The founders of Centra Tech, a company that raised a $32 million ICO, have been indicted for wire fraud and securities fraud, charges that could lead to a minimum of five years in jail.
The founders, Raymond Trapani, Sohrab Sharma, and Robert Farkas, were found guilty of trying to defraud investors with their ICO. The primary fraudulent statement concerned Centra Tech’s fake partnerships with Visa and MasterCard to help sell tokens. The team, wrote Robert Khuzami, Attorney for the United States in the Southern District of New York, “purported to offer cryptocurrency-related financial products, with conspiring to commit, and the commission of, securities and wire fraud in connection with a scheme to induce victims to invest millions of dollars’ worth of digital funds for the purchase of unregistered securities, in the form of digital currency tokens issued by Centra Tech, through material misrepresentations and omissions.”
Floyd Mayweather and DJ Khaled posted support for Centra Tech on Instagram during the run-up to the token sale, writing that they were excited to use Centra Tech’s card to pay for thing using Bitcoin, Ethereum, and “other coins.” Mayweather’s post appeared here but is now gone.
What the three partners allegedly did was especially egregious which is why the SEC was able to attack so forcefully. Khuzami alleges that the team made up a fake CEO to look more credible as well as a laundry list of other claims.
After SHARMA and TRAPANI worked together at a luxury car rental company in Florida called “Miami Exotics,” they and FARKAS co-founded a startup company called Centra Tech that claimed to offer cryptocurrency-related financial productions, including a purported debit card, the “Centra Card,” that supposedly allowed users to spend various types of cryptocurrency to make purchases at any establishment that accepts Visa or Mastercard payment cards. In approximately July 2017, SHARMA, TRAPANI, and FARKAS began soliciting investors to purchase unregistered securities, in the form of digital tokens issued by Centra Tech, through a so-called “initial coin offering” or “ICO.” As part of this effort, SHARMA, TRAPANI, and FARKAS, in oral and written offering materials that were disseminated via the internet, represented: (a) that Centra Tech had an experienced executive team with impressive credentials, including a purported CEO named “Michael Edwards” with more than 20 years of banking industry experience and a master’s degree in business administration from Harvard University; (b) that Centra Tech had formed partnerships with Bancorp, Visa, and Mastercard to issue Centra Cards licensed by Visa or Mastercard; and (c) that Centra Tech had money transmitter and other licenses in 38 states, among other claims. Based in part on these claims, victims provided millions of dollars’ worth of digital funds in investments for the purchase of Centra Tech tokens. In or about October 2017, at the end of Centra Tech’s ICO, those digital funds raised from victims were worth more than $25 million. Due to appreciation in the value of those digital funds raised from victims, those digital funds are presently worth more than $60 million.
The FBI seized 91,000 Ether worth $90 million from the team. The team is facing “one count of conspiracy to commit securities fraud, which carries a maximum potential sentence of five years in prison; one count of conspiracy to commit wire fraud, which carries a maximum potential sentence of 20 years in prison; one count of securities fraud, which carries a maximum potential sentence of 20 years in prison; and one count of wire fraud, which carries a maximum potential sentence of 20 years in prison.”