asset” or “digital token” generally refers to an asset
`
`that is issued and transferred using distributed ledger or blockchain technology,
`
`including “cryptocurrencies,” “coins,” and “tokens.”1 Entities have offered and
`
`sold digital assets in fundraising events, called “initial coin offerings” or “ICOs,”
`
`in exchange for consideration, often other digital assets. FLiK and CoinSpark each
`
`offered and sold digital assets as securities through ICOs.
`
`29. Generally, digital assets may entitle 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. These digital
`
`tokens may also be listed on online digital asset trading platforms, where they can
`
`be traded for other digital assets or fiat currency. The digital tokens are often
`
`transferable immediately upon delivery to investors.
`
`
`1
`A blockchain or distributed ledger is a peer-to-peer database spread across a network, that
`records all transactions in theoretically unchangeable, digitally recorded data packages. The
`system relies on cryptographic techniques for secure recording of transactions. Blockchains or
`distributed ledgers can also record “smart contracts,” essentially computer programs designed to
`execute the terms of a contract when certain triggering conditions are met.
`11
`
`
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 12 of 54
`
`30.
`
`ICOs are typically announced and promoted through public online
`
`channels. The prospectus soliciting the public to acquire tokens in the ICO is
`
`usually in the form of a “white paper,” which constitutes marketing materials
`
`describing the project and the terms of the ICO. To participate, investors may
`
`transfer funds to a unique digital address set up by the issuer, and the issuer may
`
`deliver tokens to the participants’ unique digital address on a distributed ledger or
`
`blockchain. This process may be partially automated through the use of a smart
`
`contract, as it was for the FLiK and CoinSpark ICOs.
`
`31. On July 25, 2017, the Commission issued the DAO Report of
`
`Investigation, advising that digital tokens or coins may be securities, and thus,
`
`subject to the federal securities laws. Both the FLiK and CoinSpark ICOs occurred
`
`after the DAO Report was released.
`
`FACTS
`
`I. FLiK
`FLiK, Felton, and Sparks Engaged in the Unregistered Offer and
`A.
`Sale of Securities through the FLiK Offering.
`Felton Launches the FLiK ICO
`32. Felton was the owner of a small film production studio in Atlanta,
`
`which focused mainly on filming commercials. In July 2017, shortly after failing
`
`
`
`12
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 13 of 54
`
`to raise funds for a film project and facing financial obligations, Felton began
`
`planning the FLiK Offering.
`
`33. Felton created a FLiK website and various social media accounts and
`
`prepared a white paper and other marketing materials for the FLiK ICO, which he
`
`subsequently published on public online channels.
`
`34.
`
`In the white paper, the FLiK website, and through various social
`
`media accounts, Felton described FLiK as a video-streaming platform that would
`
`accept FLiK tokens issued in the FLiK ICO as payment for content on the
`
`platform. Felton’s offering and promotional materials for the FLiK ICO
`
`emphasized that FLiK tokens would appreciate in value with time, and highlighted
`
`the ability to trade them on digital asset trading platforms. In these materials, as
`
`well as in social media accounts, Felton also emphasized the potential profits from
`
`resale of the tokens, encouraging investors to wait until the FLiK token reached a
`
`sufficiently high resale price before selling.
`
`35. At the time of the FLiK Offering, the FLiK platform had not been
`
`built. Nonetheless, the white paper touted the film and entertainment industry
`
`experience of Felton and others on the FLiK team, including Harris, a well-known
`
`Atlanta-based rapper, actor, and producer, that gave them the skill set necessary to
`
`ensure FLiK’s success.
`
`
`
`13
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 14 of 54
`
`36. The terms of the FLiK white paper and marketing materials further
`
`provided that the funds raised in the FLiK ICO would be pooled and that a
`
`significant portion would be used by the FLiK management team to develop
`
`FLiK’s online distribution platform to allow artists to sell or rent their work; to
`
`create a video streaming platform; to license content; and to generally market and
`
`promote the project.
`
` The FLiK ICO Solicited Investors Worldwide, Including in the United States
`
`37. Felton conducted the FLiK ICO from August 20, 2017 through
`
`September 20, 2017. During the FLiK ICO, investors could purchase FLiK tokens
`
`by sending ETH to the FLiK smart contract. The FLiK website and social media
`
`accounts, which were hosted or accessible in the United States, solicited potential
`
`investors from around the world, including in the United States.
`
`38. Felton paid for Facebook advertisement campaigns to promote the
`
`FLiK ICO worldwide, including in the United States. These ad campaigns, which
`
`ran from at least September 1, 2017 through September 11, 2017, specifically
`
`targeted male users, ages 18-50, located in the United States, among other places,
`
`whose interests included “ICO,” “Investment,” and “Investor.” The “text” of the
`
`ads, which appeared on these users’ Facebook News Feeds, included “Video
`
`Streaming Built on the Blockchain. Co-Owned by T.I. [Harris],” which reached
`
`
`
`14
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 15 of 54
`
`over 2,000 users in the United States, including at least 64 users in Georgia, and
`
`“FLIK ICO – Entertainment Revolution! 10 FLIK for Just .002 ETH!” which
`
`reached over 4,000 users in the United States, including 96 users in Georgia.
`
`39. Sparks, a social media manager for Harris, engaged in selling efforts
`
`for FLiK. Sparks announced the FLiK ICO, and that Harris was a co-owner of
`
`FLiK, on Harris’ social media accounts, including Twitter and Facebook. At the
`
`time of the FLiK ICO, Harris had more than 7 million followers on Twitter. The
`
`announcement of the FLiK ICO that Sparks posted on Harris’s social media
`
`accounts, and the assertion Sparks made in those posts that Harris was a co-owner
`
`of FLiK, substantially amplified the reach of FLiK’s marketing campaign for the
`
`FLiK ICO. Sparks made at least one post to Harris’s official Twitter and Facebook
`
`accounts that included the FLiK website address, where investors could purchase
`
`FLiK tokens during the ICO.
`
`40. At Felton’s request, Harris also arranged the FLiK ICO to be
`
`promoted on the Twitter, Instagram, and Facebook accounts of a well-known
`
`American actor, comedian, and producer (“Celebrity 1”), who, at the time of the
`
`FLiK ICO, had more than 34 million followers on Twitter. The announcement of
`
`the FLiK ICO on Celebrity 1’s social media accounts also substantially amplified
`
`the reach of FLiK’s marketing campaign for the FLiK ICO.
`
`
`
`15
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 16 of 54
`
`41.
`
` Throughout the FLiK Offering, Felton also anonymously sold
`
`millions of FLiK tokens to investors through a so-called “decentralized digital
`
`asset trading platform”2 and through an Australia-based digital asset trading
`
`platform (the “Australian Trading Platform”), as discussed below.
`
`42. From September 1 through September 13, 2017, Felton transferred
`
`more than 11 million FLiK tokens to the “decentralized digital asset trading
`
`platform” where he began attempting to sell the tokens anonymously to
`
`unsuspecting investors.
`
`43. Also in September 2017, Felton arranged to have FLiK tokens listed
`
`for sale on the Australian Trading Platform. On the day that the FLiK token,
`
`which had no restrictions on resale to U.S. investors, was listed for sale on the
`
`Australian Trading Platform, Felton deposited more than 17.6 million FLiK tokens
`
`into his account at the Australian Trading Platform. In total, from October 6, 2017,
`
`through October 21, 2017, Felton deposited more than 34.7 million FLiK tokens
`
`into his account at the Australian Trading Platform.
`
`
`
`
`A “decentralized digital asset trading platform” typically refers to a trading platform
`2
`where smart contracts (i.e. computer code) are utilized to facilitate peer-to-peer trading of digital
`assets.
`
`
`
`
`
`16
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 17 of 54
`
`FLiK’s Offer and Sale of FLiK Tokens Was an Offering of Securities
`
`44. Based upon the foregoing, the FLiK tokens offered and sold in the
`
`FLiK Offering were offered and sold as “investment contracts,” and thus securities,
`
`within the meaning of Section 2(a)(1) of the Securities Act [15 U.S.C. § 77b(a)(1)]
`
`and Section 3(a)(10) of the Exchange Act [15 U.S.C. § 78c(a)(10)].
`
`45. No registration statement was ever filed or in effect for the offers and
`
`sales of FLiK tokens, and no exemption from registration was available for the
`
`FLiK Offering.
`
`B.
`
`Felton and FLiK Engaged in Deceptive Conduct to Defraud FLiK
`Investors and Made and Disseminated Material
`Misrepresentations to Sell FLiK Tokens.
`46. Felton and FLiK knowingly, recklessly, or negligently engaged in
`
`deceptive conduct to defraud FLiK investors by, among other acts:
`
`a) making and disseminating material misstatements to promote
`
`FLiK tokens during the FLiK Offering;
`
`b)
`
`diverting 60 million FLiK tokens to Felton’s digital asset
`
`accounts without disclosing this in the FLiK white paper or on the FLiK
`
`website, and then anonymously selling them FLiK tokens on digital asset
`
`trading platforms;
`
`
`
`17
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 18 of 54
`
`c)
`
`continuing to issue materially false and misleading promotional
`
`statements to pump up the price and to generate a market to support Felton’s
`
`dumping of millions of FLiK tokens in sales subsequent to the ICO; and
`
`d)
`
`using the proceeds of the FLiK Offering for Felton’s personal
`
`use and to purchase luxury goods and gifts rather than for the purposes
`
`disclosed in the offering materials.
`
`47. FLiK and Felton raised approximately $250,000 from investors
`
`through the FLiK ICO and at least $2.2 million more through Felton’s subsequent
`
`FLiK offers and sales in the FLiK Offering.
`
`48. Felton, the sole owner of FLiK, personally made all the statements on
`
`the FLiK website, white paper, social media accounts, including Facebook,
`
`Instagram, Twitter, bitcointalk.org, and the Telegram Messaging App
`
`(“Telegram”), and other marketing materials.
`
`49. Felton made and disseminated numerous material misstatements, all
`
`of which were to create a false and misleading appearance to investors that FLiK
`
`and the FLiK Offering were financially viable or successful as well as financially
`
`rewarding for investors who would be able to acquire a purportedly limited supply
`
`of FLiK tokens in the FLiK Offering. These statement appeared on the FLiK
`
`
`
`18
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 19 of 54
`
`website, white paper, social media accounts, and other marketing materials,
`
`including the examples below.
`
`50. On August 17, 2017, before the FLiK ICO began, Felton transferred
`
`60 million FLiK tokens to himself. He did not disclose the existence of these
`
`tokens or this transfer in the FLiK white paper or otherwise on the FLiK website or
`
`social media posts. This omission was material, as it made other statements about
`
`FLiK token’s availability for allegedly limited sale and distribution, including the
`
`statement regarding the purported FLiK token “burn” (removal from circulation)
`
`that would also occur following the FLiK ICO, in the white paper false or
`
`misleading. Felton knew or was reckless in not knowing that his omission of this
`
`material fact made the other statements in the white paper false or misleading.
`
`51.
`
`In the marketing materials Felton created when the FLiK ICO began,
`
`Felton claimed that FLiK would be a streaming video platform, and that he was
`
`finalizing negotiations to license the digital film libraries of several major
`
`production studios. The marketing materials claimed that FLiK tokens would be
`
`used to rent or buy digital content on the FLiK platform.
`
`52. Felton never incorporated FLiK or formed any business entity for the
`
`FLiK Offering. No FLiK streaming platform ever existed. Felton has admitted
`
`that he had no discussions with the production studios with which he claimed to be
`
`
`
`19
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 20 of 54
`
`finalizing agreements. The misstatements that he made were material, and Felton
`
`knew or was reckless in not knowing that these statements were false when he
`
`made them.
`
`53. Also from the beginning of the FLiK Offering, Felton announced on
`
`the FLiK website and social media accounts that Harris was a co-owner of FLiK.
`
`In fact, Harris was never a co-owner of FLiK. These misstatements made by
`
`Felton were material, and Felton knew or was reckless in not knowing that these
`
`statements were false when he made them.
`
`54. On August 20, 2017, the first day of the FLiK ICO, Felton announced
`
`that “FLiK has another co-owner, but we can’t name him just yet,” and that the
`
`new co-owner “currently owns a large stake in another video stream platform (one
`
`you’ve heard of).” FLiK never had any co-owners; Felton was its only owner.
`
`Felton knew or was reckless in not knowing that these material statements he made
`
`were false when he made them.
`
`55. Within days of launching the FLiK ICO, Felton announced on the
`
`FLiK website and in an update to the white paper that “the company has secured a
`
`significant investment through a private placement offering in accordance with the
`
`Securities & Exchange Commission (SEC) Rule 501 of Regulation D.” Felton
`
`knew or was reckless in not knowing that these material statements were false
`
`
`
`20
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 21 of 54
`
`when he made them. Felton has admitted that he never conducted any private
`
`offering of FLiK, or provided an equity position to anyone other than himself. No
`
`party made any filing with the Commission pursuant to Regulation D with respect
`
`to FLiK.
`
`56. Further, Felton made a series of additional material misrepresentations
`
`about FLiK, including misstatements on August 26 and on September 3, 16, and
`
`19, 2017, respectively, regarding a purported private investment in FLiK.
`
`57. On August 26, 2017, Felton announced on the Telegram messaging
`
`app that FLiK had “a big buyer making a move into FLiK this week . . . buying
`
`$500,000 worth of tokens.” This statement was material, as this would have been
`
`double the full amount raised in the ICO. Felton knew or was reckless in not
`
`knowing that this misstatement was false when he made it. No one purchased
`
`$500,000 worth of tokens.
`
`58. On August 26, 2017, Felton announced that “Yesterday, we received
`
`word that FLiK will be integrated into the new U.S. Military’s set-top box. This
`
`means we’ll have access to potentially 2,000,000 customers (1.2M active U.S.
`
`military and 800,000 reserve U.S. military) as soon as our platform is ready. This
`
`is HUGE news!” Neither the Department of Defense nor the defense contractor
`
`building the interface for the military’s set-top box had any communications with
`
`
`
`21
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 22 of 54
`
`Felton or any representative of FLiK about integrating FLiK into that interface.
`
`These misstatements by Felton were material, and Felton knew or was reckless in
`
`not knowing that these statements were false when he made them.
`
`59. On September 3, Felton announced on Telegram that the buyer who
`
`had purportedly purchased $500,000 worth of FLiK tokens actually “didn’t receive
`
`tokens” but instead “took a small equity position” in FLiK. He added that the
`
`investor had a “significant connection . . . at a large movie studio.” These
`
`statements were material, and Felton knew or was reckless in not knowing that
`
`these statements were false when he made them.
`
`60. On September 3, 2017, Felton announced that Individual A, the
`
`chairman of a well-known Bitcoin payment-processing company, was handling the
`
`listing of FLiK tokens on other trading platforms, and had been recruited to “get
`
`things done” for FLiK, including “talking with [another digital-asset payment-
`
`processing company] about integrating FLiK tokens into their app.” Felton has
`
`admitted that Individual A had no involvement with listing FLiK tokens on any
`
`trading platforms, nor was individual A involved in any communications with the
`
`other digital-asset payment-processing company about FLiK. These misstatements
`
`by Felton were material, and Felton knew these statements were false when he
`
`made them.
`
`
`
`22
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 23 of 54
`
`61. On or around September 16, Felton announced that FLiK had raised
`
`“over 450 ETH via the ICO and over $2.2M in private equity capital.” Felton’s
`
`statement regarding private equity was material, as $2.2 million in private equity
`
`would have been almost ten times the amount Felton actually had raised in the
`
`FLiK ICO. Felton knew or was reckless in not knowing that this statement was
`
`false when he made it. In fact, the Felton sales that occurred after the ICO phase of
`
`the FLiK Offering netted Felton personally approximately $2.2 million. Felton
`
`thus invented the private equity investment to mislead investors regarding his
`
`transfer of FLiK tokens to himself and his own massive sell-off of FLiK tokens,
`
`which were visible to investors on the blockchain, but not publicly traceable to
`
`him.
`
`62. On September 19, Felton announced that the “private equity”
`
`investors mentioned three days earlier had “wired funds and we reserved coins for
`
`them.” This misstatement was material, and Felton knew or was reckless in not
`
`knowing that this statement was false when he made it.
`
`63. Also on September 19, 2017, Felton responded to concerns investors
`
`raised about the significant volume of FLiK tokens being sold on the
`
`“decentralized digital asset platform” to which Felton had transferred more than 11
`
`million FLiK tokens. In a post on FLiK’s Telegram channel, Felton cast the blame
`
`
`
`23
`
`
`
`Case 1:20-cv-03739-SCJ Document 1 Filed 09/10/20 Page 24 of 54
`
`on Harris and promised that Harris would rectify the problem by buying back the
`
`tokens. In fact, Felton has admitted that he never had any information about
`
`personal sales by Harris. This was yet another attempt by Felton to conceal his
`
`own massive sales o