Judge David Alan Ezra determined that U.S. securities laws applied to Balina’s actions and that SPRK tokens qualified as securities under the Howey test. This test classifies an investment contract as a security if investors pool money into a common enterprise with an expectation of profits derived from the efforts of others.
The court found that Balina “purposefully targeted United States investors,” contradicting his argument that the SEC had no jurisdiction as the sales occurred overseas. However, the court did not fully support the SEC’s claim that Balina failed to disclose a compensation agreement with Sparkster CEO Sajjad Daya, citing factual inconsistencies.
The SEC filed the lawsuit against Balina in 2022, alleging that between May and July 2018, he purchased $5 million worth of SPRK tokens, promoted them on social media, and created a Telegram group for an investment pool without proper disclosure. The SEC also claimed Balina received a 30% bonus for his purchase, which he argued was a standard volume discount.
Sparkster conducted its SPRK token ICO between April and July 2018, marketing itself as a “low-code” blockchain application development platform. In September 2022, Sparkster reached a settlement with the SEC, agreeing to destroy its remaining SPRK tokens, remove them from trading platforms, and pay a $30 million disgorgement, $4.6 million in interest, and a $500,000 civil penalty.
Through his YouTube channel, “Diary of a Made Man,” and other social media platforms, Ian Balina regularly promoted ICOs during the boom of 2017 and 2018. In 2018, he organized the “Ian Balina Crypto World Tour,” traveling from city to city and hosting pitch contests where tech startups competed for the chance to be featured on his YouTube channel.
During one such pitch contest in Amsterdam, the Sparkster team met Balina and was featured on his channel. While Balina publicly praised SPRK, the SEC revealed he was privately negotiating with the Sparkster team to purchase 7,143 ether (ETH) worth of SPRK tokens (around $5 million at the time) for resale.
