$20M Court Order in Crowd Machine 2018 ICO Case

In a recent legal ruling, Crowd Machine and Metavine, the creators of Crowd Machine Compute Tokens (CMCT), have been ordered to pay over $20 million in disgorgement, interest, and penalties. Founder Craig Sproule was also held liable in the case. The trouble began for Sproule in January 2022 when the United States Securities and Exchange Commission (SEC) filed a lawsuit against him, alleging that the initial coin offering (ICO) for CMCT in 2018 was an unregistered securities sale and a fraudulent scheme. It was further revealed that Sproule misused and lost $5.8 million of the funds raised from the ICO. The CMCT tokens, which were meant to compensate computer owners for utilizing their computing power and reward programmers, never became operational.

As a consequence of the ruling, Sproule was fined $195,047 and ordered to shut down CMCT and delist it from the one cryptocurrency exchange where it had been available. Neither Sproule nor the defendants admitted or denied any wrongdoing. Subsequently, on January 17th, the District Court of Northern California issued an amended final judgment, demanding that the defendants pay disgorgement of $19,676,401.27, along with $3.4 million in prejudgment interest. Furthermore, Metavine was held liable for disgorgement of $5 million of the total amount. The Court also imposed civil penalties of $600,000 on each of the defendants.

As of January 24th, the SEC stated that the prior consent judgments had resolved the SEC’s action against Mr. Sproule, and the Court was left to determine the monetary relief for the remaining defendants. ICOs were once a popular method for launching cryptocurrencies until the SEC classified them as securities sales in July 2017. Since then, the SEC has taken action against several ICO issuers. Metavine, founded by Sproule in 2013, is a no-code software development platform and reportedly filed for bankruptcy on January 3rd. Crowd Machine, on the other hand, is a unified cloud platform.

The ruling against Crowd Machine and Metavine serves as a stark reminder of the SEC’s efforts to crack down on fraudulent ICOs and unregistered securities sales. This case highlights the potential risks involved in investing in ICOs and the importance of conducting due diligence before participating in such offerings. The substantial financial penalties imposed on the defendants aim to deter others from engaging in similar fraudulent activities in the future. The fate of Metavine’s bankruptcy filing remains uncertain as the legal proceedings continue.