US Court Indicts Founders of Crypto Company for Fraudulent Scheme

A US federal court has indicted three founders of a company purported to offer cryptocurrency-related financial products and have raised $25 million in an initial coin offering. In addition to claiming to have licenses in 38 states, the company also claimed partnerships with Bancorp, Visa, and Mastercard to issue its own cards.

Also read: Yahoo! Japan Confirms Entrance Into the Crypto Space

Three Founders Indicted

The US Department of Justice (DOJ) announced on Monday that the founders of a cryptocurrency-related company have been indicted in the Manhattan federal court.

Florida residents Sohrab Sharma, 27, Raymond Trapani, 27, and Robert Farkas, 31, are co-founders of a startup called Centra Tech. The company purported to offer cryptocurrency-related financial products including the Centra Card, a debit card which supposedly “allowed users to spend various types of cryptocurrency to make purchases at any establishment that accepts Visa or Mastercard payment cards,” the DOJ described.

The three were arrested last month. The US Attorney’s Office of Southern District of New York and the Federal Bureau of Investigation (FBI) seized 91,000 ether which was “raised from victims as part of the charged scheme” in an initial coin offering (ICO).

The attorney for the United States, Robert Khuzami, explained:

As alleged, the defendants conspired to capitalize on investor interest in the burgeoning cryptocurrency market. They allegedly made false claims about their product and about relationships they had with credible financial institutions, even creating a fictitious Centra Tech CEO. Whether traditional or cutting-edge, investment vehicles can’t legally be peddled with falsehoods and lies.

ICO Worth $60+ Million

The three began “soliciting investors to purchase unregistered securities, in the form of digital tokens issued by Centra Tech” through an ICO in approximately July. In oral and written materials, they falsely represented that Centra Tech had an experienced executive team and “had formed partnerships with Bancorp, Visa, and Mastercard to issue Centra Cards licensed by Visa or Mastercard.” They also represented that the company “had money transmitter and other licenses in 38 states, among other claims,” the DOJ revealed, adding:

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” – the amount which has now appreciated to more than $60 million.

False Statements

The Department of Justice found that statements made by the three to secure these investments “were false,” emphasizing that the three “were well aware of the falsity of such claims.”

For example, “the purported CEO ‘Michael Edwards’ and another supposed member of Centra Tech’s executive team are fictitious people who were fabricated to dupe investors.”

The DOJ then described the scheme used to fabricate the CEO and another executive:

Sharma text-messaged Trapani on or about July 29, 2017, that they ‘Need to find someone who looks like Michael’…Similarly, Sharma later wrote during that same exchange: ‘Gonna kill both CEO and her [another executive],’ ‘Gonna say they were married and got into an accident.’

Furthermore, the company’s claimed partnerships and licenses were non-existent, the DOJ revealed, citing text messages between Trapani and Sharma discussing “Centra Tech’s lack of actual partnerships with banks or credit card companies.” Another text message from Sharma to Trapani and Farkas says, “Gotta apply for all licenses,” “Should I even say this.”

Four-Count Indictment

According to the Justice Department’s announcement:

All three of them are charged in a four-count Indictment.

One count is “conspiracy to commit securities fraud, which carries a maximum potential sentence of five years in prison.” The other three carry “a maximum potential sentence of 20 years in prison.” They are securities fraud, conspiracy to commit wire fraud, and wire fraud. Additionally, each charge also carries potential financial penalties. “The maximum potential prison sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge,” the DOJ wrote.

Moreover, the US Securities and Exchange Commission (SEC) has separately filed civil charges against the trio.

What do you think of the DOJ indicting the three Centra Tech’s founders? Let us know in the comments section below.

Images courtesy of Shutterstock, Twitter, and the DOJ.

Need to calculate your bitcoin holdings? Check our tools section.