The US Securities and Exchange Commission (SEC) has charged an individual in the latest crypto scam for defrauding investors by diverting money to South African gold mining companies. Australian cryptocurrency businessman Craig Sproule, via his two companies, Crowd Machine and Metavine, made “materially false and misleading statements in connection with an unregistered offer and sale of digital asset securities,” SEC said.
California-based Crowd Machine, presented by Sproule as a 'decentralized' Amazon Web Services competitor, raised $40 million through an initial coin offering of Crowd Machine Compute Tokens (CMCT) in 2018.
"We want to give everyone the tools to make positive change in their business, which is why we built Crowd Machine on AWS, to use their extensive compute power, depth and breadth of services, and world-class expertise,” Sproule told the media at that time.
Instead, the SEC now alleges that Sproule siphoned $5.8 million into gold mining entities in South Africa. The SEC’s statement of claim says that none of that money has been recovered, while the South African gold mining operations have returned no revenue.
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Sproule has been ordered to pay a $200,000 penalty and is facing a ban from serving as a company director.
“As alleged, Sproule and Crowd Machine misled investors about how they were using ICO proceeds, spending funds on an entirely unrelated scheme,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. Regulators also said that Crowd Machine didn’t register its token sale with the Commission.
While promoting Crowd Machine on social media, Sproule claimed that it was a “live commercial product, battle-tested” by Fortune 500 firms; but the SEC says none of the tech was functional.
Sproule also told investors that CMCT’s price could eventually reach $600; yet, it failed to ever trade higher than $0.085.
In September 2018, CMCT’s price collapsed nearly 90% after a cyber attack led to the theft of more than 1 billion tokens, worth $14 million.
Cryptocurrency crime had a record-breaking year in 2021 with scammers taking in an estimated $14 billion, nearly double compared to 2020, according to blockchain data firm Chainalysis report.
With an 81% increase from 2020, more than $2.8 billion of this 2021 total came from “rug-pulls”, an increasingly popular new scheme in which developers create new crypto tokens and promote them to investors to pump up their value. Once that is achieved, they abandon the project, taking investor funds with them, never to be heard from again.
The largest rug pull scam went down in Turkey, with Thodex, which saw its mastermind block users’ ability to withdraw their funds and then disappear with $2.6 billion.
In October, Doge-themed Anubis DAO raised $60 million in one day before being rug-pulled by the developer.
One of the most prominent rug pulls of last year involved a token purportedly tied to the hit Korean Netflix drama Squid Game. The SQUID coin surged as high as $2,861 in early November before tanking as the developers made off with an estimated $3.38 million in investor funds.
By Michael Kern for Safehaven.com
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