Six months after rapper T.I. beat a civil suit charging securities fraud over the FLiK initial coin offering, the Securities and Exchange Commission has come calling.
The Atlanta rapper, whose real name is Clifford Harris Jr., film producer Ryan Felton, and three others were charged in the civil action over the ICO for FLiK, a streaming video platform that was going to use tokens to allow viewers to buy movies, and CoinSpark, a cryptocurrency exchange.
Both companies, allegedly created and run by Felton, were hoaxes, the SEC charged on Sept. 11. Felton was indicted by the U.S. Attorney for the Northern District of Georgia on criminal charges on Sept. 3. None of the others named by the SEC face criminal charges.
“Promotional materials described FLiK as ‘Netflix on the blockchain’—a company that would provide a streaming media platform with products and services that could be purchased with FLiK tokens,” the SEC said in the complaint. “No FLiK platform ever existed.”
Felton “misled investors to believe their money would fund two innovative ventures, but instead, every penny went to support the suspect’s lavish personal life style,” said Chris Hacker, Special Agent in Charge of FBI Atlanta, in a release. The funds were actually spent on a Ferrari 599, and $1.5 million home, and a generally “lavish lifestyle,” the criminal charges allege.
Aside from the funds raised in the ICO, Felton “secretly transferred FLiK tokens to himself and sold them into the market, reaping an additional $2.2 million in profits, and… engaged in manipulative trading to inflate the price of SPARK tokens,” the SEC added.
Along for the ride
Harris—who was sentenced to a year in jail for trying to buy automatic weapons, ammunition and silencers in 2012—”offered and sold FLiK tokens on his social media accounts, falsely claiming to be a FLiK co-owner and encouraging his followers to invest in the FLiK ICO,” the SEC found. “T.I. also asked a celebrity friend to promote the FLiK ICO on social media and provided the language for posts, referring to FLiK as T.I.’s ‘new venture.’”
The rapper’s social media manager, William Sparks, offered and sold FLiK tokens on T.I.’s social media accounts, according to the SEC. Two others, Chance White and Owen Smith, promoted CoinSpark’s SPARK tokens without disclosing that they were paid to do so. Each of the three paid a $25,000 fine and Sparks also disgorged his profits. All were banned from participating in the issuance, purchase, offer, or sale of any digital asset security for five years.
Harris paid a $75,000 fine and was prohibited from participating in offerings or sales of digital-asset securities for five years.
In November 2018 and again in May of last year, investors sued Harris and Felton over FLiK. Felton had allegedly promised investors the value of tokens they could purchase for six cents each would grow to $14.99 in 15 months.
By the time the suit was filed, the tokens were worth less than a penny each.