Robert Farkas, who co-founded cryptocurrency firm Centra Tech, has been sentenced to jail for one year after pleading guilty to operating an initial coin offering that defrauded his victims to the tune of $25 million.
In a statement by the US Department of Justice, Farkas was accused of conspiring to commit securities and wire fraud. Prosecutors initially ordered a sentence between 5 to 7 years and a fine up to $250,000.
Farkas, along with Co-defendants, Sohrab Sharma and Raymond Trapani founded Centra Tech in 2017 to offer cryptocurrency-related financial products. The trio duped victims into committing more than $25 million to develop a debit card allowing users to make purchases with cryptocurrency at any business accepting Visa or Mastercard.
“Farkas and his co-conspirators created fictitious executives and fabricated business relationships with legitimate institutions to dupe investors into handing over millions of dollars for a fraudulent ICO. We will continue to aggressively pursue frauds like this one, whether they involve traditional securities or newer financial instruments and crypto-assets,” said US Attorney, Ilan Graff.
While ICO investors collectively forked out a few million dollars for what turned out to be worthless tokens, Farkas and his co-conspirators used their money to fund an extravagant lifestyle.
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Celebrities Were Caught Up in the ICO-Mania
In addition to this, the executive team lied in about having a Harvard-educated CEO and other aspects of their business. The promotional content they displayed on its website was fictitious, and the price of its token, CTR was artificially inflated in order to attract investment. This was part a ‘pump and dump’ scheme using investor cash and was ultimately blamed for plummeting the value of their associated tokens.
The ruling comes as the US government and regulatory agencies step up their crackdown on cryptocurrency-related fraud.
This case originated with a civil complaint filed in 2018, which was stayed pending the criminal case filed earlier last year. Moreover, the SEC filed an action against celebrities, including retired boxer, Floyd Mayweather and DJ Khaled, for promoting Centra Tech’s ICO and its ‘Centra Card’.
The SEC added that anyone selling or promoting investments should comply with federal securities laws that mandate anyone promoting a sale disclose their financial relationship to the company.
At the time, ICO operators, and sometimes ‘scammers’, had been trying to capitalize on the intersection of celebs and cryptocurrency enthusiasts to grab money from investors in the hot market. The trend of celebrity endorsements even forced the US Securities and Exchange Commission (SEC) to release an official statement ordering the involved celebrities to disclose the nature, scope and amount of compensation received in exchange for the promotion.