Eran Eyal, founder and CEO of US blockchain startup Shopin, pled guilty last week in a Brooklyn court to charges of securities fraud filed against him by the US general prosecutor. In addition to offenses related to Shopin, Eyal, 44, a New York resident with Israeli and South African citizenship, pled guilty to two counts of fraud related to two of his earlier companies: Passo Sync and Springleap.
New York State Attorney General Letitia James announced on Thursday that Eyal had agreed to resign as CEO of Shopin, and that the court had ordered him to release digital currencies worth $450,000 related to Shopin, and to pay $600,000 to investors in Springleap. The court also issued an injunction barring Eyal from raising capital and serving as a company CEO in New York for three years.
The Israeli entrepreneur made his guilty plea in court on Wednesday, after the US Securities and Exchange Commission (SEC) filed an indictment against him earlier that day. As reported by "Globes," the SEC alleges that Eyal defrauded hundreds of investors in the initial coin offering (ICO) that he conducted two years ago, in which he raised $42.5 million. Eyal made false representations in the ICO that his startup was cooperating with large retail websites in the US, and with a well-known blockchain entrepreneur from Silicon Valley.
The New York State Attorney General's office alleges that Eyal recruited investments for Shopin between August 2017 and April 2018, in which early sales of digital currencies were made to investors, followed by an ICO for the general public. The indictment filed in a Manhattan court by the SEC accuses Eyal and Shopin of violations of federal security laws. According to the SEC, Eyal's Shopin venture operated through the UnitedData Inc. company.
Use of investors' money for private expenses
In the indictment against Eyal and Shopin, the SEC alleges that Eyal made false presentations to investors who bought digital currencies in the ICO, according to which the money invested was to be used to develop a blockchain platform. According to these presentations, the platform was designed to create a "universal purchaser profile" for its users that would follow customers' deals on ecommerce websites and recommend products to buy for them according to their preferences.
The SEC further alleges that Eyal lied to investors by stating that Shopin's platform had been successfully tested through US ecommerce websites Bed Bath & Beyond and Ermenegildo Zegna, and said that Shopin had received regular monthly payments from several ecommerce websites, which were supposedly partners in the venture. According to the SEC, on its website, Shopin falsely listed the name of a known blockchain entrepreneur from Silicon Valley as one of the advisors for the project, until the entrepreneur demanded after several months that his name be removed from Shopin's website.
At the same time, according to the indictment, Eyal used some of the money from the investors in the ICO for payment of his private expenses, including a least $500,000 for renting a property, private shopping, payments for private entertainment, and even services from a dating website.
In its announcement of Eyal's conviction, James stated, "My office won’t allow white collar criminals to get away with their schemes to defraud innocent victims, no matter how complex. This one individual created company after company after company, just to continue cheating investors out of hundreds of thousands of dollars. Using fake product trials and nonexistent contracts with major retailers, he was able to lure victims to invest in his technology schemes, including his very own cryptocurrency. We will use every available resource at our disposal to pursue all who attempt to abuse and manipulate the system, because no one is above the law."
The Reuters news agency reported last week that Eran's lawyer and Shopin had not yet to respond to the Attorney General's statement.
The announcement of the SEC's indictment against Shopin and Eyal was made after SEC chairman Jay Clayton told a US Senate committee that the SEC was devoting substantial resources to the digital assets sector in order to both encourage innovation and protect investors in it. The SEC warned investors and the public in April 2019 against capital raising through ICOs that it had not approved and supervised.
Published by Globes, Israel business news - en.globes.co.il - on December 16, 2019
© Copyright of Globes Publisher Itonut (1983) Ltd. 2019