The US Securities and Exchange Commission has charged the would-be creator of a “decentralized” Amazon Web Services alternative with scamming investors out of millions. The SEC announced a complaint on Friday against Australian citizen Craig Sproule, the CEO of cryptocurrency startup Crowd Machine, which promised a global cloud computing network built on users’ computers. In reality, Sproule allegedly sent $5.8 million to South African gold mines as investors’ cryptocurrency tokens became worthless.
An SEC complaint says that Sproule collected at least $33 million through an initial coin offering (or ICO) to build a decentralized “Crowd Computer” platform, which he claimed was “battle-tested” by Fortune 500 companies. He compared the service to AWS and Microsoft’s Azure and said that Crowd Machine Compute Tokens (CMCTs) could be worth between $10 and $600 apiece. But the complaint says he made false and misleading statements, and this platform was never built as advertised. Instead, Crowd Machine hosted its system on centralized servers.
The ICO itself allegedly wasn’t registered with the SEC and Crowd Machine didn’t verify whether investors were accredited as required by law. And as Sproule attempted to raise money, Crowd Machine allegedly sent $5.8 million of the funds to gold mines in South Africa without informing investors. It described the transfers as loans or purchases of equity interest — but the gold mining operations, the complaint reports, “returned no revenue.”
Crowd Machine ran into trouble several months after it began raising money. In mid-2018, it reported that hackers had stolen a large number of CMCTs — halting trading and sending the price of the coins tumbling. Two men were later arrested for the hack. Ultimately, “the secondary market for CMCTs all but disappeared, along with any value that CMCTs might once have held for token holders,” the complaint notes. The tokens were sold for between $0.03 and $0.22 per token and never traded for higher than $0.18 on a secondary market.
Following the complaint, Sproule agreed to terms set by the SEC. The agreement doesn’t require him to admit wrongdoing, but it permanently bars him from offering securities, including cryptocurrency assets. He must also pay a civil penalty of $195,000 and agree to permanently disable any CMCTs that he owns.
Source: The Verge