Two Founders Of Cryptocurrency Offering Arrested, Charged With Fraud

from ars technica

The creators of an initial coin offering (ICO) once endorsed by Floyd Mayweather and DJ Khaled have been arrested and indicted on separate federal securities fraud charges brought by federal prosecutors and the Securities and Exchange Commission. Earlier this year, the SEC shut down another ICO, known as AriseBank.

In 2017, according to the SEC, Sohrab “Sam” Sharma and Robert Farkas, who founded Centra Tech, managed to raise $32 million from thousands of people for their “CTR Token,” an Ether-based coin.

The organizers had claimed in 2017 that they had a Visa and MasterCard debit card service that would allow users to “instantly convert hard-to-spend cryptocurrencies”—but no such relationship with those companies apparently existed.

More here.

Posted in Law and tagged , , .


  1. As soon as I started researching cryptocurrency a few months ago I heard it was a confusing topic that few people actually understand how it works. I wrote an article on this topic for another class and found the SEC’s view on the entire thing. The goal of the SEC is to create a fair market place and keep investor’s money safe. The problem with cryptocurrency compared to real money is that there is no physical item involved. The value comes from our perception, there is nothing to back your investment. Gold is a safe asset to have because over the course of history the value has been predictable. Cryptocurrency is traded world-wide and is almost impossible for the SEC to regulate. Experts generally say that if you invest in cryptocurrency you shouldn’t expect to get any return and be prepared to lose the entire investment. Additionally, blockchain is very complicated for the average person to understand so the creators of these ICO’s can convince people very easily.
    It isn’t surprising that these creators were caught in a scam. Claiming they were organizing a service with Visa and MasterCard with no real partnership was very deceptive. It is typical of someone running a scam to make big promises like that and then have everything fall through. Stepping down from the company after facing a drunk driving charge also looks bad for them because if it had a lot of potential then they could probably afford a little bad publicity for the company. Another characteristic of scams like this is to tell people they are expecting development in the near future. They want to keep as many people involved as long as possible to keep investments. All the warning signs were there and it was only a matter of time before they were caught.
    Overall, these kinds of investments need to be very well researched. A rule that people should use to invest is if they don’t completely understand what they are investing in then they should stay away. Many people invest in whatever sounds smart and that is how these guys managed to raise $32 million from thousands of people. Most, possibly all, of those people are going to lose money and we cannot let this happen again. I think a possible solution is to create a domestic market for cryptocurrency so the SEC can do a better job of regulating it. Anything that can be traded internationally and cannot be backed up by the government is volatile and dangerous. I hope Sharma and Farkas get prosecuted for taking advantage of a newly popular concept like cryptocurrency.

  2. According to, fraud is alarmingly widespread among cryptocurrency investment promoters. While this may seem obvious, many people are unaware of this and hope to strike it rich quick. This fact is according to a report by the Texas State Securities Board. The state of Texas currently leads the United States in cryptocurrency crackdowns. The board took all of its findings and compiled them into a report, where it discovered that among 32 crypto investment promoters it had investigated during a four-week period, none were registered to sell securities. That’s not only a violation of the Texas Securities Act, but disgusting in it of itself. These are terrible people hoping to take advantage of desperate people and profit off of them. Moreover, the report found that, a shocking 21 promoters, which just happens to be two thirds or all promoters, failed to provide a physical address for their businesses, so that investors who were defrauded would not be able to locate them to serve them with a lawsuit or seek other legal or financial recourse. And at least five of the promoters guaranteed unrealistic and exorbitant investment returns. Even for cryptocurrency this is a extremely dangerous promise when comparing them to stocks if not more dangerous in nature and volatility. The Board also found that promoters routinely failed to disclose the huge risk of hacks. Cybertheft and hacks are all-too-common among even top cryptocurrency exchanges like Mt. Gox and Coincheck. In those instances, many customers lost their investments, and are still trying to get them back. The securities board warned that benign profile photos on a company’s website often hide the insidious nature of its dubious investment products. In at least one instance, the Board discovered that a promoter had used a stock photo of a model and claimed that was one of its executives. In other instances, executives lied about their professional credentials. This promotes false hope in individuals promising to provide huge returns and once again, creates massive deception. For all of these aforementioned reasons, I personally stick to the stock market and corporate infrastructure models I have created in order to create wealth in both the short run and long run.

  3. I feel that this scandal should raise a lot of heads if this company is found guilty of fraud. Basically what Centra Tech did was tell consumers a complete lie. They advertised that they had a system in which major banks would be able to take crypto currency owned by its users and convert it into real money. The big problem with this is that investigators found absolutely no connections between Centra Tech and the big banks it claimed to be working with. The most troubling thing about this whole situation is that Centra Tech was actually endorsed by big celebrities such as Floyd Mayweather and DJ Khaled. They had a comprehensive ad campaign that also seemed very believable and must have attracted a lot of attention.
    The big problem that this whole occurrence poses is that Centra Tech may not be the only company to commit fraud and mislead its users. Although the obsession and craze over crypto currency has died over the past few months, it was one of the most popular topics earlier this year. It seemed as though crypto currency was the newest California Gold Rush. Millions of people rushed to make money off of bitcoin and become instant millionaires. One thing to keep in mind however is that many of these people did not understand a single thing about crypto currencies. Because of the huge craze behind it, many people just blindly rushed in and signed up to websites for mining bitcoin without really knowing much about how it worked. If this is the case, then who knows how many of these crypto currency websites were misleading and taking advantage of people just as Centra Tech did. Most people would not have known any better. Centra Tech might only be the first company to be caught but I feel like there is a strong possibility that many other crypto currency companies exist that were fraudulent. With people’s lack of knowledge on crypto currencies, they could have just blindly signed up for any website and lost tons of money. Law enforcement officials need to be aware of the possibility that many other companies like Centra Tech may still be out there.

  4. Cryptocurrency is a market that nobody can seem to figure out. People are blindly investing their money into things that they barely know anything about. So it does not surprise me when a cryptocurrency based company like AriseBank has its creators arrested for security frauds. Sam Sharma and Robert Farkas are the creators of the initial coin offering and were arrested for fraud. The SEC and prosecutors claim that they had Visa and MasterCard debit card accounts that made it easier for users to transfer the hard to use currencies but Visa and MasterCard said that, “No such relationship existed.” They managed to raise 32 million dollars from investors to start their ether based coin, but no coin existed. Through heavily funded campaigns they were able to win the trust of many investors. The question is did these investors really know what they were getting themselves into or were they just won over by the creativity and flash of the ads that the company put out? The lack of knowledge from the general population of the United States about cryptocurrency makes them very vulnerable to schemes like this where they are investing in a coin that they believe is real.
    This is something that we all need to look out for because of the growing popularity of cryptocurrencies. It does not seem like we as a society really know what they are. If you Google what cryptocurrencies are there will be a least one video or link of some kind of professional in the business world who cannot explain it. The only people who seem to know how they work are the people who created them. This puts us at a disadvantage because it is so easy for companies who designed these coins to take advantage of our lack of knowledge on the topic. As this market grows and more people are doing it legally there are going to be just as many people doing illegally taking advantage of innocent people who are trying to get in on a rising market. I feel like this will not be the last time a cryptocurrency based company is being charged with some kind of fraudulent act. A company should break down what exactly people are investing in before they ask for their money and if they do not the investors should ask and know what and who they are giving their money to so they do not end up getting swindled out of the money that they invested. Personally I do not think that it is a good idea to invest in these currencies because of the complexity that comes with them. As a society we need to be more informed on these currencies before we invest. There needs to be someone who informs us more. Sharma and his partner were able to swindle 32 million from people and it is a shame because if they actually gave the people what they invested in, they most likely could have made a lot of clean money because of people’s interest in the market.

  5. The arrest of these two individuals highlights what could be a much larger trend in the cryptocurrency market. Seeing as it is largely unregulated and up to individuals to decide the validity of the decisions they are making. Whether or not the charges brought about by the SEC are legitimate the founders of Centra definitely seem to have a motive of pushing back against the normal means of obtaining credit. This case could also present a much larger precedent as to how the government tries to charge those who deal in cryptocurrency. Governments around the world are going to have to start creating legislation to address this issue. It transcends borders and any nationally established financial regulations. Cryptocurrency could also completely undermine the currencies of all nations and revolutionize the global economy. The major factor in deciding the future of this case will be if people start to see cryptocurrency as a legitimate means of trade or it remains of fringe currency that doesn’t gain much traction. If governments try to stop this from becoming predominate then this could also slow the progress in the traction that this gains. depending on the stance the government takes on this issue the SEC could seek to shut down even more of these companies in the future.

  6. The two individuals that were arrested both represent what could be the start of a crime-filled market known today as the cryptocurrency market. As most of you know, it is a market in which only the people investing their money can decide how valid their decisions are. When I first heard about this new trend, I felt a little skeptical about it, knowing how shady website can be these days, especially with the numerous cases of fraud floating around today. After hearing that they (Centra Tech) were actually endorsed by two of the biggest celebrities, Floyd Mayweather, and DJ Khaled, I suddenly thought that this case was a bigger deal it had seemed. The bigger problem with this case was that there were absolutely no connections involving Centra Tech and the bigger banks it had claimed to be working with, and the fact that they are most likely not the only company to commit fraud and/or lie to its users.

  7. Unfamiliar with how cryptocurrency operates, I tend to stay away from investing in popular cryptocurrencies such as Bitcoin and Ether. Part of the reasons is that I am a college student who relies on cup noodles and eggs for survival. Whenever I read about these fraud cases, I am not surprised because people will see opportunities no matter where the market goes. However, this article had me wondering about the nature of cryptocurrency in general. Cryptocurrency only recently received the media attention only a few years. More often than not, we would see news story of people who achieved wealth through investing in digital currencies such as Bitcoin ( At the same time, we see stories of people who lost their money when Bitcoin’s stock price plummeted ( With so much uncertainty surrounding the cryptocurrency market, I found out many things about the cryptocurrency world.
    To start, a cryptocurrency is simply a limited number of items written in a database (like a digital ledger) that cannot change without fulfilling specific requirements. In other words, it is the online version of the physical banking system. Money is simply nothing more than trust and number. However, the one factor that is different about digital currency is that transaction is based on math and algorithm. More background information on bitcoins is here: As many of my cohorts already discussed, there are a large number of frauds related to the cryptocurrency market. According to a recent news article, $9 million is lost per day because of a cryptocurrency swindle ( As the number of scammers discover new ways to swindle people and their money, it should be an obvious thing to increase online security measures to prevent loss. As example, one common tactic that consumers should look out for is fake bitcoin exchange. For an exchange site, a consumer needs to focus how the site secures itself. If the web traffic is encrypted and secured, the average person would see that it is HTTPS secured and not HTTP. Other giveaways can be found here:
    With all the hype and scam that are in the cryptocurrency world, the future does not seem to guarantee anything. On one hand, researchers at Yale University suggested using FedCoin where the government can make monetary policies that are flexible, even to the point of negative interest rate ( However, the bitcoin crash in February 2018 showed the world that cryptocurrency is not reliable. No matter what, people are going to seek for a monetizing alternative.

  8. The world of Bitcoin and cryptocurrencies started some time ago. Some say it is 2008, others 2009, but the exact date is not clear. Yet, there are people that up to now do not understand the magnitude and scope of this type of currency. It is undeniable that the popularity of Bitcoin and cryptocurrencies is increasingly palpable among investors. What makes it so attractive, is the stories in which people have multiplied their money in a flash. However, not everything is as good as it sounds, as this popularity has also brought with it an increasing use of cryptocurrencies as a tactic to make pyramid schemes, attract investors to make fraudulent offers. For instance, when a person makes a profit by trading cryptocurrency, this person would most likely invest on it again. This is due to seeing how easy and fast money can be made, so they will most likely be risk most of their wealth on this. It can become an addiction. Therefore, there is a lot of risk involved in cryptocurrency. The value of this type of currency is erratic. Without stability, people cannot use cryptocurrency for everyday transactions nor ask for a loan in that currency.
    Another point to be made is that in today’s world, companies often suffer from cyber-attacks. Bitcoin is also susceptible to cyber-attacks, and this is dangerous because people’s investments are on the line.
    In brief, cryptocurrency is still in the works as they say. It is good to invest, but not good to invest too much. As has been noted, this is not an easy task for the federal regulatory agencies to enforce compliance with laws nor the congress to regulate on cryptocurrency. Hopefully, the government will provide a clear path in regards to cryptocurrency. Without a doubt, it seems that cryptocurrency is here to stay.

    Works Cited
    Huillet, Marie. 26 May 2018. 27 May 2018. .
    Marr, Bernard. 06 December 2017. 26 May 2018. .

  9. This article brings up some of the points that really make cryptocurrency a frightening topic. Cryptocurrency is a huge unknown, this is largely due to the fact that everyone can stay anonymous. People were just giving up their money to purchase initial coin offering with almost no idea about it. The founders raised $32 million dollars partially because they were endorsed by Floyd Mayweather and DJ Khaled. The other part was that they claimed that they had some kind of deal to be a Visa and MasterCard debit card service. They also said that consumers would instantly be able to convert their currencies. Neither of these claims turned out to be true. The anonymity of the whole thing just makes the process too untrustworthy. Some view the anonymity as a positive as it is almost impossible to track money being exchanged from person to person. In some ways this is good, and in some ways its bad. It can be used by criminals and terrorists to move their money around the world without law enforcement being able to track them.

    I find it fascinating to see if cryptocurrency will take off. One of the biggest positives of it is that it can be almost instantaneously traded with anyone around the world. This can be done without having to convert it to the recipient’s home currency. I think that in the future cryptocurrency could be the most used currency in the world. The problem is that it is currently in its infancy stages. It fluctuates too much to be reliable. Imagine purchasing some cryptocurrency to buy something. Then, by the time you go to make the purchase you have less than the required amount. This is something that happens today. A couple of years ago when Bitcoin was just getting big, I bought a half of one to have in a similar way to having a stock. Some people still do this trying to make money in the market by trading. This worked out for me as I was able to make a couple of hundred dollars. However, recently Bitcoin’s price got huge. People were confident in it and were continuing to purchase it, then it crashed. It went from being worth nearly $20,000 per Bitcoin to today’s price of about $3500. Some people lost out huge on this crash. This just makes it too unreliable for anyone to use as their main currency. I really hope that someone will come along and figure out a way to make it stable. It will be amazing in the future to not have any paper money and to be able to buy and sell with anyone in the world.

  10. The scandal in this article shows the complexity of cryptocurrency and it seems as if no one has full comprehension on how it works and how it can be regulated. According to a CNN article from August 2019, cryptocurrency is not fully regulated. Some states enforce their own regulations, but no one appears to know how to label this kind of asset. The Internal Revenue Service taxes it as property, the Commodities Future Trading Commission sees it as a commodity, and the Securities Exchange Commission sees it as securities ( Unfortunately, when no one can agree on what type of asset it is, it elongates the regulation process and scandals like this can occur. As technology continues to advance and individuals become more dependent on cash-less purchasing options, fraud will continue to increase and many could lose their life savings. Millennials and those in Generation Z are putting their trust in something they do not fully understand. The two founders of CentraTech managed to raise $32 million. That means that thousands of people believed in this asset, when they did not fully understand what it honestly was. Michael Polito makes a valid point in his above comment. He said, “The lack of knowledge from the general population of the United States about cryptocurrency makes them very vulnerable to schemes like this where they are investing in a coin that they believe is real.” This goes to show that society needs to be more cautious about who and what they put their trust in. Just because Floyd Mayweather and DJ Khaled endorse it, doesn’t mean it is 100% safe. Celebrities endorse products all the time that they don’t use in their everyday lives and society is naive enough to believe in the endorsed product. We really need to become more aware of the technology that we are utilizing and we more research should be done before putting all of our trust in it.
    Allan Shutt said, “I truly believe this product will be developed in the near future,” ( I agree with this statement because as technology continues to evolve, I am sure there will be plenty of products that will convert currency. However, I do not think the technology is there yet and before that could happen we need to enforce regulations on what we already are using. If we can’t figure out how to handle what we have now, it could make regulating more difficult as the process becomes more complex. As someone who studies business fraud, the loss lessens when there are preventive and detective measures applied. Once regulations are in place, companies can apply these measures so that fraud will be less likely to occur and individuals won’t risk losing their money. Hackers and thieves don’t care about how badly they damage their victims so it is the policymakers’ job to ensure that the American People and U.S. Companies are being protected. In the meantime, as policymakers debate on what type of asset cryptocurrency should be labeled as, we need to be more aggressive in our research. Before putting all of our trust in a currency we don’t fully understand, we need to be more aware of the risks technology has on our lives.

Leave a Reply

Your email address will not be published. Required fields are marked *