The SEC is Angling to Take Authority Over All Ethereum Transactions in SPRK Suit (Opinion)

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On Mon­day, the Secu­ri­ties and Exchange Com­mis­sion filed a reg­u­la­to­ry action against Ian Bal­li­na. The com­put­er engi­neer and data sci­en­tist has appeared promi­nent­ly on invest­ment pro­grams such as CNBC, Forbes, Busi­ness Insid­er, and Entre­pre­neur Magazine.

SEC Hammers Sparkster Coin for Improper Disclosures

The SEC filed the civ­il com­plaint in Austin, Texas, over the ini­tial coin offer­ing for the Ethereum-based token Spark­ster. The com­mis­sion alleges improp­er con­sumer dis­clo­sures regard­ing Ballina’s com­pen­sa­tion from the 2018 ICO:

“[Bal­li­na] claimed he could help peo­ple ‘make mil­lions with ini­tial coin offer­ings…’ [Fur­ther he] failed to dis­close the com­pen­sa­tion he received from the issuer while he pub­licly pro­mot­ed the tokens. He also failed to file a reg­is­tra­tion state­ment with the SEC for the tokens that he re-sold using an invest­ing pool that he organized.”

On the pop­u­lar cryp­to price track­er, Coin­Mar­ket­Cap, the page for SPRK has no price list­ed. Fur­ther, it says, “Mar­ket data is untracked. This project is fea­tured as an ‘Untracked Listing.’

That means the Ethereum token doesn’t meet all of CMC’s guide­lines for tracked list­ings. These include lever­ag­ing cryp­tog­ra­phy and decen­tral­ized con­sen­sus mech­a­nisms to main­tain peer-to-peer (P2P) ledgers for dig­i­tal cur­ren­cy. CMC also only tracks cryp­tos with a func­tion­al web­site and block explor­er. More­over, coins “must be trad­ed pub­licly, and active­ly trad­ed on at least one (1) exchange (with mate­r­i­al volume).”

Spark­ster CEO Saj­jad Daya reached a set­tle­ment to pay out $35 mil­lion to defraud­ed investors. That set­tle­ment came on Tues­day, just a day after the SEC filed its complaint.

Takeover Authority Over All Ethereum Transactions?

After the dust set­tled on the civ­il action, Wednesday’s clos­er look at the suit by the indus­try yields an inter­est­ing pos­si­bil­i­ty. The SEC appears to be gear­ing up to take all Ethereum tokens and trans­ac­tions under its jurisdiction.

In the 69th sec­tion of the fil­ing, the com­mis­sion advanced a nov­el legal the­o­ry regard­ing the reg­u­la­tion of cryptos:

“[The investors] sent their ETH con­tri­bu­tions to Balina’s pool. At that point, their ETH con­tri­bu­tions were val­i­dat­ed by a net­work of nodes on the Ethereum blockchain, which are clus­tered more dense­ly in the Unit­ed States than in any oth­er coun­try. As a result, those trans­ac­tions took place in the Unit­ed States. [bold empha­sis added]”

While Spark­ster is head­quar­tered in the Cay­man Islands, the SEC’s the­o­ry is that the plu­ral­i­ty of Ethereum nodes in the U.S. means all Ethereum tokens and trans­ac­tions take place in the Unit­ed States. This is anoth­er prong in an SEC sweep to take juris­dic­tion over Ethereum. That includes a recent warn­ing by the SEC chair that the merge to proof-of-stake makes Ethereum a secu­ri­ty.

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