Initial Coin Offering: Raise The Money and Run?
Centra Tech co-founders Sohrab “Sam” Sharma and Robert Farkas are in “hot water” amidst their company’s initial coin offering (ICO). For context, an ICO is a controversial means of crowdfunding whereby the new capital (money) funds a cryptocurrency venture. Centra Tech, a financial services start-up, offered and sold unregistered investments through a “CTR Token” to develop a suite of sophisticated financial products. In 2017, the co-founders raised more than $32 million. The co-founders have since been charged and arrested by the authorties. Fascinatingly, Farkas was detained before he could board his flight in an attempt to escape the long hand of the law.
The April 2018 SEC complaint details that Sharma and Farkas claimed to offer a Visa and MasterCard backed debit card. Apparently, the card facilitates the conversion of illiquid cryptocurrencies into U.S. dollars (or other world currencies); ostensibly, hassle free. Unfortunately for Centra Tech and its co-founders, no such technology existed and the relationship with Visa and MasterCard was phony.
Sham Financial Technology
To promote the ICO, Sharma and Farkas created imaginary executives with notable biographies. Further, they created misleading marketing collateral and paid celebrities to peddle their ICO value proposition on social media.
“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.”
Clearly, polished marketing materials and celebrity endorsements are not an alternative to due diligence and applicable securities registration(s).
The SEC complaint charges Sharma and Farkas with violating the anti-fraud and registration provisions of several federal securities laws. Additionally, the complaint seeks financial recompense to include interest and penalties. Moreover, it prohibits Sharma and Farkas from ever serving as public company officers/directors, and from partaking in any digital or other securities offering.
Wronged investors in the Centra ICO may contact www.SEC.gov/tcr. Furthermore, the SEC’s Office of Investor Education and Advocacy has issued an Investor Bulletin on initial coin offerings. Supplementary information is available on Investor.gov and SEC.gov.