Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 1 of 23
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`UNITED STATES DISTRICT COURT
`WESTERN DISTRICT OF TEXAS
`AUSTIN DIVISION
`
`U.S. SECURITIES AND EXCHANGE
`COMMISSION,
`
`
`
`
`
`
` Plaintiff,
`
`Civil Action No. 1:22-CV-950
`
`-against-
`
`IAN BALINA,
`
`
`ECF CASE
`
`(Jury Trial Demanded)
`
` Defendant.
`
`
`
`
`COMPLAINT
`
`
`
`
`
`
`Plaintiff United States Securities and Exchange Commission (the “Commission” or
`
`“SEC”), for its Complaint, alleges as follows:
`
`SUMMARY OF THE ACTION
`
`This action concerns Ian Balina’s unregistered offering and promotion in 2018 of
`
`1.
`
`crypto asset securities called SPRK Tokens. Balina, a self-described crypto asset investor,
`
`promoter, and influencer, who claimed he could help people “make millions with initial coin
`
`offerings,” failed to disclose the compensation he received from the issuer while he publicly
`
`promoted the tokens. He also failed to file a registration statement with the SEC for the tokens
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`that he re-sold using an investing pool that he organized.
`
`2.
`
`Sparkster, Ltd. (“Sparkster”), a software development company incorporated in the
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`Cayman Islands, and its Chief Executive Officer (“CEO”), conducted an unregistered securities
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`offering (“Sparkster Offering”) of crypto asset securities called SPRK Tokens. This unregistered
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`offering took place between April and July 2018, raising approximately $30 million from nearly
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`4,000 investors located abroad and in the United States.
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 2 of 23
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`3.
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`Balina signed a contract to invest approximately $5 million in the Sparkster
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`Offering and promoted the offered SPRK tokens on YouTube, Telegram, and other social media
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`platforms. Although he agreed to receive a 30% bonus from Sparkster on the tokens he purchased
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`in the Sparkster Offering, Balina never publicly disclosed the consideration he received for his
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`promotion.
`
`4.
`
`Balina also organized on Telegram an investing pool of about fifty individuals.
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`After he agreed to purchase the SPRK tokens from Sparkster, Balina offered members of the
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`investing pool the opportunity to purchase SPRK tokens from him upon their release, and at least
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`fifty members of the pool, including U.S. residents, contracted with Balina to purchase tokens that
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`Balina had purchased from Sparkster. Balina did not file a registration statement with the
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`Commission for his offering and sale of SPRK tokens, and no exemption from registration was
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`applicable. As a result, Balina conducted his own unregistered offering of SPRK Tokens.
`
`5.
`
`By engaging in this conduct, as set forth more fully herein, Balina violated Sections
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`5(a) and 5(c) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77e(a), 77e(c)], and
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`Section 17(b) of the Securities Act [15 U.S.C. § 77q(b)]. Balina will continue to violate the federal
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`securities laws unless restrained or enjoined by this Court.
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`6.
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`The SEC seeks injunctive relief, disgorgement, civil penalties, and other
`
`appropriate and necessary equitable relief.
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`JURISDICTION AND VENUE
`
`7.
`
`The SEC brings this action, and this Court has jurisdiction, pursuant to 28 U.S.C.
`
`§ 1331 and Sections 20(b), 20(d), and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and
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`77v(a)].
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 3 of 23
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`8.
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`Defendant Balina, directly or indirectly, singly or in concert with others, made use
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`of the means or instruments of transportation and communication in interstate commerce, or of the
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`mails, in connection with the acts, transactions, practices, and courses of business alleged in this
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`Complaint.
`
`9.
`
`Venue is proper in the Western District of Texas pursuant to Section 22(a) of the
`
`Securities Act [15 U.S.C. § 77v(a)] because Balina currently resides in the district.
`
`DEFENDANT
`
`10.
`
`Ian Balina, age 33, is currently a resident of Austin, Texas, where he works as
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`CEO of a company that provides crypto investment research. At all relevant times for the
`
`allegations in this complaint, Balina was a resident of Potomac, Maryland. Balina’s YouTube
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`page describes him as “an influential Blockchain and Cryptocurrency Investor, Advisor, and
`
`Evangelist.” Balina, a self-described “crypto millionaire,” offered his advice to investors
`
`regarding how to make money investing in crypto asset offerings based on his experience. Balina
`
`organized an investing pool through which he distributed SPRK tokens he had promoted and
`
`purchased from Sparkster.
`
`RELEVANT ENTITY
`
`11.
`
`Sparkster, Ltd., is a corporation organized under the laws in the Cayman Islands
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`with activities in multiple countries, including the United States. In 2018, Sparkster described
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`itself as a developer of software to allow users to write their own software applications in “plain
`
`English” using a “drag and drop” graphical interface instead of writing code.
`
`BACKGROUND ON CRYPTO ASSETS
`
`12.
`
`An “Initial Coin Offering” or “ICO” is a fundraising event in which an entity offers
`
`participants a unique crypto asset – often described as a “coin” or “token” – in exchange for
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 4 of 23
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`consideration, often in the form of a crypto asset such as Bitcoin or Ether (“ETH”), and sometimes
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`in fiat currency. The tokens are issued and distributed on a “blockchain,” a cryptographically
`
`secured ledger that is spread across a decentralized computer network.
`
`13.
`
`The Sparkster Offering was conducted on the Ethereum blockchain (“Ethereum”).
`
`Ethereum, which is second to only the Bitcoin blockchain in terms of market capitalization, uses
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`ETH as its crypto asset and allows the use of “smart” contracts, which are, essentially, computer
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`programs designed to automatically execute the terms of a contract when certain triggering
`
`conditions are met, without the involvement of an intermediary.
`
`14.
`
`ICOs are generally announced and promoted through public internet channels or
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`other marketing methods. An ICO issuer usually releases a “whitepaper” describing the project
`
`and promoting the ICO, often in technical terms, and promotes the ICO elsewhere, including on
`
`its website, social media, and other internet sites. To participate in the ICO, investors are generally
`
`required to transfer consideration, often in the form of crypto assets, to the issuer’s blockchain
`
`address, online “wallet,” or other account.
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`15.
`
`At some point after the completion of the ICO, the issuer distributes the tokens to
`
`each participant’s unique “wallet” address on the blockchain. Tokens can be transferred between
`
`users and are often listed on online crypto asset trading platforms to allow investors to trade the
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`tokens for other crypto assets or fiat currency in a secondary market.
`
`16.
`
`ICO issuers often pay social media influencers with large online followings to
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`promote their ICOs by endorsing them on social media. These influencers or promoters can
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`include celebrities from unrelated industries like sports, music, and entertainment or individuals
`
`who have active followings specifically related to technology, crypto assets, and/or ICOs.
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 5 of 23
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`17.
`
`As described more fully herein, Sparkster’s offer and sale of SPRK tokens from
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`April 2018 to July 2018 constituted an unregistered offering of crypto securities.
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`REGULATORY FRAMEWORK
`
`18.
`
`Congress passed the Securities Act in order to regulate the offer and sale of
`
`securities, and in doing so, enacted a regulatory regime of full and fair disclosure, requiring issuers
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`who offer and sell securities to provide certain important information to potential investors to
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`enable them to make informed decisions before investing.
`
`19.
`
`The definition of a “security” includes a broad range of investment vehicles and
`
`instruments, including “investment contracts.” Investment contracts are investments by
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`individuals of money in a common enterprise, with a reasonable expectation of profits or returns
`
`derived from the entrepreneurial or managerial efforts of others. Congress defined “security”
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`broadly to encompass a “flexible rather than a static principle” that is capable of adapting to various
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`schemes where the money of others is collected on the promise of future profits.
`
`20.
`
`Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)]
`
`prohibit the unregistered offer or sale of securities in interstate commerce. Specifically, Section
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`5(a) of the Securities Act [15 U.S.C. § 77e(a)] provides that, unless a registration statement is in
`
`effect as to a security, it is unlawful for any person, directly or indirectly, to sell the security in
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`interstate commerce. Section 5(c) of the Securities Act [15 U.S.C. § 77e(c)] provides a similar
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`prohibition against offers to sell or offers to buy securities, unless a registration statement has been
`
`filed as to that security.
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`21.
`
`The registration statements contemplated by the Securities Act are filed with the
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`Commission and require disclosures of essential facts that provide potential investors with
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`information necessary to make informed investment decisions. These required disclosures
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 6 of 23
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`include: a description of the issuer’s properties and business, a description of the securities to be
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`offered for sale, information about the management of the company, financial statements audited
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`by independent accountants, and a description and analysis of the risks and material trends that
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`would affect the enterprise.
`
`22.
`
` On July 25, 2017, well before the Sparkster Offering, the Commission issued the
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`DAO Report of Investigation (the “DAO Report”), regarding the 2016 sale of DAO Tokens on the
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`Ethereum blockchain. The DAO Report expressed the SEC’s view that, depending upon their
`
`particulars, digital tokens or coins may be securities for purposes of the federal securities laws.
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`23.
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`Unless an exemption is applicable, Section 5 [15 U.S.C. § 77e] creates liability for
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`any offer or sale of securities where a registration statement is not in effect and does not limit
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`liability to the initial distribution. As demonstrated below, Balina purchased SPRK tokens from
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`Sparkster in an unregistered offering, with a view to distributing the tokens in his own offering.
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`He offered the purchased tokens in a general solicitation, and at the time he paid for the tokens, he
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`had already contracted for their resale. He then distributed the tokens to members of the investing
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`pool he had organized. No exemption from Section 5 [15 U.S.C. § 77e] was applicable to Balina’s
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`offers or resales, and scienter is not an element for this claim.
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`24.
`
`Section 17(b) of the Securities Act [15 U.S.C. § 77q(b)] prohibits the publication
`
`or circulation via interstate commerce of a notice or communication describing a security, for a
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`consideration received from an issuer, underwriter, or securities dealer, without full disclosure of
`
`the consideration received or to be received, and the amount thereof. Scienter is not an element of
`
`a Section 17(b) [15 U.S.C. § 77q(b)] claim.
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 7 of 23
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`FACTS
`
`A.
`
`Balina’s Career as a Crypto Asset Promoter
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`25.
`
`After receiving bachelor’s and master’s degrees in computer engineering from
`
`George Washington University in 2010 and 2012, Balina began his career at various technology
`
`companies in the Washington, D.C. area. He left his job as a “Sales Evangelist” at a Fortune 500
`
`technology company in 2017 to focus on crypto assets and blockchain-related issues full time.
`
`Balina subsequently claimed that his initial motivation to get involved with crypto assets was to
`
`make enough money with his ICO investments to “quit his corporate job and have financial
`
`freedom.” Balina, who was born in Uganda, became a United States citizen in 2017.
`
`26.
`
`Around the time he left his job at the Fortune 500 technology company, Balina
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`created a Delaware limited liability company called Diary of a Made Man LLC, a vehicle for
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`Balina’s social media and publishing activities with its principal place of business in Washington,
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`D.C. He then began documenting his investment process and ICO research on YouTube,
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`Instagram, and other social media through an online diary entitled “Diary of a Made Man.” As
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`part of this process, Balina became an ICO promoter. A press release for his 2021 book described
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`Balina as having a “data-driven moneyball style approach to investing in crypto assets” and stated
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`that he used this approach to “turn $20,000 into over $5 million by investing in cryptocurrencies.”
`
`27.
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`During 2017 and 2018, as the market for ICOs exploded, Balina regularly posted
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`videos about ICOs on his YouTube channel, including a 2017 post entitled “How to Make Millions
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`with Initial Coin Offerings (ICOs)” that has garnered over 350,000 views to date. He currently
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`has approximately 110,000 Twitter subscribers, and his videos have cumulatively attracted over
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`2,300,000 views to date on YouTube. Balina has previously claimed that he built a following on
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`social media based on the value that he was providing to people.
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 8 of 23
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`28.
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`Balina also began operating a public website, ianbalina.com, in 2017, using a
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`hosting provider in Dallas, Texas. At all relevant times for the allegations in this complaint, Balina
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`published a free “ICO spreadsheet” containing rankings of what he considered the top ICOs of the
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`year, which he linked on the front page of his website and regularly promoted through social media.
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`According to a press release issued for Balina’s 2021 book, his ICO spreadsheet “was accessed by
`
`more than one million investors per month.” The ICOs on the spreadsheet reflected Balina’s
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`alleged personal investment strategy and were the subject of many of his YouTube videos and
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`social media posts.
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`29.
`
`In 2018, Balina launched the “Ian Balina Crypto World Tour,” which would
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`eventually lead to him meeting Sparkster’s CEO. During the tour, he hosted live “pitch contests”
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`in different cities around the world, where technology startups pitched their ideas to live crowds,
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`competing for an opportunity to be interviewed by Balina on his YouTube channel. Balina
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`described his goal to audiences as wanting to “evangelize and share with other people out there
`
`who have their own dreams and goals of having financial freedom.”
`
`30.
`
`Because of Balina’s influence as an ICO promoter, Sparkster’s CEO understood
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`that if the Sparkster Offering was included in Balina’s ICO spreadsheet and promoted through his
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`social media channels, it would reach his large audience of crypto asset investors and enthusiasts,
`
`drawing attention and investors to the Sparkster Offering.
`
`B.
`
`Creation of the SPRK Tokens That Balina Promoted, Purchased, and Sold
`
`31.
`
`In late 2016 and 2017, Sparkster and its CEO began development of a “no code”
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`software development platform (the “no code platform”) inspired by an idea developed at the
`
`Massachusetts Institute of Technology that allowed children to code more easily using a “drag and
`
`drop” interface.
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 9 of 23
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`32.
`
`In April 2018, Sparkster began publishing on its website a whitepaper containing
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`details about the Sparkster Offering (“the Whitepaper”) and began promoting it on its Telegram
`
`channel. The Whitepaper stated that the purpose of the Sparkster Offering was to raise funds for
`
`the development and marketing of the no code platform that would allow users to develop software
`
`applications using a “drag and drop” graphical interface instead of writing code.
`
`33.
`
`According to the Whitepaper, this no code platform would run on “the world’s
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`fastest Decentralized Cloud for Smart Software” (the “decentralized cloud”) using a network of
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`cell phones, notebooks, laptops, and other personal devices held by “miners,” who would be
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`rewarded with SPRK tokens for contributing their spare computing capacity to the network.
`
`34.
`
`The Whitepaper proposed a marketplace for software created using the no code
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`platform (the “marketplace”) where contributors could sell software created on the platform to
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`other users, with SPRK tokens constituting the exclusive form of payment.
`
`35.
`
`The Whitepaper stated that SPRK tokens “may be placed on third-party exchanges”
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`and that any users seeking to buy SPRK tokens after the Sparkster Offering would have to buy
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`them on these exchanges. The Whitepaper provided details regarding the token sale and
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`distribution, including Sparkster’s retention of 2% of tokens to “facilitate liquidity for an exchange
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`listing.”
`
`36.
`
`The Whitepaper stated that the no code platform would launch in April 2018, the
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`marketplace would launch in May 2018, and the decentralized cloud would launch a public alpha
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`release in the fourth quarter of 2018.
`
`37.
`
`According to Sparkster, the no code platform was finished and available for users
`
`to begin testing as of May 10, 2018.
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 10 of 23
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`38.
`
`Although Sparkster stated in the Whitepaper and the associated Simple Agreement
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`for Future Tokens (“SAFT”) contract that U.S. residents were not eligible to purchase SPRK
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`tokens, U.S. residents, including Balina, did in fact participate in the Sparkster Offering and
`
`purchased SPRK tokens.
`
`C.
`
`Balina’s Promotion of Sparkter’s Offering of SPRK Tokens
`
`39.
`
`The Sparkster Offering included both a “presale” phase and a “crowdsale” phase.
`
`Sparkster conducted the Sparkster Offering on the Ethereum blockchain, selling SPRK Tokens
`
`directly to participants in exchange for ETH, using ERC-20 smart contracts. ERC-20 smart
`
`contracts are used by ICOs on the Ethereum blockchain and allow the offering party to create and
`
`sell fungible tokens. Sparkster stated that it would proceed with the Sparkster Offering until it
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`reached an aggregate cap of $30 million.
`
`40.
`
`At the direction of the Sparkster CEO, during the “presale” phase, Sparkster sought
`
`out investment and endorsement by various ICO promoters or influencers, including Balina.
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`Sparkster’s CEO told colleagues that he viewed obtaining Balina’s endorsement as a way to draw
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`participants to the Sparkster Offering and strategized on how to earn that endorsement.
`
`41.
`
`In an internal chat dated April 4, 2018, Sparkster’s CEO stated, “Ian Belina [sic]
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`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.”
`
`42.
`
`On April 30, 2018, Sparkster published on its website a “presale whitelist”
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`application form that would allow potential “presale” phase participants to request a desired
`
`allocation of SPRK tokens in U.S. dollars. The site specified that the “presale” phase minimum
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`investment in SPRK Tokens was $25,000.
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 11 of 23
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`43.
`
` After an unsuccessful attempt to enter Balina’s pitch contest in London during the
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`“World Tour,” Sparkster’s CEO secured a spot at Balina’s pitch contest in Amsterdam on May 11,
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`2018, and won that contest, earning him an interview on Balina’s YouTube channel.
`
`44.
`
`Over the next few weeks after Sparkster won Balina’s contest, Balina promoted the
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`Sparkster Offering in YouTube videos and on other social media, and he specifically included
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`Sparkster in his ICO rankings spreadsheet—publicly available at ianbalina.com—as his “Hall of
`
`Fame” or top ICO pick for 2018. An image of Balina’s ICO rankings spreadsheet is included
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`below:
`
`
`
`45.
`
`On May 16, 2018, Sparkster announced on its Telegram channel that the first email
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`invitations to “presale” phase participants were being sent and that the maximum participation for
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`each “presale” phase participant would be 35 ETH.
`
`46.
`
`Each participant in the “presale” phase entered into a purchase agreement or
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`contract referred to as the SAFT. Pursuant to the SAFT, the “presale” investors purchased SPRK
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`Tokens at a price of $.15 per token.
`
`47.
`
`On May 17, 2018, Sparkster gave Balina a private demonstration of its software.
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`48.
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`On May 18, 2018, Sparkster posted on its public Telegram channel that “[b]onus
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`tokens would be eliminated to deter anyone from dumping.” However, on June 23, 2018, well
`
`after Balina’s promotion, Sparkster announced that “strategic partners” were given bonus tokens
`
`that were locked. Sparkster did not provide the names of those strategic partners at that time.
`
`49.
`
`On May 19, 2018, Balina began promoting the Sparkster Offering on his Telegram
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`channel. For example, Balina posted: “After Sparkster won my Amsterdam Crypto World Tour
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`ICO Pitch event, word is getting out that attending my Crypto World Tour was more fruitful than
`attending #Consensus2018 😱😅. I respect their hustle to fly all the way from London to pitch. The
`crowd voted and I agree 🚀🌝💯.”
`50.
`On June 5, 2018, during a live Ask Me Anything (“AMA”) session on YouTube,
`
`when asked if he was “still bullish on Sparkster,” Balina said, “Yes. Very bullish, guys. They
`
`crushed it. … I think Sparkster has definitely overachieved in publicly showing what they have
`
`more than any ICO. That’s why I still believe in Sparkster. … Sparkster, I am personally very
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`bullish on.”
`
`51.
`
`During the “presale” phase, Sparkster raised $24.3 million from approximately 900
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`investors, including investors residing in multiple U.S. states. Approximately 350 additional
`
`persons, again including U.S. investors, purchased tokens through third-party investing pools.
`
`52.
`
`The investing pools, including the pool organized by Balina as described below,
`
`used their own smart contracts, which provided that pool participants would receive their SPRK
`
`tokens by sharing in the allotment of SPRK tokens purchased directly from Sparkster by the
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`individual directing the distribution to that pool.
`
`53.
`
`On July 7 and July 8, 2018, during the “crowdsale” phase, Sparkster additionally
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`raised approximately $5.7 million from approximately 3,000 individuals, including investors
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 13 of 23
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`residing in multiple states in the U.S., bringing the total sale proceeds from SPRK tokens to $30
`
`million.
`
`54.
`
` In June 2019, SPRK tokens were unlocked and briefly listed on a crypto asset-
`
`trading platform, but the listing was removed shortly thereafter. Beginning on September 6, 2019,
`
`SPRK tokens were listed on another crypto asset-trading platform. As soon as trading began on that
`
`platform, the value of SPRK tokens dropped dramatically.
`
`D.
`
`Balina Failed to Disclose That Sparkster Had Given Him Consideration for
`Promoting SPRK Tokens.
`
`55.
`
` On May 13, 2018, two days after Sparkster won Balina’s contest in Amsterdam
`
`and before his promotion of the Sparkster Offering began, Balina asked Sparkster’s CEO to
`
`provide him with a “5000+ ETH,” or approximately a $3,500,000, allocation for the Sparkster
`
`ICO—well above what Sparkster was allowing other investors to purchase individually.
`
`56.
`
`On May 20, 2018, after further discussions between Balina and Sparkster’s CEO,
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`Balina signed a SAFT with Sparkster, agreeing to purchase 7,143 ETH, or approximately
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`$5,000,000, worth of SPRK tokens. The SAFT also stated that Balina would receive a 30 percent
`
`bonus in SPRK tokens. Sparkster’s CEO informed Balina at the time that he was “the only one
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`that’s been allowed to invest more than the [minimum].”
`
`57.
`
`The same day that he signed the SAFT—May 20, 2018—Balina named the
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`Sparkster Offering as his “Hall of Fame” or top ICO of the year in his ICO rankings. While Balina
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`disclosed that he was an investor in Sparkster when he promoted the Sparkster Offering, he did
`
`not disclose that he had received bonus tokens from Sparkster for his endorsement of the Sparkster
`
`Offering.
`
`58.
`
`The SAFT that Balina signed with Sparkster expressly stated that U.S. residents,
`
`like Balina, were not eligible for and “must not buy” SPRK tokens. Balina nevertheless proceeded
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 14 of 23
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`with the SPRK token purchase, but instead of submitting a U.S. passport for the registration
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`process, he submitted a Ugandan passport and utility bill as proof of citizenship and residence
`
`during the SPRK token purchase registration process. At that time, Balina was a United States
`
`resident, living in Potomac, Maryland, where he had lived for a number of years.
`
`59.
`
`On May 21, 2018, Sparkster’s CEO privately messaged Balina and told him that
`
`the Sparkster Telegram group had voted to eliminate bonuses for all presale participants, but he
`
`said that a few strategic partners, including Balina, would receive bonuses of up to 30 percent.
`
`Balina responded, “I think [the Sparkster website] should be changed to document that the highest
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`bonus given out was 30%. I have to publicly disclose it to my audience due to SEC regulations.
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`So I suggest to do this.”
`
`60.
`
`On May 25, 2018, during a live AMA session on YouTube, where he hosted a
`
`demonstration by Sparkster’s CEO, Balina said that after Sparkster’s previous pitch in Amsterdam:
`
`“I … and my team ended up doing more homework on the project and after two demos ... our team
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`basically came to a conclusion that this was a project that we wanted to be a part of. Disclosure: I
`
`have invested. I was part of their token sale. That being said, this is not a paid endorsement.”
`
`61.
`
`On May 26, 2018, Balina transferred 7,143 ETH to the Ethereum wallet address
`
`provided by Sparkster’s CEO.
`
`62.
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`Contrary to his acknowledgement and statement on May 21, 2018 that he needed
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`to disclose the compensation Sparkster provided him, Balina never publicly disclosed that
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`Sparkster had agreed to provide him with bonus tokens as a consideration for his promotion of
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`SPRK tokens. The federal securities laws require that a person who receives or is to receive from
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`an issuer of securities a consideration for the person’s use of interstate transportation,
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 15 of 23
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`communication, or commerce to publicize a security must fully disclose the past or prospective
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`receipt of the consideration, as well as the amount thereof.
`
`63.
`
`Almost six months later, on November 16, 2018, during a live YouTube AMA and
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`in response to a direct question about the price at which Balina received SPRK Tokens, Sparkster’s
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`CEO disclosed that the company had provided a 30% bonus to Balina and that he was one of only
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`three strategic partners to receive a bonus.
`
`E.
`
`Balina Also Conducted an Unregistered Offering of SPRK Tokens
`
`64.
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`On May 21, 2018, the day after he signed the SAFT, Balina announced on Telegram
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`that he was forming an investing pool for members of that group. Balina directed potential
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`investors to a third-party website used for hosting investing pools, posting a link to the site and
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`stating “get whitelisted for my Sparkster pool.” Balina’s pool used a smart contract to allow pool
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`participants to contribute ETH and share in Balina’s allocation of SPRK tokens he would receive
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`pursuant to the SAFT he signed with Sparkster.
`
`65.
`
`The link that Balina posted on Telegram included an online form that the members
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`of his investing pool would have to complete in order be potentially included in the whitelist for
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`the SPRK token investing pool. In addition to providing the details of Balina’s offering for his
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`investing pool, the form requested potential investors to provide information about themselves,
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`how much money they were willing to invest, and to identify the Ethereum wallet address that they
`
`intended to use for Balina’s offering. The form also contained a disclaimer from Diary of a Made
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`Man LLC, which identified Balina’s company as being responsible for the investing pool.
`
`66.
`
`Approximately fifty individuals, including 12 U.S. residents, ultimately contributed
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`approximately $3.8 million worth of ETH to participate in Balina’s investing pool. Balina
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`controlled who was allowed to participate in the pool and provided regular updates to the Telegram
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`group about the status of the pool. Through the information provided by the pool participants to
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 16 of 23
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`the investing pool provider, Balina—himself a U.S. resident—was also aware that U.S. residents
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`were participating in the pool, but he did not take steps to restrict their participation.
`
`67.
`
`The members of the Telegram group repeatedly thanked Balina for the opportunity
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`to invest in his pool. When members had problems with their contributions being approved or
`
`“whitelisted,” Balina addressed the problems and told the group when the issue was resolved. He
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`also removed members from the Telegram group who had not been invited by him to participate.
`
`68.
`
`On May 26, 2018, Balina announced on Telegram: “Sending funds soon. Those
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`that want to pull out please do so asap. We won’t wait long.” Balina’s pool participants submitted
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`ETH to the address provided by Balina, and, when Sparkster distributed its tokens to Balina, a
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`portion of those tokens was automatically distributed to the pool participants via a smart contract.
`
`Balina agreed to share with the participants in his investing pool the bonus tokens that he would
`
`receive from Sparkster, in accordance with the amount of the investment by each participant.
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`Sparkster ultimately distributed the bonus tokens on or about August 26, 2019.
`
`69.
`
`The U.S.-based investors in Balina’s pool irrevocably committed to the transaction
`
`when, from within the United States, they sent their ETH contributions to Balina’s pool. At that
`
`point, their ETH contributions were validated by a network of nodes on the Ethereum blockchain,
`
`which are clustered more densely in the United States than in any other country. As a result, those
`
`transactions took place in the United States.
`
`70.
`
`As alleged below, the SPRK tokens that Balina distributed to the pool were
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`securities under federal law. Balina included a disclaimer in the online form that his investing
`
`pool participants were required to complete, stating that the offering may constitute an
`
`“unregistered securities offering.” Balina received the SPRK tokens from Sparkster with the
`
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`Case 1:22-cv-00950-RP Document 1 Filed 09/19/22 Page 17 of 23
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`intention to distribute them, and he did in fact distribute the SPRK tokens. Balina’s distribution
`
`of SPRK tokens through his investing pool was therefore a separate offering of securities.
`
`71.
`
`Balina’s offering of securities was done without any filing or registration with the
`
`SEC, and no exemption from registration was applicable.
`
`72.
`
`In setting up, communicating the particulars of, and conducting the distribution to
`
`his investing pool, Balina offered to sell, and sold, unregistered securities through the use of
`
`interstate communication or commerce, in violation of the offering registration provisions of the
`
`federal securities laws.
`
`F.
`
`The SPRK Tokens in the Sparkster Offering Were Securities, but the Offering Was
`Not Registered with the SEC
`
`73.
`
`The SPRK Tokens offered and sold in the Sparkster Offering were securities under
`
`the federal securities laws, the Offering was not registered with the SEC, and no exemption from
`
`registration was applicable.
`
`74.
`
` First, the Sparkster offering involved an investment of money. Purchasers paid
`
`using a crypto asset – ETH – in exchange for SPRK Tokens.
`
`75.
`
`Second, investors in SPRK Tokens had an expectation of profits from their
`
`investment in a common enterprise. Sparkster and its CEO led investors to expect that they would
`
`receive profits because of their SPRK Token purchases.
`
`76.
`
`Sparkster’s promotion of the offering to investors and its representations regarding
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`the value of SPRK tokens pitched the tokens as a way for investors to make money.
`
`77.
`
`Du