Investors put millions into the fraudulent crypto startup Centra Tech.
And now, they want their money back. Not only are they suing the company behind it, but the celebrities who endorsed it.
Centra Tech raised $32 million during its ICO last year. And the plaintiffs of this class action suit claim this was at least in part due to the celebrities’ endorsements. Floyd Mayweather and DJ Khaled advertised the startup extensively on their social media accounts.
Centra Tech claimed they would release a Centra Card backed by Visa and Mastercard to exchange crypto for fiat
However, according to the US SEC, no such partnership ever even existed.
The company also make phony staff profiles on their site. According to the US SEC report, when they realized people were catching on, the Centra Tech founders even pretended the fake CEO died in a car crash so they could remove his profile.
Sohrab Sharma, Robert Farkas, and Raymond Trapini were arrested and charged with securities and wire fraud.
In their official press release following the arrests, the Department of Justice’s Deputy Attorney had this to add: “While investing in virtual currencies is legal, lying to deceive investors is not.”
This scandal comes at a time when the future of ICOs is uncertain
Other startups have scammed investors before. While some are wary of the SEC’s involvement in decentralized currency, reasonable regulation could also protect crypto’s reputation into the mainstream. A few weeks ago, an SEC enforcement director, Stephanie Avakian, reported on the organization’s new Cyber Unit and its crackdowns. She specifically cited their success in the Centra Tech incident, commenting:
“Where the technology is merely a veneer for an alleged fraud, the Commission has taken enforcement action”.
Although she believes in the need for SEC involvement and regulation, she acknowledges the value of legitimate companies. She explains the SEC must be “thoughtful” in how they handle the situation as a whole.
As for celebrity responsibility, the SEC already released a statement last November explicitly covering the issue:
“Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments. These endorsements may be unlawful if they do not disclose the…amount of any compensation paid.”
Perhaps celebrities should do a much better job of due diligence prior to putting their names on anything. You live, you learn…
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