SEC Sues Dropil Founders for Fraud After $1.8M Token Sale

SEC Sues Dropil Founders for Fraud After $1.8M Token Sale

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The U.S. Securities and Exchange Commission (SEC) has charged the founders of crypto automation developer Dropil with defrauding investors in their unregistered $1.8 million initial coin offering (ICO) of the DROP token.

The SEC alleged in a Friday that Jeremy McAlpine, Zachary Matar and Patrick O’Hara, all California residents, lied about Dropil’s financial status and DROP token profitability to their investors, who they also misled by drastically overstating the success of their ICO.

Dropil’s founders said they raised $54 million from 34,000 global investors. The complaint alleged they actually raised only a fraction of that: $1.8 million from 2,472 investors 

Those funds, raised between January and March 2018, were supposedly intended to act as an investment in the DROP token that Dropil would manage and multiply via their algorithmic trading bot “Dex,” according to the complaint. Proceeds would be distributed in DROP in 15 day increments.

But the SEC alleged the ICO money never made it to “Dex.” Instead, the SEC said the founders funneled $1.4 million into their personal accounts. They then kept up the ruse by cooking up bogus profitability reports whose credibility they bolstered with the expected DROP payments, the complaint said.

“There is no record that Dex, which Dropil promoted as a differentiating feature of DROPs, ever operated or generated any trading profits,” the SEC said in the . It alleged the DROP distributions were merely recycled tokens from Dropil’s reserves and post-ICO trades. 

Additionally, the SEC said the DROP token sale amounted to an unregistered ICO. Dropil is also accused of falsifying evidence and testimony during the SEC investigation.

McAlpine and O’Hara did not immediately respond to a request for comment. Matar could not be reached for comment.

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