Crypto YouTuber Ian Balina sold unregistered securities when he bought Sparkster (SPRK) tokens and offered them to United States investors in an investment pool, a Texas federal court judge has ruled.
“The Court has determined, as a matter of law, that U.S. securities laws are applicable to Balina’s actions and that SPRK tokens qualify as securities,” Judge David Alan Ezra wrote in a May 22 order, granting a partial victory to the Securities and Exchange Commission (SEC), which filed the lawsuit in 2022.
The court found SPRK was an investment contract under the securities-determining Howey test — where investors pooled money into a common enterprise expecting profits due to the efforts of others.
Ezra agreed with the SEC that Balina “purposefully targeted United States investors” and knocked back the influencer’s summary judgment bid, claiming the SEC had no sway as the sales happened overseas.
The SEC did not succeed in its claim that Balina failed to properly disclose a compensation agreement made with Sparkster CEO Sajjad Daya, as the court identified factual inconsistencies.
Balina’s lawyer, Michael Navarre from Beatty Navarre Strama P.C., told Cointelegraph Balina was “disappointed with the Order” and disagreed with the court’s decision.
Balina plans to appeal “as soon as possible.”
The SEC said in its lawsuit that between May and July 2018, Balina purchased $5 million worth of SPRK, promoted it across multiple social media platforms and made a Telegram group to form an investment pool for the tokens.
It added that he didn’t tell investors that Sparkster had given him a 30% bonus for the tokens he had purchased. Balina said the SEC’s alleged bonus was a standard volume discount in a private presale deal.
Navarre added Balina was “was fooled by Sparkster when he purchased Sparkster tokens that are essentially worthless.”
“After the SEC required Sparkster to pay over $35 million in penalties, the SEC brought this action against Ian. This case is another example of the SEC trying to expand its jurisdiction over cryptocurrency to become the world’s crypto policeman,” Navarre said.
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Sparkster promoted itself as a “low-code” blockchain application development platform and conducted its SPRK token initial coin offering (ICO) between April and July 2018.
In September 2022, it made a deal with the SEC to destroy its remaining SPRK tokens and remove them from trading platforms without admitting or denying the regulator’s claims. The SEC ordered it to pay a $30 million disgorgement, $4.6 million interest and a $500,000 civil penalty.
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Update (May 26, 10:15 pm UTC): This article has been updated to add comments from Ian Balina’s lawyer, Michael Navarre.