The U.S. Securities and Exchange Commission (SEC) recently announced charges against rapper and actor Clifford Harris, Jr., known as T.I. or Tip, film producer Ryan Felton, and three others who promoted Felton’s unregistered and fraudulent initial coin offerings (ICOs).  The SEC also charged Felton’s companies, FLiK and CoinSpark,that conducted the ICOs. All of the individuals other than Felton have agreed to settlements with the SEC..

The SEC’s complaint alleges Felton promised to build a digital-asset trading platform for CoinSpark and a digital streaming platform for FLiK. Felton allegedly misappropriated the funds raised in the ICOs and transferred FLiK tokens to himself. The SEC claims Felton sold the FLiK tokens and earned $2.2 million in profits, and that he engaged in manipulative trading to inflate the price of SPARK tokens.  The alleges Felton used the misappropriated funds and the proceeds of his manipulative trading to buy a Ferrari, a million-dollar home, 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 offered and sold FLiK tokens on T.I.’s social media accounts, and that two other individuals promoted SPARK tokens without disclosing they were promised compensation in return.

The complaint, filed in federal court 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. Other defendants are charged with violating registration and anti-touting provisions. T.I.’s social media manager 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. T.I.’s social media manager agreed to disgorge his ill-gotten gains plus prejudgment interest, and three of the defendants 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. T.I. agreed to pay a $75,000 civil monetary penalty and not participate in offerings or sales of digital-asset securities for at least five years.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 275