SEC files suit against founders of Dropil for 'fraudulent and unregistered' ICO

The U.S. Securities and Exchange Commission has filed suit against a California company and its three founders, alleging that they conducted a fraudulent initial coin offering (ICO).

The regulator said in a Friday statement that Dropil, Inc. and the three named founders – Jeremy McAlpine, Zachary Matar, and Patrick O'Hara – sold so-called DROP tokens and pledging that the proceeds "would be pooled to trade various digital assets by a "trading bot," called Dex, using an algorithm designed and tested by Dropil."

"Instead of using investor money to trade with Dex, Dropil allegedly diverted the funds raised to other projects and to the founders' personal digital asset and bank accounts. Dropil allegedly manufactured fake Dex profitability reports and made payments in the form of DROPs to Dex users, giving the false appearance that Dex was operational and profitable," the agency said.

What's more, the SEC has alleged that the Dropil team inflated their sales figures, raising far less than the $54 million in proceeds they claimed.

"According to the complaint, however, Dropil raised less than $1.9 million from fewer than 2,500 investors. The complaint also alleges that during the SEC's investigation, Dropil produced falsified evidence and testimony," the SEC said in its statement.

The SEC is seeking disgorgement of ill-gotten gains, plus penalties and injunctive relief.

The full complaint can be found here.