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Knockout: SEC halts Mayweather-backed ICO, founders charged with fraud

SEC's new cyber unit has been cracking down on fraudulent ICOs. The latest claimed to raise funds for financial services.

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The US Securities and Exchange Commission on Monday announced that its new cyber unit filed charges alleging yet another initial coin offering (ICO) fraud. A company called Centra Tech "masterminded" a fraudulent ICO that raised $32 million selling "unregistered securities," the complaint alleges.

Read also: Decision time is here for blockchain, but are enterprises ready?

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Phishing campaigns, spam emails, and fraudulent ICOs are all part of the problem and so you need to remain vigilant. (Image: File photo)

Sohrab Sharma and Robert Farkas, co-founders of Centra Tech, were charged in New York federal court with violating the anti-fraud and registration provisions of federal securities laws.

According to the agency, Centra Tech marketed to investors that funds raised in the ICO would help build a suite of financial products, but was far from legitimate:

They claimed, for example, to offer a debit card backed by Visa and MasterCard that would allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender. In reality, the SEC alleges, Centra had no relationships with Visa or MasterCard. The SEC also alleges that to promote the ICO, Sharma and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra's website, and paid celebrities to tout the ICO on social media.

The SEC alleges Centra Tech heavily relied on celebrity endorsements and social media to market its fraudulent scheme. Championship boxer Floyd Mayweather endorsed Centra Tech through Instagram posts in September 2017, noted CoinDesk. They have now been deleted.

"Endorsements and glossy marketing materials are no substitute for the SEC's registration and disclosure requirements as well as diligence by investors," Steve Peikin, co-director of the SEC's Division of Enforcement, said in a statement.

Earlier in March, the SEC issued "dozens" of subpoenas and information requests from technology companies and advisors involved in new cryptocurrency schemes.

The agency first warned investors about ICOs in August: "Fraudsters often try to use the lure of new and emerging technologies to convince potential victims to invest their money in scams."

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