On April 17, the SEC filed a complaint in the U.S. District Court for the Eastern District of New York alleging a crypto founder and related entities perpetrated a securities offering fraud that raised approximately $16 million from investors. The SEC alleged that from at least March 2021 through December 2021, the founder sold simple agreements for future tokens that purported to give investors the right to receive a crypto asset in the future when and if the issuing entity declared, in its sole discretion, that an operational milestone had been satisfied, and that these arrangements constituted securities under federal securities laws. The SEC alleged the defendants made materially false and misleading statements to investors, including claiming that the crypto asset was insured with up to $1 billion in coverage, was asset-backed by an existing trust fund, and that a “basket” of digital assets supported the token’s asset pool. The complaint contends that no insurance policy was issued, that no trust or asset pool was ever created, and that the founder falsely claimed that 80 percent or more of the offering proceeds would support the token’s underlying value.

The SEC further alleged the founder used accounts holding investor funds for personal expenses, including for luxury real estate, personal credit card charges, and other personal expenditures, instead of directing investor funds toward token development. According to the complaint, by the end of January 2022, the token’s quoted price on overseas exchanges had fallen from approximately $200 to less than $16, and is now valueless, which the SEC alleges led to many investors losing their investments. The complaint charges the founder and related entities with violating multiple provisions of the Securities Act, the Exchange Act, and Rule 10b-5, seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, civil monetary penalties, and an order barring the founder from serving as an officer or director of any public company.