SEC Fines Louisiana Man More Than $1.6M for Gift-Donation Scheme
The U.S. Securities and Exchange Commission announced that it has obtained a final judgment against Crystal World Holdings Inc., The New Sports Economy Institute and their former principal, Christopher Rabalais, of Forest Hill, La., who were previously charged with the unregistered offer and sale of securities and operating a fraudulent “gift-donation” scheme.
Crystal World Holdings was the holding company and owner of all intellectual property related to the experimental sports marketplace website platform known as AllSportsMarket, or ASM, which purportedly allowed individuals to buy and sell shares of sports teams. The SEC reported that ASM was founded by Rabalais in hopes of turning sports into an asset class. Similarly, The New Sports Economy Institute was a Texas 501(c)(3) nonprofit corporation organized by Rabalais in 2011. The company operated the ASM platform pursuant to a royalty-free intellectual property licensing agreement with Crystal World.
According to the SEC’s complaint filed in 2019, Rabalais allegedly solicited funds from investors that he described as “donations” to The New Sports Economy Institute in return for which investors received “gifts” of Crystal World stock. In reality, the SEC stated, these transactions constituted sales of unregistered securities for value based on offers by Rabalais and the companies without a valid exemption from registration.
The complaint further alleged that Rabalais would then tout that the Crystal World stock would be registered with the SEC, stressing in email solicitations and website posts the importance of buying the stock before registration made it valuable. Yet, according to the complaint, no steps were taken to register the stock, and, for much of the fundraising period, Rabalais and the companies did not understand how such registration was achieved.
The SEC said that, between July 2014 and March 2019, PayPal accounts in the name of Crystal World Holdings and The New Sports Economy Institute received approximately $1.32 million, which corresponded to the issuance of at least 87,292,710 common shares and 143,068,510 preferred shares of Crystal World shares. Rabalais was the sole recipient of the funds paid through these accounts.
Furthermore, during the same time frame, Rabalais also separately received payments of at least $122,363 directly to U.S. bank accounts that he controlled, which corresponded to the issuance of 5,388,000 common Crystal World shares and 101,147,188 preferred Crystal World shares. During this same time period, Rabalais further received additional payments of approximately $26,900 through a Google Pay account that he controlled, which corresponded to the issuance of approximately 270,000 Crystal World shares.
Rabalais and the companies previously consented to entry of a partial judgment, without admitting or denying the allegations in the complaint, permanently enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and the registration requirements of Section 5 of the Securities Act, and further permanently enjoining them from participating in the unregistered issuance, purchase, offer or sale of any security.
The SEC reported that the court entered a final judgment ordering Rabalais and the companies to pay, jointly and severally, $1,468,556 in disgorgement of ill-gotten gains and prejudgment interest. The court also ordered Rabalais to pay a civil penalty of $223,229, and Crystal World and New Sports to each pay civil penalties of $100,000.
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