U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 26011 / May 23, 2024
U.S. Securities and Exchange Commission v. Ian Balina, No. 1:22-CV-00950-DAE (W.D. Tex. filed Sept. 19, 2022)
Federal Court Rules That Crypto Influencer Conducted Unregistered Offering of Crypto Asset Securities
On May 22, 2024, the U.S. District Court for the Western District of Texas granted partial summary judgment to the Securities and Exchange Commission against crypto influencer Ian Balina. The Court held that the Balina offered and sold crypto assets called SPRK Tokens as securities in unregistered transactions and that U.S. securities laws apply to Balina’s conduct.
As alleged in the SEC’s complaint, in May 2018, Balina purchased $5 million worth of SPRK tokens from the issuer, Sparkster, Ltd. Balina allegedly organized an investing pool of approximately 68 individuals to whom he offered and sold SPRK tokens, despite not registering the offering with the SEC as required by federal securities laws and despite the lack of an applicable exemption from registration. The SEC also alleged that Balina promoted SPRK tokens on YouTube, Telegram, and other social media platforms from approximately May 2018 to July 2018. Balina allegedly failed to disclose that Sparkster had agreed to provide him a 30 percent bonus on the tokens that he purchased, as consideration for his promotional efforts.
The SEC's complaint charged Balina with violating the offering registration provisions of Section 5(a) and (c) of the Securities Act of 1933 (“Securities Act”) and with violating Section 17(b) of the Securities Act for his failure to disclose consideration received for his promotional efforts. The SEC moved for partial summary judgment only as to the unregistered offering violation and asked the Court to rule that SPRK Tokens were offered and sold as securities.
The Court granted the SEC’s motion and held that the SEC prevailed as a matter of law as to its unregistered offering claim. As a threshold matter, the Court held that U.S. securities laws apply to Balina’s conduct, holding that Balina targeted U.S. investors through his use of social media networks and included U.S. investors in his investing pool. The Court also held that, in violation of Sections 5(a) and 5(c) of the Securities Act, Balina acted as an underwriter by purchasing SPRK Tokens from Sparkster with an intent to distribute those tokens to members of an investing pool that he controlled. The Court further held that SPRK Tokens were offered and sold as securities under the test established by the Supreme Court in SEC v. Howey.
Balina also moved for summary judgment, requesting judgment as a matter of law as to both of the SEC’s claims. The Court denied Balina’s motion in its entirety. The Court held that the SEC’s claim under Section 17(b) survives and could not be decided as a matter of law.
The SEC previously reached a settlement on September 19, 2022, with Sparkster, Ltd. and its CEO, Sajjad Daya, for the unregistered offer and sale of SPRK tokens, under which Sparkster and Daya agreed to collectively pay more than $35 million into a fund for distribution to harmed investors.
The SEC’s litigation against Balina is being conducted by Fernando Campoamor Sánchez and Ivan J. Snyder and supervised by Melissa Armstrong. The SEC's investigation was conducted by Ivan J. Snyder and supervised by David Frohlich and Carolyn M. Welshhans.