An Atlanta-based film producer and a rapper, plus three other individuals, have been charged by the Securities and Exchange Commission with fraudulently raising millions of dollars through digital coin offerings, the SEC announced Friday.
Film producer Ryan Felton, rapper and actor Clifford Harris Jr., who is known as T.I. or Tip, and three others have been charged with a variety of violations of SEC regulations. Felton also has been indicted on criminal fraud charges arising from the cryptocurrency scheme, the U.S. Attorney for the Northern District of Georgia announced Friday. All of the defendants except Felton have agreed to settlements of the SEC charges.
During 2017 and 2018, Felton took $2.2 million from investors on the premise that he would invest in a digital streaming platform known as FliK and a digital-asset trading platform known as CoinSpark, through what are known as initial coin offerings, the SEC said. Instead, he spent the money he raised on luxury items, including an all-cash purchase of a $1.5 million residence and an all-cash purchase of a $180,000 red 2007 Ferrari 599 GTB Fioran Coupe, the U.S. attorney said. The SEC also has charged both companies that were controlled by Felton, FliK and CoinSpark, with fraud.
“Initial coin offerings can be used to fund innovative and exciting projects that might not otherwise be able to come to life through traditional funding sources,” said U.S. Attorney for the Northern District of Georgia Byung J. Pak. “The defendant promised investors a stake in innovative ventures and allegedly spent investor funds lavishly on personal expenses.”
Initial coin offerings are fundraising events during which the issuers of a unique “token” or “coin” set an amount they want to raise, offer it to the public in a crowdsale, and receive cryptocurrency from investors in exchange, the U.S. Attorney’s Office said.
"This is a sad reminder to investors to be very careful where they entrust their money,” added Chris Hacker, special agent in charge of FBI Atlanta.
Among other activities, Felton allegedly secretly transferred FLiK tokens to himself and sold them into the market, the SEC said. In addition, Felton engaged in manipulative trades intended to create the false appearance of trading activity in SPARK tokens in order to artificially increase the trading price, the SEC complaint said.
“In offering and selling FLiK and SPARK tokens, Felton, FLiK, and CoinSpark knowingly, recklessly, or negligently made and disseminated numerous materially false and misleading statements and engaged in other deceptive acts,” the SEC said.
The rapper, T.I., who also was charged by the SEC but settled the charges, encouraged his followers to invest in the FliK initial coin offerings, the SEC said. Others charged by the SEC who settled were William Sparks Jr., who sold FliK tokens, and Chance White and Owen Smith, Atlanta residents who promoted SPARK tokens without disclosing they were promised compensation in return, the SEC said.
“The federal securities laws provide the same protections to investors in digital asset securities as they do to investors in more traditional forms of securities,” said Carolyn M. Welshhans, associate director in the SEC’s Division of Enforcement. “As alleged in the SEC’s complaint, Felton victimized investors through material misrepresentations, misappropriation of their funds, and manipulative trading.”
The SEC complaint, filed in the U.S. District Court for the Northern District of Georgia, charges Felton with violating registration, antifraud, and anti-manipulation provisions of the federal securities laws. FLiK and CoinSpark were charged with violating registration and anti-fraud provisions. White and Smith were charged with violating registration and anti-touting provisions. Sparks was charged with violating registration provisions.
The SEC’s Office of Investor Education and Advocacy cautioned investors to be wary of celebrity endorsements and to always independently research investment opportunities.