Two co-founders of a financial services start-up were charged with propagating and running a fraudulent initial coin offering, by the SEC. The fraudulent ICO is said to have raised $32 million USD from thousands of investors last year. This case of fraud is not only being pursued by the SEC as criminal charges have already been filed and both the co-founders of Centra Tech Inc are in police custody.
Sohrab Sharma and Robert Farkas are both being charged, by the SEC, for having orchestrated a fraudulent ICO in which they offered unregistered investments through a token called ‘CTR’.
For the ICO, Sharma, and Farkas claimed that all the money they raised in the ICO will be put towards the development and implementation of a suite of financial products. One of the many products that they claimed they were developing was a debit card backed by Visa and MasterCard that would allow its users to instantly convert their cryptocurrencies to any legal tender. But in fact, in the preliminary investigations, it has been revealed that the two had no connection or partnership with either Visa or MasterCard.
The complaint also alleges that the two falsified marketing material on their website and created fictional executives with impressive resumes and biographies to legitimize their ICO. Sharma and Farkas have also been accused of paying celebrities, including the likes of Floyd Mayweather and DJ Khaled, to flaunt their support of the product in social media circles.
The SEC has filed its complaint in a federal court in the southern district of New York. The complaint wants a permanent injunction against the two, the return of all the money raised by the ICO with added interest and penalties and a ban for the both of them from ever serving as public officers and participating in any kind of digital service provisions. Compounding the SEC’s complaint, the two are also facing criminal charges filed by the Attorney General’s office of the southern district of New York.
According to the complaint, the SEC believes that they managed to raise the amount of money they did because of the endorsements that they received from celebrities and people on social media networks. The SEC along with the Attorney General’s office will now be charging the two of fraud and for violating the registration provisions of federal securities laws.
Both the co-founders of Centra Tech have been arrested since. Allegedly, Farkas had made reservations to leave the country but was apprehended and arrested before he could board. Subsequently, Sharma was also arrested. Sharma and Farkas are now in federal custody and await the start of the trail.
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