SEC Charges Founders of Centra Tech With Fraud as ICO Crackdown Intensifies
The U.S. Securities and Exchange Commission (SEC) widened its clampdown on initial coin offerings Monday by charging the founders of Centra Tech Inc. with fraud. The ICO, which was promoted by celebrities like Floyd Mayweather Jr. and DJ Khaled, raised more than $32 million last year.
Washington’s top securities regulator announced Monday it has charged Sohrab Sharma and Robert Farkas with fraud after they sold millions of dollars in “unregistered securities” through a CTR token. The Florida-based company claims to be “creating a world connected to cryptocurrency” through blockchain products such as e-wallets and prepaid cards. The token sale was held between Sept. 19 and Oct. 5.
According to the SEC’s official press release, criminal authorities have separately charged and arrested the co-founders on the same fraud allegations.
The SEC took issue with Centra’s claim that its debit card is backed by Visa and MasterCard, when in reality the company had no connection with the credit card providers. Regulators also believe the co-founders created fake biographies and posted “false or misleading marketing materials” to fleece investors out of millions of dollars.
While ICO fraud is not uncommon, Centra deviated from the norm by seeking out celebrity endorsements and publishing the actual names of its co-founders. The company allegedly paid for endorsements from celebrities like Floyd Mayweather Jr. and DJ Khaled. For example, Mayweather made the following tweet from his official Twitter handle on Sept. 18:
— Floyd Mayweather (@FloydMayweather) September 18, 2017
Steve Peikin, Co-Director of the SEC’s Division of Enforcement, called out Centra’s use of celebrities to market a fake product.
“[T]he defendants relied heavily on celebrity endorsements and social media to market their scheme,” he said, according to the press release. “Endorsements and glossy marketing materials are no substitute for the SEC’s registration and disclosure requirements as well as diligence by investors.”
At the time of writing, Centra’s CRT token was still available for purchase on exchanges such as Binance and Cryptopia.
SEC Targets ICOs
The SEC has made ICOs the center of its investigation into the cryptocurrency market, putting startups on high alert about securities misconduct. Federal oversight is being administered through a cyber task force dedicated to coin offerings and the wider blockchain arena. While investigations have been ongoing for the better part of a year, the SEC announced in February that it was conducting a formal probe into the market. Several media outlets reported that the regulator had issued dozens of subpoenas and information requests to companies and advisers involved in ICOs.
At last check, the SEC had issued subpoenas to 80 cryptocurrency companies as part of its ongoing investigation into token sales.
The red-hot ICO market started off 2018 with a bang, but has since cooled significantly, according to the latest industry data. ICOs raised a total of $601 million in March, which was less than half of the February tally and the lowest number since August.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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