The US Securities and Exchanges Commission(SEC) has charged Centra Tech co-founders, Sohrab Sharma and Robert Farkas, with fraud. Farkas was arrested over the weekend attempting to flee the US.
Their coin offering has been suspended after raising USD 32 million selling “unregistered securities”. The charge has been made by the SEC against Sharma and Farkas of “orchestrating a fraudulent coin offering”.
The SEC made a statement reporting that both Sharma and Farkas had no relationship with Visa, Bancorp, and Mastercard after claiming that they would be developing financial products backed by both credit card companies. Cease and desist letters were issued by the above companies.
It is alleged that Sharma and Farkas sought out and paid celebrities to endorse the ICO, including boxer Floyd Mayweather and DJ Khaled. The agency also accuses the co-founders of creating fictitious executives and false marketing materials. Centra Tech claimed to have a Harvard MBA and banker Michael Edwards as a co-founder as CEO along with a Jessica Robinson as chief financial officer. Neither of these people actually existed.
A statement by the SEC alleges that “the defendants relied heavily on celebrity endorsements and social media to market their scheme”, going on to point out that “endorsements and glossy marketing are no substitute for the SEC’s registration and disclosure requirements”.
The SEC made it quite clear in January of this year that it wasn’t ready to ban coin offerings, but promised to chase down firms abusing the industry and selling unregistered assets, claiming “that its the bad behaviour of the people taking advantage of the technology we want to look at”.
This year the SEC hinted at cracking down on ICOs as it believes that many offerings are being conducted illegally. SEC Chairman Jay Clayton suggested that “their promotors and other participants are not following our security laws. Some people say that’s because the law isn’t clear. I don’t buy that for a moment”.
Further regulation is still under discussion.