In a classic example of celebrities probably needing to stay in their own lanes, an ICO endorsed by a boxing champ has been found to be fraudulent by the U.S. Securities and Exchange Commission and the Department of Justice.
This case involves Centra Tech, which raised $32 million through an ICO in September of last year. Famed boxer Floyd Mayweather threw his weight behind it by endorsing it.
Since, investors who may have invested based on his endorsement have learned the hard way that it’s a bad idea to part with dollars because a celebrity claims an idea is worthy of such an action.
The SEC on Friday filed fraud charges against the alleged mastermind behind the ICO, Raymond Trapani. These charges marked the third such filing by the SEC in regards to this ICO.
Debit cards and cryptos
The Centra ICO was conjured up by at least three characters. According to the SEC, these people include Raymond Trapani, who was charged Friday. The SEC calls him the mastermind behind the scheme.
At the beginning of April, we reported to you that the SEC had swooped in with criminal charges against two others for their roles in the scheme. Those two are Robert Farkas and Sohrab “Sam” Sharma.
The trio allegedly marketed an ICO in which they claimed they were affiliated with Mastercard and Visa.
The scheme worked like this:
From July 2017 through March 2018, the trio solicited investors to purchase so-called Centra Tech tokens. They claimed they had created a debit card, the “Centra Card,” that allowed users to load the card with the crypto of their choice and then use the “Centra Card” to make purchases anywhere Visa or Mastercard was accepted.
The claim was made that Centra Tech held the necessary financial servicing licenses from Visa and Mastercard in 38 states. The Justice Department and the SEC say that claim was false.
Investors who fell for the pitch forked over more than $25 million to buy the Centra Tech token. Again, a total of $32 million was raised.
SEC’s action reflects its determination to root out bad actors
Because the SEC had already filed charges against Farkas and Sohrab, the charges filed against Trapani amended that one. The new charges further allege that Trapani and Sharma manipulated trading in the CTR tokens to generate interest in the company and prop up the price of the tokens.
Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit, said in the release about the charges:
“We allege that the Centra co-founders went to great lengths to create the false impression that they had developed a viable, cutting-edge technology. Investors should exercise caution about investments in digital assets, especially when they are marketed with claims that seem too good to be true.”
Specifically, the SEC charges Trapani with violating the anti-fraud and registration 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 also announced criminal charges against Trapani.
Text message demise
If the allegations made by the SEC about the ICO are true, this trio wasn’t very clever in trying to pull off the scheme. They discussed their ripoff scheme in text messages.
The SEC found that 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 the following:
“[w]e gotta get that s[***] removed everywhere and blame freelancers lol.”
Then, while trying to get the CTR Tokens listed on an exchange using phony credentials, Trapani texted to Sharma:
“cook me up” a false document…”
“Don’t text me that s[***] lol. Delete.”
While the details are sketchy, the trio managed to get boxing champ Floyd Mayweather to endorse the ICO.
In September of last year, Mayweather posted on Twitter a picture of himself holding a Centra card.
He’s not named in the SEC’s filing, nor is it clear how he came to throw his name behind the alleged scam.
Another interesting legal development regarding this ICO came in December. That’s when a class action lawsuit was filed over the ICO.
We’ll keep you posted about what happens in this case.
In the meantime, this should be a reminder to not make investment choices based on celebrity endorsements. Remember, they probably need to stick to whatever made them famous, and not advise on issues that fall outside of that, i.e. cryptos.