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SEC Halts Unregistered Initial Coin Offering Scheme Endorsed by Celebrities

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

The Securities and Exchange Commission has charged two co-founders of a purported financial services start-up with allegedly orchestrating a fraudulent initial coin offering 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 alleged 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 claims that Centra had no relationships with Visa or MasterCard. The SEC also alleges that to promote the ICO, Sharma and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra’s website, and paid celebrities to tout the ICO on social media, including boxer Floyd Mayweather Jr. and rapper DJ Khaled.

According to the complaint, Farkas made flight reservations to leave the country, but was arrested before he was able to board his flight. Criminal authorities also arrested Sharma.

“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 enforcement division. “Endorsements and glossy marketing materials are no substitute for the SEC’s registration and disclosure requirements, as well as diligence by investors.”

The complaint was filed in federal court in the Southern District of New York and 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 announced criminal charges against Sharma and Farkas.

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