TL;DR: The US Securities and Exchange Commission (SEC) charged three Dropil, Inc. founders with defrauding thousands of investors in an early 2018 initial coin offering (ICO) that raised $1.8 million.



Dropil, Inc. Founders Charged With Defrauding Investors for $1.8 Million

Securities and Exchange Commission v. Dropil, Inc., Jeremy McAlpine, Zachary Matar, and Patrick O’Hara, No. 8:20-cv-00793 was filed on April 23, 2020, in California. It charges three founders “with violating the registration provisions of Section 5 of the Securities Act of 1933 and the antifraud provisions of Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder,” seeking “disgorgement of ill-gotten gains plus prejudgment interest, penalties, and injunctive relief,” according to an SEC summary.

In the Dropil Telegram, Zachary Matar, a co-founder named in the SEC complaint made, the only known comment on the matter as of press time. “The team will continue to build to push innovation especially with our new technologies coming out. We are no longer taking pay from the company we are pushing for development of our products and putting back in everything into development,” he insisted. “Some of the allegations from the SEC are untrue and Dropil believes that the DROP tokens are not securities and that the SEC does not have jurisdiction. Do not worry! Development of all our other products will continue! Unfortunately, we cannot discuss the case any further,” Matar top-pinned to the group’s channel.

The SEC alleges how in early 2018, “Dropil sold DROP tokens, claiming that investor funds would be pooled to trade various digital assets by a ‘trading bot,’ called Dex, using an algorithm designed and tested by Dropil.” The complaint also stressed a key filter in determining security status, namely how the California company “allegedly claimed the trading would generate profits that would be distributed as additional DROP tokens every 15 days.”

The regulatory agency further claims Dropil used Dex to funnel investor funds “to other projects and to the founders’ personal digital asset and bank accounts,” padding metrics with “manufactured fake Dex profitability reports and made payments in the form of DROPs to Dex users, giving the false appearance that Dex was operational and profitable.” The Ethereum-based token company is still online, and its roadmap for Q1 includes development of a news and blogging platform, full suite smart crypto exchange, and a Dropil Chain testnet.

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