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SEC Charges Founders of Centra Tech With Fraud as ICO Crackdown Intensifies

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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.

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Co-Founders Charged

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.

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Celebrity Endorsements

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:

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.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 354 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Regulation

Former Regulator Calls Ethereum and Ripple “Non-Compliant Securities”

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Altcoins Ripple XRP and Ethereum are likely “non-compliant securities” under U.S. federal law, according to Gary Gensler, former head of the Commodity Futures Trading Commission (CFTC). Gensler’s comments, while having little impact on how regulators approach cryptocurrency, could reignite a long-standing debate about whether digital assets behave like stocks.

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“Particularly Ripple”

Gensler recently told The New York Times there is “a strong case” for both XRP and ether being considered non-compliant securities. In his view, this was more the case for XRP, which is largely controlled by the San Francisco-based Ripple company. Ether, on the other hand, has achieved a far more decentralized structure which makes it more capable of evading the contentious ‘security’ label.

Ripple has vehemently denied any claim that its XRP token operates as a security. Earlier this month, the company’s chief marketing strategist Cory Johnson told CNBC that XRP is absolutely “not a security” and that it does not “meet the standards for what a security is based on the history of court law.”

XRP’s contested status may have thwarted Ripple’s attempt to get it listed on the major domestic exchanges. The company has reportedly offered to pay for a spot on the covered Coinbase and Gemini exchanges but was turned down on both occasions. Nevertheless, the coin has catapulted to No. 5 in global trading volume with South Korea and Japan dominating the XRP trade.

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The author would argue that the case for Ripple not being a security is stronger than the assertion made by Gensler. For starters, XRP is not an ownership stake in Ripple the company and it does not pay dividends, either. Just as banks choose to do business with Ripple and not employ XRP, so too is XRP independent of its parent company.

One area in which Gensler seems to be on the money is initial coin offerings, a market that has attracted a great deal of interest from the U.S. Securities and Exchange Commission (SEC). Already blacklisted in China and South Korea, ICOs are being closely watched by U.S. regulators. The SEC recently issued a warning to exchanges that they must register with the agency if they intend to offer trading in ERC-20 tokens that are deemed securities.

FUD-Less Rally

Gensler’s comments, though offering food for thought, can probably be cataloged in the FUD (fear, uncertainty and doubt) section of cryptocurrency news. It was the absence of such stories that helped catalyze a two-week rally in cryptocurrencies, resulting in the gain of $140 billion.

Ether and XRP have been integral to the rally, with each currency surging double-digits percentage wise. Ethereum gained more than 25% last week while XRP surged 44%.

Ether prices were last seen hovering north of $642 for a total market cap of $63.6 billion, according to CoinMarketCap. That makes it the clear-cut No. 2 cryptocurrency by market capitalization.

XRP, the world’s third-largest crypto asset, traded at $0.88 for a total market value of $34.3 billion.

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.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 354 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Regulation

Ripple Wants Governments to Guide Cryptocurrencies Out of Regulatory Purgatory

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Ripple has urged governments to revisit their approach to cryptocurrency, arguing that proactive measures are needed to guide the market.

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Urging Regulation

Commenting on British regulation, Ripple’s head of regulatory relations Ryan Zagone has called on officials to foster a safe and transparent cryptocurrency market through a number of initiatives. These “pillars,” as Zagone called them, include consumer protection, anti-money laundering and financial stability.

“We’re at that time now where we need more clarity and rules and we need more certainty. It’s a good time to start revisiting that ‘wait and see’ ­approach taken by regulators,” he said while comparing cryptocurrencies to the dot-com boom of the 1990s.

Zagone urged British lawmakers to adopt the Japanese model for cryptocurrency regulation, arguing that such an approach would balance the market between risk and innovation. This includes regulatory guidelines that would recognize digital currencies as a form of payment.

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Ripple is perhaps better suited to play by government rules given its strong penetration traditional finance. However, trading of its XRP token remains limited within institutional circles.

Regulation: Not as Bad as It Seems?

Though many in the blockchain community have dreaded government regulation, others have argued that new rules will help guide the nascent market to a better place. From a practical perspective, clear rules governing transactions, trading and initial coin offerings (ICOs) would likely reduce the rampant media bias against cryptocurrencies. A market without ‘FUD’ (fear, uncertainty and doubt) is less prone to sudden and dramatic shifts in consumer sentiment.

Several jurisdictions are positioning themselves to become major players in the cryptocurrency market by offering favorable regulation and an open environment for innovation. Chief among them are Switzerland, Singapore and Malta, three jurisdictions we covered as part of our ‘Where in the World to ICO’ series.

Nations such as Japan have already developed clear cryptocurrency guidelines, while places like South Korea have gone back and forth on how to regulate the digital asset class. Though frustrating, the ‘wait and see’ perspective highlighted by Zagone is the dominant approach to cryptocurrency regulation worldwide. It’s also the official stance of the G20, which only last month quelled expectations for imminent crypto regulations after deeming that the asset class poses no risk to financial stability. This is definitely a good thing, but does little to close the regulatory gap that Zagone and others have argued needs to be closed.

Elsewhere on the regulatory circuit, New York’s Attorney General on Tuesday announced the Virtual Markets Integrity Initiative, a so-called “fact-finding inquiry into the policies and practices” of cryptocurrency exchanges. A total of 13 cryptocurrency exchanges are part of the inquiry, including Binance, Bitfinex, Bitstamp USA, Bittrex, Coinbase’s GDAX, Gemini and Poloniex.

Keeping with New York, the Attorney’s Office for the Eastern District has accused a local resident of carrying out an elaborate cryptocurrency scheme meant to defraud investors. Blue Bit Banc, a binary options platform, allegedly manipulated data to rig the rules of binary options trades.

Fraudulent activities involving cryptocurrencies have caused businesses to self-regulate their exposure to the digital asset class. Case in point: Facebook, Google and Twitter have issued blanket bans on all forms of cryptocurrency advertising from banner ads to keyword targeting. The author has argued that the impact of the ban isn’t as bad as it appears given that less than 1% of the traffic generated on cryptocurrency exchanges comes from paid advertising.

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.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 354 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Why Japan Could Represent the Future of Cryptocurrency

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Japan has quickly emerged as a powerful hub for cryptocurrency. Liberal policies, a budding investment community and full embrace of blockchain technology makes a strong case for the world’s third-largest economy becoming the center for everything crypto. Now, data on crypto trading as well as proposed guidelines for initial coin offerings (ICOs) have underscored Japan’s leadership pace.

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Crypto Trading Flourishes in Japan

While Japan has for some time been a major hub for cryptocurrency trading, a new report from the country’s top financial regulator has provided actual numbers on usage.

The Financial Services Agency (FSA) recently reported that at least 3.5 million people were trading crypto assets on one of the nation’s 17 domestic exchanges. The vast majority, some 84%, are between the ages of 20 and 40.

What’s more, trading volumes on domestic exchanges jumped from $22 million in March 2014 to a whopping $97 billion in March 2017. Over the same period, trading on margin surged from $2 million to $543 billion.

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Despite the growth, Japanese exchanges do not rank among the world’s largest when measured in terms of trade volume, a sign there may be more domestic users trading on one of the many international platforms.

As of Wednesday, Japan’s bitFlyer was ranked 19th in terms of daily transaction volume; Bitbank came in at 39th.

Research Group Proposes ICO Guidelines

A government-backed research group recently put forward several proposals for regulating the ICO market, including guidelines on consumer protection and anti-money laundering.

Tama University professor Takuya Hirai, who is also a member of Japan’s House of Representatives, spearheaded the proposals in collaboration with industry advisers representing ICO Business Research Group and bitFlyer, among others.

In a report published earlier this month, the group said: Appropriate rules must be set to enable ICO to obtain public trust and to expand as a sound and reliable financing method,” adding that their efforts are intended to propose “rules needed to establish ICO as a sustainable financing method based on discussions conducted by the research group.”

The research group intends to bring more transparency to the ICO market, which has been plagued by malicious actors and overhyped projects. According to various estimates, ICOs raised between $4 billion and $6 billion last year alone. The market is poised to break that record by the end of the second quarter, based on recent industry trends.

For all the negativity surrounding ICOs, several nations are developing more favorable guidelines for the industry. Among the top or emerging destinations for token issuers are Switzerland, Singapore and even Malta.

By bringing clarity to ICOs, Japan could become a top jurisdiction for token issuers when they decide to launch their project. Japan’s embrace of the fast-growing market already makes it a more attractive location when compared to other crypto hotbeds. China has banned ICOs entirely, South Korea is on the fence and the United States has been hyper-critical of projects that don’t self-classify as a security.

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.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 354 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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