Crypto YouTuber Ian Balina Loses Against SEC In Unregistered Securities Case

Key Takeaways

• The judge stated that U.S. securities laws applied to Balina and that the SPRK tokens met the Howey Test criteria.
• The SEC failed to prove that Balina did properly disclose a compensation agreement with Sparkster CEO Sajjad Daya

Crypto YouTuber Ian Balina has been found guilty of selling unregistered securities when he bought Sparkster (SPRK) tokens and offered them to U.S. investors in an investment pool, according to a ruling by a Texas federal court judge. 

Judge David Alan Ezra, in a May 22 order, stated, “The Court has determined, as a matter of law, that U.S. securities laws are applicable to Balina’s actions and that SPRK tokens qualify as securities.” This ruling granted a partial victory to the SEC, which had filed the lawsuit in 2022. However, the SEC failed to prove that Balina did properly disclose a compensation agreement with Sparkster CEO Sajjad Daya, owing to identified factual inconsistencies.

The judge stated that U.S. securities laws applied to Balina and that the SPRK tokens met the criteria of the Howey Test. “The Court holds as a matter of law that U.S. securities laws apply to Balina’s conduct and that the SPRK tokens are securities,” the judge concluded.

Balina faced charges in September 2022 related to his involvement in an unregistered initial coin offering (ICO). The allegations centered around the ICO for Sparkster, marketed as a “no-code” development platform. The ICO, which ended in July 2018, raised $30 million from investors.

The SEC claimed Balina purchased $5 million worth of SPRK tokens and promoted them on YouTube, Telegram, and other social media platforms. The agency also alleged that Balina failed to disclose a 30% bonus on the tokens he bought, which was given to him by Sparkster as consideration for his promotional efforts.

Additionally, Balina allegedly organized an investment pool with around 68 people to whom he offered and sold these tokens. As per SEC, Balina should have registered the offering.

Balina responded to the SEC’s charges by dubbing them as “an unfounded effort based upon multiple misconceptions of fact and law.”

The SEC’s lawsuit outlined that between May and July 2018, Balina bought $5 million worth of SPRK tokens, promoted them on social media, and formed a Telegram group for an investment pool. It added that Balina did not inform investors about the 30% bonus from Sparkster. Balina argued that the bonus was a standard volume discount in a private pre-sale deal.

The court found that SPRK was an investment contract under the Howey test, where investors pool money into a common enterprise expecting profits from others’ efforts. Judge Ezra agreed with the SEC that Balina “purposefully targeted United States investors” and rejected Balina’s claim that the SEC had no jurisdiction since the sales happened overseas.

In a previous settlement on September 19, 2022, with Sparkster, Ltd. and its CEO Sajjad Daya, the SEC resolved the unregistered offer and sale of SPRK tokens. Sparkster and Daya agreed to collectively pay more than $35 million into a fund for distribution to harmed investors, including a $30 million disgorgement, $4.6 million interest, and a $500,000 civil penalty.

Balina became famous during the 2017-2018 ICO boom. He also grabbed headlines when he lost $2.5 million in a personal wallet hack. In June 2019, Balina appeared to issue a mea culpa related to Sparkster in an X(formerly Twitter) thread.