Rare Verdict: Cryptocurrency Startup "Shopin" Found Guilty of Fraud, Ordered to Pay 3,105 Ether

The founder of the blockchain project Shopin (SHOP), Eran Eyal, was fined $450,000 last week for involvement in fraud, and both the SEC and the defendant agreed to pay this fine in Ether (ETH).

Shopin (SHOP) is an early-stage crypto startup that aimed to create a decentralized version of an Amazon shopping platform using blockchain technology and cryptocurrency. It claimed that users could convert loyalty points and ad views on the platform into token rewards. However, its token SHOP failed shortly after being launched for only 20 days in 2018.

Alleged Misappropriation of Investor Funds

Israeli national Eran Eyal attracted investors to his startup Springleap during 2014-2015 with extravagant claims, followed by founding the blockchain retail platform Shopin in 2016.

The New York State Attorney General first accused Eyal in August last year of a $42 million fraudulent initial coin offering, alleging he misappropriated at least $600,000 from Springleap investors, facing up to 15 years in prison.

Although Eyal initially appeared in court in New York, he delayed proceedings, and in December last year, the U.S. Securities and Exchange Commission (SEC) filed three securities fraud charges. Eyal pleaded guilty and agreed to return the remaining cryptocurrency obtained from Shopin investors, currently valued at around $450,000.

Cryptocurrency Increasingly Seen as Valuable Asset

According to a judgment on June 19, Eyal will pay a $450,000 fine with 3,105 Ether (calculated at the December court price). He is prohibited from operating public companies and participating in any future digital asset securities issuance. Awkwardly, the U.S. Immigration and Customs Enforcement (ICE) deported Eyal back to Israel on May 18 this year, and it remains uncertain if defrauded investors will recover their initial funds.

In another case, according to a memorandum from the U.S. Tax Court, the IRS ruled a Maryland couple must liquidate their $7 million cryptocurrency holdings to pay off tax debts.

Laura Strashny and her husband failed to file taxes in 2017, owing the IRS $1.1 million in unpaid taxes and penalties. In July 2018, they requested a six-year installment plan, which was recently denied by the IRS, as they failed to provide evidence of inability to repay in cryptocurrency. The Strashnys are now required to pay the full amount owed.

As global understanding of cryptocurrency grows, such cases may continue to arise. While cryptocurrency offers confiscation resistance due to private keys, facing imprisonment and potential loss of value, which path to choose?