The Securities and Exchange Commission today announced that it obtained partial consent judgments against three individuals and an entity previously charged with defrauding investors in a fraudulent and unregistered initial coin offering (ICO) that raised more than $1.8 million from thousands of investors.
According to the SEC’s complaint, which was filed in April 2020, from at least January to March 2018, Dropil sold DROP tokens, claiming that investor funds received for those tokens would be pooled to trade various digital assets by a “trading bot” called Dex. Instead of using investor money to trade with Dex, however, Dropil allegedly diverted the funds raised to other projects and to the founders’ personal digital asset and bank accounts. Dropil also allegedly took actions to give the false appearance that Dex was operational and profitable and misrepresented the volume and dollar amount of DROPs sold both during and after the ICO. The complaint also alleged that during the SEC’s investigation, Dropil produced falsified evidence and testimony.
The SEC’s complaint, filed in federal district court in Los Angeles, charged Dropil and its founders Jeremy McAlpine, Zachary Matar, and Patrick O’Hara with violating the registration provisions of Section 5 of the Securities Act of 1933 and the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.
Dropil, McAlpine, Matar, and O’Hara have agreed to bifurcated settlements that permanently enjoin them from future violations of these provisions of the federal securities laws and from directly or indirectly participating in the offer, purchase, or sale of digital securities. Under the terms of the settlement, disgorgement, prejudgment interest, and civil penalty will be determined by the court. Dropil, McAlpine, and Matar’s settlements are subject to court approval; O’Hara’s settlement was previously approved by the court on June 30, 2020.
In a parallel action brought by the U.S. Attorney’s Office for the Central District of California, McAlpine and Matar have agreed to plead guilty to criminal charges for violations of Sections 10(b) and 32 of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The SEC’s investigation was conducted by Roberto Grasso and Tony Regenstreif and supervised by Robert Conrrad. The SEC’s litigation is led Daniel O. Blau and supervised by Amy Jane Longo.