California Court Fines Crowd Machine and Metavine in ICO Case

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A California court recently ruled against Crowd Machine and Metavine, ordering them to pay more than $20 million in damages, interest and penalties. This landmark decision follows the 2018 initial coin offering (ICO) of Crowd Machine Compute Tokens (CMCT), which the US Securities and Exchange Commission (SEC) deemed fraudulent and unregistered.

The case began in January 2022 when the SEC filed suit against Crowd Machine founder Craig Sproul. The allegations include the misappropriation of $5.8 million of the $33 million raised during the ICO. CMCT was conceived as a digital currency that compensates computer owners for their computing power and pays programmers for writing code. However, these tokens never took off.

In a recent development, the District Court of Northern California issued an amended final judgment. It ordered the defendants to disgorge $19,676,401.27, pay $3.4 million in prejudgment interest and imposed civil penalties of $600,000 each. In addition, Metavine was held responsible for siphoning off $5 million of the total. Despite these decisions, the defendants neither admitted nor denied wrongdoing.

The significance of this case lies in its broader implications for the cryptocurrency industry. ICOs were a popular method of launching cryptocurrencies until the SEC in July 2017 classified them as a sale of securities. Since then, the regulator has been actively pursuing cases against ICO issuers for violations.

The saga of Crowd Machine and Metavine serves as a cautionary tale for blockchain startups considering token sales. Heavy fines and legal proceedings underscore the need to comply with securities laws. This case also highlights the SEC’s ongoing efforts to regulate the crypto industry, ensuring investor protection and market integrity.

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