SEC Charges ICO Issuer and Founder with Defrauding Investors

Litigation Release No. 25303 / January 7, 2022

Securities and Exchange Commission v. Crowd Machine, Inc., Metavine, Inc., and Craig Derel Sproule, and Metavine Pty. Ltd. (Relief Defendant), No. 5:22-cv-00076 (N.D. Ca. filed January 6, 2021)

The Securities and Exchange Commission yesterday announced charges against Australian citizen Craig Sproule and two companies he founded, Crowd Machine, Inc. and Metavine, Inc., for making materially false and misleading statements in connection with an unregistered offer and sale of digital asset securities.

According to the SEC's complaint, Sproule, who referred to himself in social media postings as the "Man behind the Machine," claimed to have raised $40.7 million through his companies, collectively referred to as "Crowd Machine," in an initial coin offering of Crowd Machine Compute Tokens (CMCTs). In this offering, which occurred between January and April 2018, Sproule told investors that the ICO proceeds would be used to develop a new technology that would enable Metavine, Inc.'s existing application-development software to run on a decentralized network of users' own computers. Instead, Crowd Machine and Sproule began diverting more than $5.8 million in ICO proceeds to gold mining entities in South Africa - a use that was never disclosed to investors.

The SEC also alleges that Crowd Machine and Sproule did not register their offers and sales of CMCT tokens with the Commission and knowingly sold CMCTs to "ICO pools"-groups of investors, including individuals in the U.S.-without determining whether the underlying investors were accredited.

The SEC's complaint, filed in the United States District Court for the Northern District of California, charges Sproule and Crowd Machine with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the registration provisions of Sections 5(a) and (c) of the Securities Act. Without admitting or denying the allegations, Sproule and Crowd Machine have consented to judgments permanently enjoining them from violating these provisions and participating in future securities offerings, ordering undertakings to permanently disable the CMCT tokens and seek their removal from digital asset trading platforms, and as to Sproule, prohibiting him from serving as an officer or director of a public company, and ordering him to pay a $195,047 civil penalty. Disgorgement, prejudgment interest, and civil penalties as to Crowd Machine will be determined by the court at a later date.

Without admitting or denying the allegations, relief defendant Metavine Pty. Ltd., an affiliated Australian entity, has consented to a judgment ordering it to pay, on a joint and several basis with Crowd Machine, such disgorgement as the court orders against Crowd Machine, up to the amount it received, plus prejudgment interest thereon. The consented to judgments are subject to court approval.

The SEC's investigation was conducted by Laura D'Allaird and Adam B. Gottlieb of the Cyber Unit and supervised by Paul Kim and Kristina Littman, Chief of the SEC Enforcement Division's Cyber Unit. The litigation is being conducted by Mr. Gottlieb.