Daily fraud update: 28th April

Chris Lee
ICO written on a post it note, which is covering a note with SCAM on it

Dropil founders hit with charges by US regulator

A regulator in the US has charged three men in the state of California with fraud-related crimes.

The three men, who were named as Patrick O’Hara, Jeremy McAlpine and Zachary Matar, are the founders of a firm called Dropil Inc.

They are accused of having carried out fraud against those who invested in their initial coin offering (ICO).

The charges, which came from the Securities and Exchange Commission (SEC), include an accusation that over $1.8m was raised from a four-figure number of participants.

The allegations, which pertain to a period between January and March of 2018 or potentially longer, were detailed in a statement from the SEC.

It said that the firm claimed to have a trading bot on hand, which was named “Dex”.

“According to the SEC’s complaint, from at least January to March 2018, Dropil sold DROP tokens, claiming that investor funds would be pooled to trade various digital assets by a ‘trading bot’, called Dex, using an algorithm designed and tested by Dropil”, the SEC alleged.

“Dropil allegedly claimed the trading would generate profits that would be distributed as additional DROP tokens every 15 days.”

However, once investors parted with their cash, the SEC alleges, some of the money was spent on non-investment purposes.

Some of it was allegedly redirected to the founders’ own bank accounts, for example.

The firm is also accused of creating falsified information as part of the wider picture of alleged fraud.

“Instead of using investor money to trade with Dex, Dropil allegedly diverted the funds raised to other projects and to the founders’ personal digital asset and bank accounts”, the SEC explained.

“Dropil allegedly manufactured fake Dex profitability reports and made payments in the form of DROPs to Dex users, giving the false appearance that Dex was operational and profitable.”

In a further allegation, the SEC claimed that the company announced its ICO had raised over $50m.

This figure, however, was apparently not accurate.

“The complaint further alleges that Dropil misrepresented the volume and dollar amount of DROPs sold both during and after the ICO, ultimately claiming that it had successfully raised $54 million from 34,000 investors in the United States and around the world.

“According to the complaint, however, Dropil raised less than $1.9 million from fewer than 2,500 investors”, it said.

The complaint was made in the Los Angeles federal district court.

As is common in such cases, Dropil as an entity was charged alongside the three men.

The specific charges include breaking the registration and anti-fraud provisions of the Securities Act.

They are also accused of having broken the Securities Exchange Act.

The regulator is now seeking a series of relief measures, including “disgorgement of ill-gotten gains” – with prejudgment interest added on.

“It also wants penalties and injunctive relief”, it said.

Chris Lee

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