On September 19, 2022, the SEC issued a cease-and-desist order against software developer Sparkster, Ltd. and its founder (collectively, respondents) under Section 8A of the Securities Act of 1933, as amended, for offering and selling an unregistered crypto-asset security called "SPRK tokens" from April to July of 2018. Respondents raised nearly $30 million from 4,000 investors in the offering, some of whom were located in the US. According to the SEC, respondents represented in connection with the SPRK offering that:

According to the order, interstate commerce was used in the promotion of the tokens via the company's website, social media, and electronic messages in violation of the registration provisions of Section 5(a) and 5(c) of the Securities Act (15 U.S.C. §§ 77e(a) and 77e(c)). As part of the settlement, respondents agreed to pay more than $35 million into a fund for distribution to harmed investors.

On September 19, 2022, the SEC filed a complaint against Ian Balina, a crypto-asset investor, promoter, and influencer, for his role in offering, selling, and promoting the SPRK tokens, alleging that Balina failed to disclose that he was compensated for promoting the tokens by Sparkster and that he engaged in self-dealing by purchasing tokens that he promoted and formed a pool of investors to purchase. The Balina complaint refers to the SEC's now-infamous July 2017 DAO Report (see Legal Update, SEC Issues DAO Report Concluding Virtual Assets May Be Securities) and notes that the sale of the SPRK tokens was conducted on the Ethereum blockchain by selling SPRK tokens in exchange for the crypto-asset ether using smart contracts. The SEC alleges these actions amounted to violations of Section 5(a) and 5(c) of the Securities Act and Section 17(b) of the Securities Act (15 U.S.C. § 77q(b)).

In its allegations against Balina, the SEC has introduced the novel legal theory that because the nodes used on the Ethereum blockchain are more densely clustered in the US than in any other country, all transactions on that network by US-based investors, acting from the US, therefore take place in the US and are subject to SEC regulation.

The SEC seeks a final judgment permanently enjoining Balina from further violation of the Securities Act, as well as from selling securities and receiving compensation for publicizing the sale of securities. The SEC also seeks to have Balina surrender proceeds and pay civil penalties.

For up-to-date information on SEC regulation of crypto and digital assets, see Practice Note, SEC Regulation of Digital Assets.