SEC ICO Probe: The US financial watchdog denounced Centra Tech ICO and charged its founders with fraud that raised $32 million last year which was backed by celebrities like boxer Floyd Mayweather and DJ Khaled. In November SEC issued a warning against relying on celebrity-endorsed ICOs and now have moved on to halt those fraudulent projects. It won’t be long when celebrities will be legally questioned for their association as well.
SEC presses criminal charges on celebrity promoted scam ICO’s
The US Securities and Exchange Commission (SEC) has halted the Centra Tech ICO that raised $32 million last year by selling unregistered securities and arrested its founders Sohrab Sharma and Robert Farkas by charging them for “orchestrating a fraudulent initial coin offering”.
SEC further alleged that the ICO was conducted with the claim to build financial products. A debit card backed by Mastercard and Visa that would instantly convert the cryptos into legal tenders was one such purported product of the company. However, SEC found out that the company doesn’t have any partnership with either Visa or Mastercard.
Furthermore, SEC claimed that the founders also paid the celebrities to promote their product. The famous boxing champion Floyd Mayweather had been endorsing this ICO since September, last year which was later joined by another celebrity DJ Khaled.
“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.”
In December, many investors dragged the company to the court as well though Mayweather hadn’t been mentioned in the suit.
SEC warns celebrities endorsing ICOs
Last year, in November, the SEC launched an official warning regarding celebrities promoting ICOs stating:
“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 nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement.”
The SEC also warned investors “to research potential investments rather than rely on paid endorsements from artists, sports figures, or other icons”.
This came when celebrities like Paris Hilton, Jamie Foxx, and Floyd Mayweather among many other celebrities publicly promoted the token sales.
With SEC ICO fraud warnings against celebrity endorsed ICOs and then pressing criminal charges on Centra’s founding members, it won’t be long when celebrities would be legally answerable for promoting the ICOs that turns out to be a scam.
Celebrities have a huge following and their devoted followers take their words like a gospel. Hence, it is celebrities responsibility to make their intentions and participation in such endorsements clear from the start. Do you agree? Or do you believe it’s all investor’s responsibility? Do let me know in the comment section below!
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I am an associate content producer for the news section of Coingape. I have previously worked as a freelancer for numerous sites and have covered a dynamic range of topics from sports, finance to economics and politics.