Ruling Allows SEC Suit Against Social Media Promoter of Sparkster Token to Proceed

News | June 10, 2024 By:

On Wednesday, May 22, 2024, the United States District Court for the Western District of Texas, Austin Division issued an order in the case between the United States Securities and Exchange Commission (SEC) versus Ian Balina.

The case involved allegations that Ian Balina, a cryptocurrency investor and social media influencer, violated federal securities laws during the sale of digital tokens called SPRK Tokens issued by Sparkster Ltd, a software development company based in the Cayman Islands. Sparkster raised approximately $30 million through an initial coin offering (ICO) in 2018 by selling SPRK Tokens to investors, including those in the United States.

Balina was alleged to have promoted and sold SPRK Tokens to investors without properly registering the digital tokens with the SEC. Specifically, he was accused of creating an investment pool on the messaging platform Telegram where he and over 20 other investors pooled money to jointly purchase SPRK Tokens from Sparkster during a presale. Balina also promoted SPRK Tokens on various social media platforms like YouTube, Instagram, and his blog.

However, Balina argued that SPRK Tokens were not securities and therefore not subject to SEC regulations. He claimed the transactions occurred entirely outside the United States. He also denied receiving any compensation from Sparkster for promoting the tokens.

In its order, the District Court analyzed two cross motions for summary judgment, one from the SEC seeking to establish Balina’s liability and the other from Balina seeking dismissal. On the key issue of whether US securities laws applied, the Court found that while some aspects like the creation of Sparkster occurred abroad, Balina targeted US investors through his use of American social media platforms. It said the SEC provided enough evidence that Balina purposefully promoted SPRK Tokens to investors in the United States.

The Court applied the “irrevocable liability” test to determine the location of alleged token sales. It noted evidence that some US-based investors in Balina’s pool committed funds from within the United States. Therefore, it refused to dismiss the case for lack of jurisdiction.

However, the Court did not fully grant the SEC’s motion either. It stated material facts remain in dispute regarding other aspects of Balina’s activities and whether he received compensation. As a result, the order declined to enter summary judgment for either side and the case will proceed to trial. The court’s mixed ruling ensures key questions around the application of securities regulations to cryptocurrency promotions and global transactions will continue to be debated.

Please contact BlockTribune for access to a copy of this filing.