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SEC Charges Additional Defendant in Initial Coin Offering Scheme

The Securities and Exchange Commission announced additional fraud charges stemming from an investigation of Centra Tech Inc.'s $32 million initial coin offering.

The Securities and Exchange Commission announced additional fraud charges stemming from an investigation of Centra Tech Inc.’s $32 million initial coin offering.

In an amended complaint, the SEC charged one of Centra’s co-founders, Raymond Trapani, in a fraudulent scheme related to Centra’s ICO, in which the company offered and sold unregistered investments to thousands of investors last year through a “CTR token.”

Earlier this month, The DI Wire reported that the SEC and criminal authorities charged Centra’s two other co-founders, Sohrab “Sam” Sharma and Robert Farkas, for their roles in the alleged scheme. Criminal authorities separately charged and arrested both defendants.

The defendants allegedly told investors 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 allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender.

The SEC’s amended complaint alleges that Trapani was a mastermind of Centra’s fraudulent ICO, which Centra marketed with claims about nonexistent business relationships with major credit card companies, fictional executive bios, and misrepresentations about the viability of the company’s core financial services products. Centra also paid celebrities to tout the ICO on social media, including boxer Floyd Mayweather Jr. and rapper DJ Khaled.

The amended complaint further alleges that Trapani and Sharma manipulated trading in the CTR Tokens to generate interest in the company and prop up the price of the tokens.

The SEC claims that text messages between the defendants reveal their fraudulent intent. After receiving a cease-and-desist letter from a major bank directing him to remove any reference to the bank from Centra’s marketing materials, Sharma texted to Farkas and Trapani: “[w]e gotta get that s[***] removed everywhere and blame freelancers lol.”

And, while trying to get the CTR Tokens listed on an exchange using phony credentials, Trapani texted Sharma to “cook me up” a false document, prompting Sharma to reply, “Don’t text me that s[***] lol. Delete.”

The complaint was filed in federal court in the Southern District of New York and charges Trapani with violating and aiding and abetting Centra’s violations to various provisions of the federal securities laws.

The amended complaint seeks permanent injunctions, the return of allegedly ill-gotten gains plus interest and penalties, as well as bars against Trapani prohibiting him from serving as a public company officer or director 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 announced criminal charges against Trapani.

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