Two founders of Centra Tech, the Miami-based cryptocurrency startup famously associated with boxer Floyd Mayweather Jr., have been arrested following an SEC complaint. The securities regulator claimed Sohrab “Sam” Sharma (26) and Robert Farkas (31) of Florida sold unregistered securities in their $32 million USD ICO last year, and made several misstatements about their company’s team and corporate partnerships.
The case should serve as a warning to any investors blinded by the light of celebrity endorsements — although several would have made quick profits before the gleam faded.
Centra had promised a suite of crypto-based financial products called “Centra Line”, based around a native token called CTR. These included cryptocurrency debit cards, which Centra said were in partnership with Mastercard and Visa. The SEC alleges no such partnerships existed (this is also a common accusation against other bitcoin and crypto debit card offerings).
Among the SEC’s other complaints:
- The ERC-20 based CRT tokens Centra sold in its ICO represented unlicensed securities, which Centra solicited investment from the U.S. and around the world without registering with the regulator;
- The claimed co-founder and CEO of Centra Tech named “Michael Edwards” — along with other members of the executive team — does not exist;
- Centra’s marketing materials falsely claimed the “Centra Token Rewards Program” entitled investors to share in the company’s future earnings, and would receive payments based on revenues.
The Mayweather (Sort of) Connection
Centra Tech was best known in the crypto media world and community for its endorsement by champion boxer Floyd Mayweather. That association undoubtedly helped the ICO, since Centra’s offerings otherwise were promises of a fairly generic cryptocurrency “ecosystem” backed by digital image mockups of debit cards.
“Get yours before they sell out. “I got mine and as usual I’m going to win big with this one!” Mayweather posted to his 13+ million fans on social media. Mayweather’s tweet with the same message hasn’t been deleted… yet.
— Floyd Mayweather (@FloydMayweather) September 18, 2017
Not that Mayweather’s star power lasted long, though. More rational heads immediately smelled something was off.
The New York Times reported as far back as October 2017 (right after the ICO) that neither Sharma nor another co-founder Raymond Trapani appeared to have any professional experience with digital currency technology or debit cards. Sharma and Farkas had previously run an exotic car rental business in Miami together.
It also noted Mayweather had endorsed two other token projects, Stox and Hubiits.
Investors launched their own civil class action against Centra Tech last December with similar complaints to the SEC’s, claiming CTRs were not “utility tokens” as promised.
Celebrity ICOs – Just Don’t Do It
Centra Tech is one of several celebrity-endorsed crypto token projects that has come unstuck, though that hasn’t stopped new ones appearing. Paris Hilton rushed to disassociate herself from the “LydianCoin” ICO last September after regulators and the media looked closer at its comical claims. More recently, action movie star Steven Seagal and the founders of “Bitcoiin” decided to “leave the project” after its $75 million ICO completed (and had received its own warning from regulators).
Just as celebrities likely understand very little about the development and technology that went into producing the watches, cosmetics and footwear they “endorse”, the same likely goes for crypto token sales. The process of officially adding a famous name to a product and sending a massive check to the owner of that name is ancient, and common.
It doesn’t necessarily mean the endorsed product is shady, but it also doesn’t automatically confer quality. Investors and consumers alike would do well to ignore famous names altogether, and focus on the product. Alas, that rarely happens.
Common Complaints Against ICO Projects
Centra’s crypto-product offerings seemed generic but, let’s be honest, so do its actions in promoting the token sale. Fictitious teams, non-existent products, dubious name-dropping “partnerships” and (perhaps the key one) selling unregistered securities, are common complaints against many initial coin offerings.
Claiming the crypto tokens sold are “utility tokens” that serve some purpose on a company’s blockchain platform is a common way for companies to (attempt to) skirt securities regulations. However the two main U.S. regulators claiming jurisdiction over the space, the SEC and CFTC, have said this isn’t enough to exempt them.
Would you buy a token with a famous name attached? How long would you hold it? Let us know in the comments section.
Images via Wikipedia, New York Times
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