DJ Khaled performing in Minnesota.Image: kevin winter / Getty Images for DirecTVBy Stan Schroeder2018-04-03 10:31:36 UTC
The two co-founders of Centra, a cryptocurrency initial coin offering (ICO), that was endorsed by musician DJ Khaled and boxer Floyd Mayweather, have been arrested and charged with fraud.
The U.S. Securities and Exchange Commission (SEC) alleges that Sohrab “Sam” Sharma and Robert Farkas “masterminded a fraudulent ICO in which Centra offered and sold unregistered investments through a ‘CTR Token.'”
The charges boil down to Sharma and Farkas making promises to investors that were completely unfounded, including offering a debit card backed by Visa and MasterCard, even though they had no relationship with either company. Furthermore the SEC alleges that the two “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.”
Image: STEVEN PASTON – PA IMAGES / CONTRIBUTOR / GETTYIMAGESThough he isn’t mentioned by name in SEC’s report, those celebrities include Floyd Mayweather, who had endorsed Centra in Sept. last year in a (now deleted) Instagram post.
Centra advertised a digital wallet and a prepaid card for cryptocurrencies, as well as a marketplace to buy goods with crypotcurrencies, an exchange platform and an entirely new “hyper speed” blockchain. The company raised more than $32 million in its ICO in September.
According to SEC’s complaint, Farkas was arrested as he was preparing to board a flight and leave the U.S.. Sharma is also in custody but there are no details about that particular arrest.
Mayweather had endorsed at least two other blockchain-related startups in 2017 — Stox and Hubii — both of whom went on to raise millions of dollars in their ICOs.
The SEC warned about the dangers of investing in ICO on several occasions. In Dec. 2017, SEC Chairman Jay Clayton warned about fraud and manipulation in the largely-unregulated ICO market.