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Two California men have agreed to plead guilty to securities fraud charges stemming from an unregistered initial coin offering (ICO) they ran in 2017. Authorities claim that the two raised $1.9 million by selling 600 million native tokens while making misleading assertions, presenting bogus profitability statements, and promising unrealistic promises to investors.

The US Department of Justice (DoJ) said in a press release that two males from Orange County, California, were each charged with one count of securities fraud.

Jeremy McAlpine, 25, and Zachary Matar, 28, settled with the US Securities and Exchange Commission in addition to agreeing to plead guilty to the charges. In addition, they consented to permanent injunctions prohibiting them from engaging in any subsequent deception. They must also refrain from buying or selling digital securities and pay civil penalties, prejudgment interest, and disgorge ill-gotten gains.

Dropil Inc. was created in 2017 by the two men, according to the Department of Justice. Dropil was a Fountain Valley-based Belizean corporation that claimed to handle and supply digital asset investments. In addition, the firm claimed to provide both an automated trading bot and a digital asset trading platform.

Dropil, like the hundreds of other ICOs that popped up in 2017, created its native token, DROP. The bot was only available to those who purchased DROP tokens. The two men neglected to register as a broker or dealer with the SEC while delivering all of these services.

The two allegedly made many false representations concerning the tokens and the trading bot in order to entice investors. They stated that the bot would be able to give an “expertly managed portfolio balance algorithm [that] manages risk.” The DROP tokens were promoted as having the ability to guarantee privacy while also providing value and exclusivity.

In January 2018, McAlpine and Matar allegedly held an ICO to sell DROP tokens to investors. Instead, according to the Department of Justice, they made various fraudulent assertions in their whitepaper, website, and social network sites to entice investors.

They provided payments to DROP token holders in the form of newly created tokens to give the impression of profitability. They also allegedly misled the amount of money raised in the initial coin offering (ICO), claiming it was $54 million from 34,000 investors. On the other hand, the Department of Justice estimates that $1.9 million was raised from 2,500 investors. In addition, personal expenses and payments to their associates accounted for almost $1.6 million of the funds raised.

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