The Block: SEC charges Shopin for allegedly defrauding investors of $42M in an unregistered ICO

Cryptocurrency firm Shopin and its CEO Eran Eyal have been charged by the U.S. Securities and Exchange Commission (SEC) for allegedly defrauding hundreds of investors in a $42 million initial coin offering (ICO).

According to the allegation , Eyal and his company sold Shopin Tokens in an unregistered securities offering from August 2017 to April 2018, under the premise that the funds would be used to generate a blockchain-based database for shopper profiles. The problem, SEC’s complaint says, is that the platform was never created and Eyal has misappropriated over $500,000 of the funds for his personal use—rent, shopping, entertainment as well as a dating service. Furthermore, Eyal allegedly lied to investors about supposed partnerships with retailers.

"As alleged in today’s action, the SEC seeks to hold Eyal and Shopin responsible for scamming innocent investors with false claims about relationships and contracts they had secured in support of a blockchain-based universal shopper profile," said Marc P. Berger, Director of the SEC's New York Regional Office. "Retail investors considering an investment in a digital asset that meets the definition of a security must be afforded the same truthful disclosures as in any traditional securities offering."

Eyal was previously charged by the New York Attorney General in August 2018 for stealing $600,000 from investors through false representation of his company, Springleap.

This time, the SEC is seeking permanent injunctions, disgorgement with interest, and civil penalties. The agency also proposed an officer-and-director bar against Eyal and a bar against Eyal and Shopin to prevent them from ever participating in a digital asset securities offering.

Eyal pled guilty to operating three securities fraud schemes, including the Shopin ICO, according to a press release from the New York State Attorney General's office on Thursday. He will pay $125,000 in restitution and $475,000 in judgments to investors in Springleap.

UPDATE (Dec. 16, 2019): This story has been updated with additional information from the New York State Attorney General's office.