Yesterday, on April 2, The Securities and Exchange Commission (SEC) 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 last year. Criminal authorities separately charged and arrested both defendants.
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 during 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 USD or other legal tender.
But in reality, the SEC alleges, Centra had no relationships with Visa or MasterCard. The SEC also says that to promote the ICO, 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.
Farkas made flight reservations to leave the country, but was arrested before he was able to board his flight. Sharma was also arrested.
«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», – said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.
The SEC’s complaint was filed in federal court in the Southern District of New York, it 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.