Banking, finance, and taxes

SEC Cracks Down on Crypto Fraud

Chris Lange

Published: April 3, 2018 10:55 am

Last Updated: January 12, 2020 1:49 am

Cryptocurrencies were all the rage in 2017. We saw numerous new coin offerings, hoping to capitalize on the popularity of this phenomenon, but many of these fell through. Bitcoin seems to be the only cryptocurrency that has survived, although it has dropped about $10,000 since the beginning of the year.

Many higher-ups, such as Jamie Dimon, CEO and board chair of JPMorgan, have called bitcoin and cryptocurrencies in general fraudulent. And now it seems the U.S. Securities and Exchange Commission (SEC) is proving them right.

The SEC recently charged two co-founders of a purported financial services startup 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 agency alleged that Sohrab “Sam” Sharma and Robert Farkas, co-founders of Centra Tech, masterminded a fraudulent ICO in which Centra offered and sold unregistered investments through a “CTR Token.”

Sharma and Farkas allegedly claimed that funds raised in the ICO would help build a suite of financial products. They claimed, for example, to offer a debit card backed by Visa and MasterCard that would allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender. In reality, the SEC alleges, Centra had no relationships with Visa or MasterCard. The SEC also alleges that to promote the ICO, Sharma and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra’s website, and paid celebrities to tout the ICO on social media.

Stephanie Avakian, co-director of the SEC’s Division of Enforcement, commented:

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. As the complaint alleges, these and other claims were simply false.

Steve Peikin, co-director of the SEC’s Division of Enforcement, added:

As we allege, the defendants relied heavily on celebrity endorsements and social media to market their scheme. Endorsements and glossy marketing materials are no substitute for the SEC’s registration and disclosure requirements as well as diligence by investors.

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