Another strike of regulators and authorities against ICO promoters. Two Miami-based founders behind the controversial cryptocurrency startup Centra Tech Inc. were charged and arrested on Sunday. Sam Sharma and Robert Farkas are accused of conducting a fraudulent ICO, the US Attorney’s Office for the Southern District of New York announced Monday. Additionally, the Securities and Exchange Commission (SEC) announced civil fraud charges:
The Securities and Exchange Commission today charged two co-founders of a purported financial services start-up with orchestrating a fraudulent initial coin offering (ICO) that raised more than $32 million from thousands of investors last year. Criminal authorities separately charged and arrested both defendants.
The ICO was done back in September 2017. The company raised some US$32 million with the issuance of its CTR token saying it planned to issue a cryptocurrency debit card backed by Visa and Mastercard. By March 30, Centra’s bank accounts were depleted.
The SEC qualified the token as security and thus the ICO as an unregistered fund. Sharma and Farkas allegedly claimed that funds raised in the ICO would be used, for example, to offer a debit card backed by Visa and MasterCard. In reality, Centra had no relationships with Visa or MasterCard. Additionally, Sharma and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra’s website, and paid celebrities to promote the ICO on social media.
Well, we think that the SEC just created an ICO standard and other jurisdictions will follow suit. ICO promoters should be very aware of this standard and avoid to communicate false statements to the public and potential investors. Otherwise they risk to go to jail!