SA entrepreneur Eran Eyal convicted in US over fraudulent Shopin ICO, Springleap startup

SA entrepreneur and former Springleap and Shopin founder Eran Eyal has been convicted of fraud in a New York court. While he won’t serve jail time, he will have to pay back $600 000 to investors he defrauded, among other penalties.

In a statement yesterday, New York Attorney General Letitia James announced that Eyal, 44, of Brooklyn, New York, has been convicted for operating a series of three securities fraud schemes, including a fraudulent initial coin offering in his new cryptocurrency startup Shopin.

It follows a court appearance in New York on Wednesday in a case that has dragged on since the beginning of this year, after he was charged in August last year for stealing $600 000 from investors (see this story and below for more links).

It also comes after new charges were added by the Securities Exchange Commission (SEC) also on Wednesday, which could see him being forced to return all $42.5-million that Shopin raised in an initial coin offering last year (see this story).

Eran Eyal, who has been convicted in a New York court, used Springleap, Passo and Shopin to lure and defraud investors of hundreds of thousands of dollars

The amount includes penalties, while the SEC wants to bar him from holding any officer or management role in a US entity.

Israel-born Eyal — who formerly lived in South Africa — pleaded guilty to felony securities fraud in violation of the Martin Act related to his scheme with Shopin.

Ventureburn understands that he will face sentencing on 26 February in a New York court.

Ordered to pay $600k

On Wedneday 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 and Passo.

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 about $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.

‘Cheated investors out of hundreds of thousands of dollars’

“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.”

‘Lured victims to invest $600k in Springleap’

In her statement, the New York Attorney General said as the founder and former CEO of Springleap, Eyal convinced investors in 2014 and 2015 that Springleap was a tech 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,” said the attorney general.

“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.”

From Passo to Shopin

According to prosecutors, after Springleap’s funds were depleted in January 2016, Eyal became CEO of another tech 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 personalised 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.

False pilots

In 2018, Eyal launched a public initial coin offering (ICO) in Shopin, which he promoted internationally by traveling to cryptocurrency conferences throughout the US, 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 publicised, 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 co-mingled 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 3105 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 about $465 000.

Eyal pleaded guilty before the Honorable Danny K. Chun in Kings County Supreme Court on Wednesday (11 December) afternoon on all three schemes.

‘Let’s reconnect in March – Eyal’

Eyal has since removed his social media accounts from Twitter, Facebook and Telegram.

Ventureburn contacted Eyal yesterday and his phone went to voicemail, with a message asking those who wanted to get hold of him, to send a text message — which Ventureburn did.

Eyal asked if the conversation was on the record. When Ventureburn said it was, Eyal responded by saying “It’s best we reconnect in March please. Wishing you and your loved ones a blessed holiday/festive period.”

*Correction: We earlier reported that Eran Eyal’s conviction was on Thursday, 12 December, when it was in fact handed down by the court on Wednesday 11 December — the same day that the SEC laid fresh charges against Eyal (and not Thursday, as earlier reported).

In addition, we had it that he will be sentenced on 24 February — when it is in fact 26 February. The story has been corrected. 

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Featured image: US based SA entrepreneur Eran Eyal (via Facebook)