SEC Charges Centra Tech Co-Founders Over $32 Million ICO

The U.S. Securities and Exchange Commission charged Centra Tech co-founders Sohrab “Sam” Sharma and Robert Farkas on April 2, 2018, alleging that they orchestrated a fraudulent initial coin offering that raised at least $32 million from thousands of investors.

The complaint, filed in the U.S. District Court for the Southern District of New York, alleged violations of the registration and antifraud provisions of federal securities law. It described the CTR token sale as an unregistered securities offering and accused the defendants of using false institutional affiliations, invented executives and misleading promotional material to attract investors.

The filing established an important regulatory marker for the ICO market: presenting a token as part of a new financial technology did not place its promoters beyond conventional securities and fraud enforcement.

What the SEC alleged

According to the complaint, Centra’s offering ran from approximately July 30 through October 5, 2017. The defendants allegedly accepted ether, bitcoin and litecoin while selling 400 CTR tokens for one ether. The SEC calculated that the offering raised at least $32 million during that window and distributed tokens to investors in the United States and elsewhere.

That figure was an allegation in a civil complaint, not an audited accounting or a judicial finding as of April 2, 2018. It also depended on the SEC’s valuation methodology for contributed digital assets. The surviving filing does not provide a transaction-by-transaction reconciliation that would allow the total to be independently reproduced from its text alone.

Centra marketed a planned debit card that it said would let customers convert cryptocurrency into legal tender and spend it through the Visa or Mastercard networks. The SEC alleged that Centra had no relationship with either payment network. It also alleged that The Bancorp had no agreement with Centra, despite promotional material displaying the institution as a partner.

The complaint further accused the defendants of placing fictional executives with impressive biographies on Centra’s website. It said paid celebrity promotions and social-media posts were used to amplify the offering. The April 2 record did not publicly identify those promoters in the SEC announcement, so their identities are not necessary to establish the day’s central development.

The SEC sought permanent injunctions, repayment of allegedly ill-gotten gains with interest, civil penalties, officer-and-director bars, and restrictions on participation in future securities offerings. Those were requested remedies, not penalties already imposed.

Why the filing mattered

The timing sharpened the enforcement message. Centra’s offering allegedly began five days after the SEC issued its July 25, 2017 report on The DAO, which warned that digital assets offered through blockchain-based fundraising could constitute securities under federal law. The Centra complaint expressly cited that report.

The case therefore joined two regulatory theories that ICO promoters faced in 2018. Registration rules could apply when tokens were sold as investments, while familiar antifraud rules applied to claims about executives, licenses, business relationships and prospective products. The alleged use of established payment-company brands also showed how conventional institutional credibility could be imported into token marketing without the underlying relationships being verified.

The April 2 action did not establish the defendants’ liability, determine investor losses or resolve whether purchasers would recover funds. It initiated civil litigation, while the SEC reported that criminal authorities had separately charged and arrested Sharma and Farkas.

Later contemporaneous clarification

A Justice Department statement issued on April 3, 2018, said Sharma and Farkas had been arrested in Florida on April 1 and presented there on April 2. The criminal complaint used a figure of more than $25 million, rather than the SEC’s at-least-$32-million total. The records used different descriptions and periods, so the two amounts should not be treated as interchangeable. The Justice Department also emphasized that its criminal allegations were accusations and that the defendants were presumed innocent unless proven guilty.