securities and exchange commission

Members of the crypto community are worried after the US Securities and Exchange Commission (SEC) entered wordage into a lawsuit against Sparkster and Ian Balina that could have wide consequences on the space.

Crypto influencer Balina has been charged for his part in promoting Sparkster – which has agreed to settle and pay $35 million back into a fund that will be distributed to harmed investors.

Balina describes SEC charges as ‘frivolous’ and ‘baseless’

The SEC have charged Balina with “failing to disclose compensation he received from Sparkster for publicly promoting its tokens and failing to file a registration statement with the SEC for Sparkster tokens that he resold.”

Sparkster have been ordered to pay $30 million in disgorgement, $4,624,754 in prejudgment interest and a $500,000 civil penalty – there is also a $250,000 penalty against Sparkster CEO Sajjad Daya.

According to the SEC, Balina purchased $5 million of SPRK tokens and promoted them on social media platforms but failed to disclose he had received a 30% bonus on the tokens he purchased.

They also allege he organized an investing pool of at least 50 people and promoted and sold SPRK tokens, but failed to register the offering with the SEC, as required by law.

Carolyn M.Welshhans, Associate Director of the SEC’s Division of Enforcement, said:

“The resolution with Sparkster and Daya allows the SEC to return a significant amount of money to investors and requires additional measures to protect investors, including the disabling of tokens to prevent their future sale.

“The SEC’s action against Balina further protects investors by seeking to hold accountable an alleged crypto asset promoter for failures to follow the federal securities laws.”

In a series of Tweets, however, Balina said he was “excited to take this fight public” and described the charges as “frivolous” and “baseless” and that the SEC has “ZERO proof” of the allegations.

Crypto community worried at ‘absurd’ SEC wordage

The language used in the SEC press release has not gone unnoticed in the wider crypto, with some worried at what it could mean for future regulation in the space.

In a Reddit post, one user does not disagree with the charges against Balina – but says the arguments used against him are “absurd” and “another attempt to seize jurisdiction”.

They point to the SEC claiming that transactions took place on US soil because deposits were validated by a network of nodes on the Ethereum blockchain “which are clustered more densely in the United States than in any other country.”

However, ETH nodes are located all over the world and – according to Ethernodes statistics – while the US does have the largest amount, less than 50% are located in the country with only 44.33%.

Timo Lehes, founder of Swarm Markets, commented: “The outcome of the case could have enormous implications for crypto in the US, most notably with Ethereum at the center of the argument.

“Regulation is at the top of the agenda for most of the sector now, and this has been thrown into particularly sharp relief in recent months. But such is the way that legal systems function in some regions, the use of case law could essentially work to force the hand of an entire sector and greatly enhance the power of regulators without the creation of new frameworks. 

“The US is marching toward greater oversight of crypto and this is a good thing. But what seems to be at play here is the SEC making a clear move to force the situation. 

“It’s incumbent on crypto providers now to get their houses in order. If the ruling comes back that it is indeed a security, compliance with that will be forced swiftly upon them whether they like it or not.”