Despite the constant fears and claims by people involved with cryptocurrency, almost every case that has been taken up against ICO’s by the SEC, has actually been a fraudulent attempt to illegally gain funds with no real underlying project at all, or a project using false information to garnish attention to their Initial Coin Offering.
The latest complain by the SEC against an ICO fraud, was again a company known as Centra.
Filed by the SEC, the complaint names Sohrab “Sam” Sharma (“Sharma”), Robert Farkas (“Farkas”), and Raymond Trapani (“Trapani”) as the defendants as well as the Incorporated company they represent Centra.
Centra raised $32 Million US Dollars in their ICO offer through Bitcoin, Litecoin, and Ether.
According to the complaint:
Defendants, individually and through Centra engaged in fraudulent conduct and made material misstatements and omissions designed to deceive investors in connection with the offer and sale of securities in the Centra ICO
Centra was claiming to have raised the money to fund a “centra card” which was to be a credit card backed by Visa, Master Card, and the Bancorp digital wallet.
One of the most notable aspects of the complaint was:
Contrary to Defendants’ false representations, and as Defendants knew or recklessly disregarded: (i) Centra did not have any “partnership” or other relationship with Visa, Mastercard, or The Bancorp; (ii) “Michael Edwards” and other Centra executives pictured in its promotional materials were fictional, and the photographs used to identify the fictional executives were photos taken from the internet or pictures of other individuals; and (iii) investors who purchased Centra Tokens would not receive future payments or “revenue share” from agreements with Visa or Mastercard.
According to the SEC such a fraud is a violation of Section 17(a)(1)-(3) of the Securities Act [15 U.S.C. § 77q(a)(1)-(3)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5(a)-(c) thereunder [17 C.F.R. § 240.10b-5(a)-(c)].
Further although they were an incorporated business that could privately issues fund raising, they could not publically raise funds without registered with the SEC which the complaint says is a violation of f Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§
In their call for judgement the SEC asks that not only funds be returned to investors, but that the defendants also pay for any interest gain on their ill-gotten gains.
One can only assume this is due to the fact in the last month, the values of all three of the collected cryptocurrencies has increased in value. They are also asking all defendants to be disallowed from partaking in any future activity involving securities or “digital securities”.
The 39 page complaint goes into much great details about various types of frauds and misrepresentations that were taking place by Centra.
Whereas many in the cryptocurrency and ICO communities are calling for the SEC to stay out of industry under the claim of a lack of understanding, so far almost every case that has been brought up by the SEC actually does appear to be fraud, not simply an overstep of jurisdiction to prevent the fundraising practice.
Many believe these types of frauds need to be stopped for the future adoption of cryptocurrency the question is truly who has the jurisdiction.
Should all of these scams and frauds simply fall into the definition of security fraud, or is another entity required to regulate such frauds?
Some have called for self regulation, others believe it should fall to the SEC, and still others believe an entirely new federal body should exist that becomes more educated about the technology, its uses, and to tackle such scams and frauds in this ever increasing new industry.