Crypto Banking Platform AriseBank Receives Cease And Desist Order From Texas Regulator

News, Regulation | January 30, 2018 By:

The Texas Department of Banking has issued an unconditional cease and desist order to crypto banking platform AriseBank, ordering the firm to halt any services to the state’s residents.

Founded in 2016 by Jared Rice, Sr. and Stanley Ford, AriseBank claims to be “the first completely decentralized banking product that features one of the largest cryptocurrency platforms built to date.” The company claims to offer a streamlined banking experience available on a variety of consumer-friendly devices, including desktops, tablets, smartphones, or smartwatches.

AriseBank claimed it had raised $600 million within a few weeks through its initial coin offering (ICO) and the issuance of the AriseCoin token. The company also claims it holds 100 percent equity in two FDIC-insured banks – KFMC Bank Holding Company and TPBG. AriseBank claims the two banks are well-established, with decades of history. However, little information about the two banks could be found online.

In a formal press release Friday, the Texas Banking Commissioner Charles G. Cooper said AriseBank has been promoting and offering banking services while not chartered or authorized to engage in banking in the state, and is “not supervised by or registered with any Texas or federal regulatory agency.”

“The cease and desist order was based on the commissioner’s finding that AriseBank violated Texas Finance Code Chapter 31 by using the term “bank” in its name and marketing materials to imply that it is in the business of banking in this state,” the release stated. The order requires AriseBank to cease and desist from implying that they engage in the business of banking in Texas. AriseBank is further required to clearly disclose that they do not offer their services to consumers in Texas.”

After the cease and desist order was issued, Rice, Sr. said the Securities Exchange Commission (SEC) and the Federal Bureau of Investigation (FBI) conducted a raid on the company’s office. He added that the company’s asset and funds raised from the ICO were seized by the law enforcement.

The SEC said AriseBank’s offering of so-called AriseCoin wasn’t properly registered with the agency and was marketed with a variety of false claims.

Aaron Wright, a professor of law at Cardozo and director of the Cardozo Blockchain Project and Tech Startup Clinic, said via Twitter that Arisebank has “plenty of obvious fraud here, but some interesting facts in the complaint that will be relevant to other token projects.  The bigger point is that the SEC noted that the AriseBank and the individual defendants made false statements that they are not subject to regulation by the SEC. This will be increasingly relevant in fraud claims against token sellers and potentially create issues (and potential liability) for lawyers involved in sales making similar statements. What I imagine we could see next is fraud claims (opening up potential liability for lawyers) with sales that failed to disclose the risk that a sale could be deemed a security.”

Wright added, “It’s great to see the SEC clean-up these obvious frauds. I’m sure we’ll see more of these actions in the weeks and months to come. And I think we’ll see more actions and complaints involving ICOs where sellers promised “investors” a discount through a pre-sale.”