A Texas federal court judge has ruled that cryptocurrency YouTuber Ian Balina sold unregistered securities when he purchased Sparkster (SPRK) tokens and offered them to U.S. investors in an investment pool. Judge David Alan Ezra stated in the May 22 order that U.S. securities laws apply to Balina’s conduct and that SPRK tokens qualify as securities. This decision allows the Securities and Exchange Commission (SEC) to proceed with its lawsuit against Balina, which was filed in 2022.
The court determined that SPRK tokens constituted an investment contract under the Howey test, which classifies securities based on whether investors pool their money into a common enterprise with the expectation of making profits through the efforts of others. Judge Ezra agreed with the SEC's position that Balina deliberately targeted U.S. investors. He dismissed Balina’s argument that the SEC had no jurisdiction because the sales occurred overseas, reinforcing that U.S. securities laws were applicable in this case.
The SEC accused Balina of failing to properly disclose a compensation agreement with Sparkster CEO Sajjad Daya. However, the court found factual inconsistencies in these charges. Between May and July 2018, Balina purchased $5 million worth of SPRK tokens, promoted them on various social media platforms, and created a Telegram group to form an investment pool for the token.
The SEC also claimed that Balina did not inform investors about a 30% bonus on the tokens he purchased. Balina argued that these bonuses were standard volume discounts in private presale transactions. Sparkster had marketed itself as a “low-code” blockchain application development platform and conducted an initial coin offering (ICO) of the SPRK token between April and July 2018.
In September 2022, Sparkster reached an agreement 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 Sparkster to pay $30 million in disgorgement, $4.6 million in interest, and a $500,000 civil penalty.
