SEC Settles Digital Asset Case
One of the key focuses of the Commission’s enforcement program has been retail investors and offering frauds. Frequently it is those investors who rush to purchase shares in the latest fad area only to find out that the investment is not really an investment but a fraud. In many instances those cases have involved coin offerings laced with buzz words such as blockchain. In one recent case the Commission was able to assist with the recovery of at least part of the lost funds. SEC v. Eyal, Civil Action No. 1:19-cv-11325 (S.D.N.Y. Filed Dec. 11, 2019).
Named as defendants were Eran Eyal, a dual citizen of South Africa and Israel residing in Brooklyn, and his firm, Uniteddata, Inc, d/b/a “Shopin.” Over a period of about eight months, beginning in August 2017, Defendants raised about $42.5 million in digital assets. Shopin supposedly planned to create a universal shopper profile that would track customer shopping histories at online retailers that would recommend purchases. The offering, conducted in typical two stage ICO fashion using a pre-sale and a sale, was based on a series of misrepresentations. Those included claims that two successful tests of Shopin’s approach had been conducted, a claim that the firm had on-going partnerships with well-known retailers, a representation that a prominent Silicon Valley blockchain entrepreneur advised the firm and a suggestion that a successful online company had invested in the firm. Shopin never created a functional platform. The proceeds from the offering were diverted to the personal use of Mr. Eyal. The complaint alleged violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b).
The Commission settled with Eran Eyal. He consented to the entry of a permanent injunction based on the Sections cited in the complaint. The settlement, entered by the District Court, also contained an offer and a director bar and a conduct-based injunction tied to digital assets. In addition, the Court’s order requires him to pay disgorgement of $422,100 in ill-gotten gains and $34,940 in prejudgment interest. Those amounts are deemed satisfied by the payment of 3,105.78 Ether tokens pursuant to Mr. Eyal’s prior plea agreement in a parallel New York state criminal action. The claim as to Shopin was dismissed. See Lit. Rel. No. 24842 (June 23, 2020).