Crypto firm co-founder pleads guilty for $25 million ICO fraud scheme | Hogan Lovells

The U.S. Department of Justice (DoJ) has announced that the co-founder of a cryptocurrency company who misled victims into investing $25 million in a fraudulent scheme has pled guilty for his role in the scheme and faces up to 10 years in prison.

What has happened

Robert Joseph Farkas, aka RJ, has pled guilty to conspiring to commit securities and wire fraud in respect of a scheme to get victims to invest more than $25 million dollars’ worth of digital funds in Centra Tech.

What does this mean

According to a press release by the DoJ, around July 2017, Farkas, 33, and his co-defendants, Sohrab Sharma and Raymond Trapani, founded Centra Tech. The Miami-based company purported to offer cryptocurrency-related financial products, including a purported debit card, the “Centra Card,” which supposedly allowed users to make purchases using cryptocurrency at establishments accepting Visa or Mastercard payment cards.

The scheme ran from about July to October 2017, with the three defendants allegedly using “material misrepresentations and omissions” to solicit investors to purchase digital tokens called “Centra tokens” or “CTR tokens” through an initial coin offering (ICO).

Among others, the defendants are said to have claimed that Centra Tech had money transmitter and other licenses in 39 states and that it had a CEO with more than 20 years of banking experience and a master’s degree in business administration from Harvard.

“The claims that Farkas and his co-conspirators made to help secure these investments, however, were false,” the DoJ said.

At the end of the ICO, the scheme had raised more than $25 million from victims, with a peak at some point in 2018 when the funds were worth more than $60 million.

Farkas pled guilty to one count of securities fraud conspiracy and one count of wire fraud conspiracy, each carrying a maximum sentence of five years in prison.

In April 2018, the U.S. Securities and Exchange Commission (SEC) stopped the Centra Tech ICO and, in November that year, it settled charges against professional boxer Floyd Mayweather Jr and music producer Khaled Khaled, known as DJ Khaled, for not disclosing $100,000 and $50,000 they had received respectively from Centra Tech to promote the scheme.

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