AG James Announces Criminal Conviction Of Brooklyn Resident For Cryptocurrency Scheme
AG James Announces Criminal Conviction of
Brooklyn Resident for Cryptocurrency Scheme
Former CEO of Shopin Pleads Guilty to Felony Charges for
Fraudulent Initial Coin Offering and Two Other Investment Schemes
Eran Eyal Banned from Offering Securities in New York; Ordered to Pay
$125,000 Restitution, Step Down as CEO of Shopin, and Surrender
Remaining Cryptocurrency Wallets to the AG’s Office
NEW YORK – New York Attorney General Letitia James today announced the convictions of Eran Eyal, 44, of Brooklyn, for operating a series of three securities fraud schemes, including a fraudulent initial coin offering in his new cryptocurrency, Shopin. Eyal 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. 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 Attorney General 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.”
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. 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.
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.
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.
According to prosecutors, after Springleap’s funds were depleted in January 2016, Eyal became CEO of another technology startup, Passo Sync, Inc. (Passo). 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.
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. Additionally, 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 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.
Eyal pleaded guilty before the Honorable Danny K. Chun in Kings County Supreme Court yesterday afternoon on all three schemes.
The Office of the Attorney General cautions New Yorkers to conduct research before investing in cryptocurrency, including by verifying that they are dealing with entities properly registered with the New York State Department of Financial Services and registered with the Attorney General’s Investor Protection Bureau. The Attorney General’s Virtual Markets Integrity Initiative Report also provides information about virtual asset trading platforms, and the risks to retail investors in these products.
The Office of the Attorney General wishes to thank Thomas Carocci of the Financial Industry Regulatory Authority for his valuable assistance.
The case is being prosecuted by Assistant Attorneys General Fred Wyshak and Jeff Linehan, with the assistance of Legal Support Analysts Tiffanie Obilor and Jacques Courbe, and Supervising Legal Support Analyst Paul Strocko — all of the Criminal Enforcement and Financial Crimes Bureau. The Criminal Enforcement and Financial Crimes Bureau is led by Bureau Chief Stephanie Swenton and Deputy Bureau Chief Joseph G. D’Arrigo. The Division of Criminal Justice is overseen by Chief Deputy Attorney General for Criminal Justice Jose Maldonado and First Deputy Attorney General Jennifer Levy.
The investigation was conducted by Investigator Brian Metz, under the supervision of Supervising Investigator Michael Leahy and Deputy Chief John McManus. The Investigations Bureau is led by Chief Oliver Pu-Folkes. Special research and analysis was provided by Data Analyst Anushua Choudhury, Internet and Technology Analyst Joe Graham, and Legal Support Analyst Jacques Courbe - all under the supervision of Research and Analytics Deputy Director Megan Thorsfeldt and Director Jonathan Werberg. Audit work was performed by Principal Forensic Auditor Marcos Perez. The Forensic Audit Section is led by Deputy Chief Sandy Bizzarro.