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US Judge Says Boxer-Backed ICO Token Is a Security

A Florida district court has published an analysis explaining how a crypto token is a security.

Magistrate judge Andrea Simonton of the Southern District of Florida, in a report on whether to freeze the assets of the Floyd Mayweather-endorsed Centra Tech crypto startup, released a detailed explanation of how the company’s token demonstrates the different aspects of a security under existing law. While it may not be a precedent for other similar court cases, the report may be cited in other legal battles asking whether crypto tokens are securities or not.

The defendants notably are not challenging the assertion that Centra’s CTR token is a security, according to the document. Unlike the case brought by the U.S. Securities and Exchange Commission, this decision is part of a lawsuit filed by previous investors claiming they lost money due to the unregistered securities sale.

As CoinDesk previously reported, the startups co-founders have all been indicted on various securities fraud, wire fraud and conspiracy charges. Part of the case revolves around the idea that the CTR token, which Centra Tech sold to investors, is a security.

The court, quoting from the Howey Rule, said it believes that the token satisfies all three prongs of what defines an “investment contract,” and is therefore a security. The three prongs include the facts that the investment in an asset, investors can benefit financially from the company’s success and the success or failure of Centra Tech was entirely dependent on its founders’ efforts.

The judge explains:

“Because the success of Centra Tech and the Centra Debit Card, CTR Tokens, and cBay that it purported to develop was entirely dependent on the efforts and actions of the Defendants, the third prong is satisfied. Therefore, the offering of Centra Tokens was an investment contract under the Securities Act, such that the Defendants sold or offered to sell securities by virtue of the Centra Tech ICO.”

Stephen Palley, a lawyer with expertise in blockchain and cryptocurrency matters, said in a tweet that though this decision is not a binding precedent for other courts, “it’s what lawyers call ‘persuasive authority’ and pithy enough to be easily quoted in other opinions.”

Read the full analysis below:

Centra_6_25 by CoinDesk on Scribd

Gavel image via Shutterstock

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Founders of ICO Endorsed By Floyd Mayweather Indicted for Fraud

The three co-founders of cryptocurrency firm Centra Tech have all been indicted by a grand jury, the U.S. Attorney for the Southern District of New York announced Monday.

Raymond Trapani, Sohrab Sharma and Robert Farkas have all been accused of planning to defraud investors through their company’s token sale. U.S. Attorney Robert Khuzami further announced that authorities had recovered more than $60 million in funds from the co-founders.

All three are being charged with counts of conspiracy and the commission of securities and wire fraud, according to a release.

Centra reportedly offered “cryptocurrency-related financial products,” and its founders allegedly created “a scheme to induce victims to invest millions of dollars’ worth of digital funds for the purpose of unregistered securities,” according to the release.

However, the three also allegedly withheld important information or otherwise mislead investors, including claims about its ties to payments companies.

The company’s token sale was endorsed by heavyweight boxer Floyd Mayweather, claimed to have developed partnerships with Visa and Mastercard to create financial products. The SEC says that these partnerships never existed.

The charges were first revealed earlier this year when the U.S. Securities and Exchange Commission filed charged Sharma and Farkas with fraud, as previously reported. The Department of Justice later produced criminal charges of its own against all three co-founders.

The three remain in custody pending further action by the courts.

Gavel image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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SEC Halts Mayweather-Backed ICO Over Alleged Fraud

The U.S. Securities and Exchange Commission has halted an initial coin offering and charged its founders with “orchestrating a fraudulent initial coin offering,” the regulator said Monday night.

The agency said it charged Sohrab Sharma and Robert Farkas, the co-founders of Centra Tech, with fraud after they raised $32 million by selling “unregistered securities.”

While the ICO startup claimed the funds would go toward developing financial products backed by Visa and Mastercard, the SEC said Centra had no relationship with either payment card network. The agency further stated that Sharma and Farkas created false marketing material, including fictional executives.

Notably, the SEC also alleges that the founders paid celebrities to promote the ICO. These celebrities appear to include boxing champion Floyd Mayweather, who endorsed Centra in September 2017, though his Instagram post has since been removed.

In a press release, SEC Division of Enforcement co-director Steve Peikin stated:

“As we allege, the defendants relied heavily on celebrity endorsements and social media to market their scheme. Endorsements and glossy marketing materials are no substitute for the SEC’s registration and disclosure requirements as well as diligence by investors.”

Centra and its co-founders were also the targets of a class-action lawsuit filed in December 2017, which claimed that the startup’s CTR token was essentially an unregistered security.

The SEC said both Sharma and Farkas were arrested and charged by law enforcement officers.

Floyd Mayweather image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.