SEC Charges Two With Conducting Phony $32 Million ICO

Crime, ICO News, Investing, News, Regulation | April 2, 2018 By:

The US Securities and Exchange Commission has charged two co-founders of a purported financial services start-up with orchestrating a fraudulent initial coin offering (ICO) that raised more than $32 million from thousands of investors.

Criminal authorities separately charged and arrested both defendants. The ICO took place last year.

The SEC’s complaint alleges that Sohrab “Sam” Sharma and Robert Farkas, co-founders of Centra Tech. Inc., 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, including a debit card backed by Visa and MasterCard that would instantly convert cryptocurrencies into US dollars or other legal tender.

But, the SEC alleges, Centra had no relationships with Visa or MasterCard.  The SEC also claims that Sharma and Farkas created fictional executives, posted false or misleading marketing materials to Centra’s website, and paid celebrities to tout the ICO on social media.  The celebrities were not named in the indictment but prior publicity featured endorsements from boxing champion Floyd Mayweather.

The complaint alleges Farkas made flight reservations to leave the country, but was arrested before he was able to board his flight.

“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,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.  “As the complaint alleges, these and other claims were simply false.”

“As we allege, the defendants relied heavily on celebrity endorsements and social media to market their scheme,” said Steve Peikin, Co-Director of the SEC’s Division of Enforcement.  “Endorsements and glossy marketing materials are no substitute for the SEC’s registration and disclosure requirements as well as diligence by investors.”

The SEC’s complaint, filed in federal court in the Southern District of New York, charges Sharma and Farkas with violating the anti-fraud and registration provisions of the federal securities laws.  The complaint seeks permanent injunctions, return of allegedly ill-gotten gains plus interest and penalties, as well as bars against Sharma and Farkas serving as public company officers or directors and from participating in any offering of digital or other securities.  In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Sharma and Farkas.

 Investors in the Centra ICO who believe they may be a victim should contact www.SEC.gov/tcr.