NEW YORK – A Brooklyn man has been convicted of operating a series of three securities fraud schemes, including a fraudulent initial coin offering in his new cryptocurrency, Shopin.
Eran Eyal, 44, pleaded guilty to felony securities fraud in violation of the Martin Act related to his scheme with Shopin. He also pleaded guilty to two counts of Scheme to Defraud in the First Degree, a Class E felony, related to his two prior companies — Springleap, Inc. and Passo Sync, Inc., New York Attorney General Letitia James stated.
As part of his convictions, Eyal was ordered to pay $125,000 in restitution and $475,000 in judgments to investors in Springleap, and to surrender the remaining cryptocurrency received from Shopin investors — currently valued at approximately $450,000. As a condition of his pleas, Eyal was also required to step down as CEO of Shopin, and is banned from raising capital or serving as an officer in a business in New York for three years.
“My office won’t allow white collar criminals to get away with their schemes to defraud innocent victims, no matter how complex,” said James. “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 Allegations
As the founder and former chief executive officer of Springleap, Inc. (Springleap), Eyal convinced investors in 2014 and 2015 that Springleap was a technology startup on the verge of transforming the advertising and marketing industries by crowdsourcing using social media and its own proprietary online platform, prosecutors alleged. Eyal falsely claimed that Springleap owned an enormous network of over 300,000 active community members and 180,000 vetted creative professionals with agency-level experience. He also misled investors to believe that the company boasted a prestigious management team and did business on a global scale with Fortune 500 companies, such as Google and Coca Cola, James stated.
In reality, however, the indictment and other documents filed with the court from the Office of the Attorney General show that Eyal “grossly” exaggerated the membership and credentials of his management team, and, instead, hired freelancers from cheap, online marketplaces, like Fiverr, in an attempt to flood Springleap’s social network with artificial likes and upvotes. Eyal even hired a hacker to scrape data from websites in an effort to steal the profiles of thousands of creative professionals and further bolster his fraudulent claim that Springleap had over 180,000 vetted creative professionals, the AG’s office stated.
Four Victims
Based on these misrepresentations, Eyal lured four victims to invest $600,000 in Springleap. Eyal directed investor monies into corporate accounts that he exclusively controlled, and then looted company funds to finance his extravagant lifestyle, that included renting a two-bedroom apartment in Williamsburg, hiring personal trainers at luxury fitness clubs, and taking vacations in Antigua and Paris, the AG’s office stated.
According to prosecutors, after Springleap’s funds were depleted in January 2016, Eyal became CEO of another technology startup, Passo Sync, Inc. Passo purported to provide its users with a personal online shopping profile that would follow them from website to website and make product recommendations based on their shopping history and preferences. By June 2016, Passo similarly ran out of money and shut down. According to prosecutors, Eyal then founded a new company, UnitedData Inc., known as Shopin, which purported to implement the personalized shopping concept through cryptocurrency and blockchain technology. Eyal forced Passo investors to transfer their equity to Shopin at a fraction of the value of their initial investments, the AG’s office stated.
2018 IPO
In 2018, Eyal launched a public Initial Coin Offering (ICO) in Shopin, which he promoted internationally by traveling to cryptocurrency conferences throughout the United States, Europe, and Asia to pitch the company to investors. Eyal fraudulently solicited millions of dollars in investments through the Shopin ICO by falsely claiming that Shopin had conducted product trials with major retailers Bed Bath & Beyond and Ermenegildo Zegna. These false declarations achieved “spectacular” results, including the onboarding of over 700,000 new Shopin users. Eyal also falsely claimed that Shopin had access to a prestigious network of advisors and investors, prominent venture capital funds, and accomplished technologists.
In addition, Eyal falsely publicized, online and in the press, that Shopin had achieved a technological breakthrough that would dramatically increase the speed of its blockchain from approximately 10 transactions per second to one-million transactions per second. None of these claims were true. Instead, Eyal showed investors forged contracts, fabricated trial data, and altered documents and communications to lure them into believing that Shopin was a tried and true piece of technology, the AG’s office stated.
The Proceeds
The investment proceeds from the Shopin ICO flowed into Bitcoin and Ether accounts, controlled exclusively by Eyal. Similar to his use of Springleap investments, Eyal comingled company and personal funds by liquidating the Shopin investments using online cryptocurrency exchanges and transferring the funds to his personal checking accounts. Pursuant to the announced guilty pleas, Eyal was required to immediately step down as CEO of Shopin, and forfeit the remaining 3,105 Ether contained in the cryptocurrency wallets in his possession, for the benefit of Shopin investors. While the value of the Ether at the time it was invested was over $3 million, the value has now fallen to approximately $465,000.