On April 24, 2020, the U.S. Securities and Exchange Commission brought suit in federal district court in California, charging Dropil, Inc. and its three founders, Jeremy McAlpine, Zachary Matar, and Patrick O’Hara, with defrauding investors in a fraudulent and unregistered initial coin offering (ICO) that raised more than $1.8 million from about 2500 investors.
As the SEC announced, according to the complaint, from at least January to March 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. Dropil allegedly 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. Instead of using investor money to trade with Dex, Dropil allegedly diverted the funds raised to other projects and to the founders’ personal digital asset and bank accounts.
The complaint also alleges false statements concerning the amount raised. Dropil claimed that it had successfully raised $54 million from 34,000 investors in the United States and around the world but, according to the complaint, Dropil actually raised less than $1.9 million from fewer than 2,500 investors. The complaint also alleges that during, the SEC’s investigation, Dropil produced falsified evidence and testimony. According to the SEC, the DROP token sale amounted to an unregistered ICO. The SEC is seeking disgorgement, interest, penalties, and injunctive relief.