SEC Charges Founders and Issuer for Conducting Fraudulent and Unregistered Ico
Litigation Release No. 24804 / April 24, 2020
Securities and Exchange Commission v. Dropil, Inc., Jeremy McAlpine, Zachary Matar, and Patrick O'Hara, No. 8:20-cv-00793 (C.D. Cal., filed April 23, 2020)
The Securities and Exchange Commission today charged Dropil, Inc. and its three California-based founders, Jeremy McAlpine, Zachary Matar, and Patrick O'Hara, with defrauding investors in a fraudulent and unregistered initial coin offering (ICO) that raised more than $1.8 million from thousands of investors.
According to the SEC's complaint, from at least January to March 2018, Dropil sold DROP tokens, claiming that investor funds would be pooled to trade various digital assets by a "trading bot," called Dex, using an algorithm designed and tested by Dropil. Dropil allegedly claimed the trading would generate profits that would be distributed as additional DROP tokens every 15 days. Instead of using investor money to trade with Dex, Dropil allegedly diverted the funds raised to other projects and to the founders' personal digital asset and bank accounts. Dropil allegedly manufactured fake Dex profitability reports and made payments in the form of DROPs to Dex users, giving the false appearance that Dex was operational and profitable. The complaint further alleges that Dropil misrepresented the volume and dollar amount of DROPs sold both during and after the ICO, ultimately claiming that it had successfully raised $54 million from 34,000 investors in the United States and around the world. According to the complaint, however, Dropil raised less than $1.9 million from fewer than 2,500 investors. The complaint also alleges that during the SEC's investigation, Dropil produced falsified evidence and testimony.
The SEC's complaint, filed in federal district court in Los Angeles, charges Dropil, McAlpine, Matar, and O'Hara with violating the registration provisions of Section 5 of the Securities Act of 1933 and the antifraud provisions of Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC's complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, penalties, and injunctive relief.
The SEC's investigation was conducted by Roberto Grasso and Tony Regenstreif and supervised by Robert Conrrad. The SEC's litigation will be led Daniel O. Blau and supervised by Amy Jane Longo.