The Securities and Exchange Commission announced charges Friday against five Atlanta-based individuals, including film producer Ryan Felton, rapper and actor Clifford Harris, Jr., known as T.I. or Tip, and three others who each promoted one of Felton’s two allegedly unregistered and fraudulent initial coin offerings (ICOs).
The SEC also charged FLiK and CoinSpark, the two companies controlled by Felton that conducted the ICOs. Aside from Felton, all of the individuals have agreed to settlements to resolve the charges against them.
The SEC’s complaint alleges that Felton promised to build a digital streaming platform for FLiK, and a digital-asset trading platform for CoinSpark. Instead, Felton allegedly misappropriated the funds raised in the ICOs.
The complaint also alleges that Felton secretly transferred FLiK tokens to himself and sold them into the market, reaping an additional $2.2 million in profits, and that he engaged in manipulative trading to inflate the price of SPARK tokens. Felton allegedly used the funds he misappropriated and the proceeds of his manipulative trading to buy a Ferrari, a million-dollar home, diamond jewelry, and other luxury goods.
In a settled administrative order, the SEC finds that T.I. offered and sold FLiK tokens on his social media accounts, falsely claiming to be a FLiK co-owner and encouraging his followers to invest in the FLiK ICO. T.I. also asked a celebrity friend to promote the FLiK ICO on social media and provided the language for posts, referring to FLiK as T.I.’s “new venture.”
The SEC’s complaint alleges that T.I.’s social media manager William Sparks, Jr. offered and sold FLiK tokens on T.I.’s social media accounts, and that two other Atlanta residents, Chance White and Owen Smith, promoted SPARK tokens without disclosing they were promised compensation in return.
“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 Division of Enforcement. “As alleged in the SEC’s complaint, Felton victimized investors through material misrepresentations, misappropriation of their funds, and manipulative trading.”
The 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 are charged with violating registration and anti-fraud provisions. White and Smith are charged with violating registration and anti-touting provisions. Sparks is charged with violating registration provisions. The complaint seeks injunctive relief, disgorgement of ill-gotten gains, and civil monetary penalties, as well as an officer-and-director bar against Felton.
Sparks agreed to disgorge his ill-gotten gains plus prejudgment interest, and Sparks, White, and Smith each agreed to pay a penalty of $25,000 and to conduct-based injunctions prohibiting them from participating in the issuance, purchase, offer, or sale of any digital asset security for a period of five years.
The proposed settlements are subject to court approval. Three of Felton’s family members and an LLC that he established were also named as relief defendants. The SEC’s order against T.I. requires him to pay a $75,000 civil monetary penalty and not participate in offerings or sales of digital-asset securities for at least five years.
The U.S. Attorney’s Office for the Northern District of Georgia brought criminal charges against Felton in a parallel action.
The SEC’s Office of Investor Education and Advocacy has issued an Investor Bulletin that cautions investors to be wary of celebrity endorsements and to always independently research investment opportunities.
The SEC’s investigation was conducted by Virginia M. Rosado Desilets and David H. Tutor, and supervised by John O. Enright, David A. Becker, Ms. Welshhans, and Cyber Unit Chief Kristina Littman. Nadia Brannon from the SEC’s Office of Compliance, Inspections, and Examinations also assisted.
The litigation will be led by Richard Hong. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of Georgia, the Federal Bureau of Investigation, and the Australian Securities and Investments Commission.