A Texas federal court judge on Wednesday ruled in favor of the U.S. Securities and Exchange Commission (SEC) in the case against crypto influencer Ian Balina. The case is part of the Sparkster saga that began in 2018.
The case against the crypto influencer
In 2022, influencer and CEO of Token Metrics, Ian Balina, was accused of violating securities laws. The SEC charged Balina for his involvement in the initial coin offering (ICO) of an unregistered security.
According to the court documentsSoftware development company Sparkster Ltd conducted an unregistered securities offering with the Sparkster token (SPRK) between April and July 2018. The ICO raised approximately $30 million from 4,000 US and international investors.
The Commission alleges that Balina violated Sections 5(a) and 5(c) of the Securities Act after selling and offering to sell unregistered securities through its Sparkster pool. Additionally, they alleged that the crypto influencer failed to disclose the “considerations received” when purchasing and promoting the token, in violation of Article 7.
In the lawsuit, the SEC claims that Balina had agreed to receive a 30% bonus from Sparkster for purchasing 43,333,333 SPRK tokens at $0.15. This bonus was part of a deal between the crypto influencer and the company’s CEO, Sajjad Daya.
Daya and Balina reportedly negotiated a contract in May 2018, in which the YouTubers would purchase and promote SPRK tokens on their platforms. Over the next few months, Balina approved her “Sparkster Private Sale Whitelist” to her Patreon and Telegram members.
However, the influencer did not honor his contract with the company when promoting the token. Instead, he said it was “not a paid endorsement” and that he “had not been paid by Sparkster” on separate occasions.
Judge awards victory to SEC
Balina disputed the SEC’s claims in November 2022. He argued that “he was duped by Sparkster,” adding that he lost money after purchasing the crypto tokens, like other pool members. .
He also denied receiving compensation for recommending SPRK tokens. The influencer claimed to have received “a volume discount when purchasing in a private pre-sale”, the same “that other buyers generally receive in the industry”.
Additionally, the defendant claimed that the court should “enter summary judgment in its favor” since the SPRK tokens were not securities. Likewise, court documents revealed that the YouTuber considered that “his liability was not engaged in the United States” since he was outside the country during the promotional period.
On May 22, Judge David Alan Ezra ruled in favor of the SEC. The Court granted the Commission a partial victory and denied Balina’s motion for summary judgment.
Excerpt of Judge Ezra's ruling. Source: CourtListener
As the document shows, the Court considered that the influencer’s ties to the United States were sufficient to demonstrate that he “deliberately targeted” American investors. This decision was based on the use of US social media platforms and the larger share of US-based investors in the Sparkster pool.
Judge Ezra also found that Balina violated securities laws because there was “sufficient evidence to show that Sparkster sought money from investors,” and the STRK tokens met the law’s criteria. Howey test.
Ultimately, the SEC failed to prove that the influencer violated Section 7. The court said there were factual inconsistencies regarding the existence of a prior compensation agreement in exchange for a promotion. Accordingly, the court declined to resolve this issue by summary judgment.
Total crypto market cap is at $2.47 trillion in the weekly chart. Source: TOTAL on TradingView
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