For months, the United States Securities and Exchange Commission (SEC) has warned investors of initial coin offerings (ICO) being a risk for fraud and potential loss, and have begun cracking down on any cryptocurrency that it considered an “unregistered security”. As the crackdown continues, the SEC has halted an initial coin offering that received strong public endorsements from celebrities such as hip-hop and social media sensation DJ Khaled and Floyd “Money” Mayweather.
The SEC has arrested and charged the founders of Centra Tech, Inc., Sohrab “Sam” Sharma and Robert Farkas, with “orchestrating a fraudulent initial coin offering.” The charge claims that Sharma and Farkas raised $32 million in unregistered investments by the way of their Centra (CTR) token. Farkas was detained before boarding a flight to flee the country.
According to a press release from the SEC, the two founders claimed the funds raised would build a suite of financial products including a debit card backed by VISA and MasterCard that would allow for the instant conversion of cryptocurrencies to fiat at the time of transaction. However, the SEC alleges that Centra Tech, Inc. had zero affiliation with VISA or MasterCard and that Sharma and Farkas’ scheme consisted of a team of fake executives and fake marketing materials.
Stephanie Avakian, Co-Director of the SEC's Division of Enforcement explained:
"We allege that Centra sold investors on the promise of new digital technologies by using a sophisticated marketing campaign to spin a web of lies about their supposed partnerships with legitimate businesses.”
The SEC will bar Sharma and Farkas from ever again serving as a public company official, and is seeking permanent injunctions and a return of their gains, plus any interest and penalties accrued.
The ICO raised plenty of red flags and was the subject of much scrutiny and skepticism around the cryptocurrency community. Centra was already hit with a class-action lawsuit from an investor around mid-December, yet many still continued to invest, resulting in significant losses.