The Securities and Exchange Commission announced today that it obtained final judgments on consent against Sohrab “Sam” Sharma, Robert Farkas, and Raymond Trapani. In April 2018, the SEC charged Sharma, Farkas, and Trapani with conducting a fraudulent and unregistered initial coin offering through Centra Tech Inc., an entity they controlled, that raised over $32 million by selling “CTR tokens” to investors.
Sohrab “Sam” Sharma, Raymond Trapani, and Robert Farkas were conducting an unregistered and fraudulent ICO through Centra Tech Inc, which raised $32 million.
The term “initial coin offerings,” which refers to the practice of distributing digital tokens to investors in exchange for financial backing, became widely used in the cryptocurrency industry. However, because there is a lack of regulation in the initial coin offering (ICO) area, it has also become a breeding ground for fraudulent operations. One such instance is the initial coin offering (ICO) fraud scheme that cost Sohrab “Sam” Sharma and the company he works for, Centra Tech, $32 million.
Who is Sohrab “Sam” Sharma?
An Indian-American entrepreneur, Sohrab “Sam” Sharma is a co-founder of the company Centra Tech. Centra Tech is a company that claims to be developing a blockchain-based platform for conducting Bitcoin transactions. In 2017, Sharma, together with his other co-founders, participated in an initial coin offering (ICO) and earned $32 million by promising investors a debit card that could be used to spend bitcoin at any place that takes Visa or Mastercard. Sharma and his co-founders also developed their own cryptocurrency.
The Fraudulent ICO Scheme
The initial coin offering (ICO) strategy that Sharma and his co-founders advocated was a hoax. The group asserted that they had formed connections with significant payment processors like as Visa and Mastercard and that they had obtained permits to conduct business in 38 of the 50 states in the United States. On the other hand, these partnerships and licenses were completely made up, and the debit card that was promised to investors was never delivered.
In addition, Sharma and his co-founders lied to investors about the background of the team, stating that they had prior experience in both the financial and technological sectors. In actuality, the crew had lied about their qualifications and did not have any prior expertise in the relevant industry. In addition, the team promoted the ICO on social media by paying celebrities, such as Floyd Mayweather and DJ Khaled, without disclosing the fact that they were being compensated for their support of the ICO.
What is SEC?
The Securities and Exchange Commission (SEC) in the United States is a federal government regulatory agency that works independently. Its main responsibility is to safeguard investors, ensure the securities markets operate in a fair and orderly manner, and facilitate capital formation.
Legal Consequences
Sharma, along with his co-founders Robert Farkas and Raymond Trapani, was charged with fraud by the United States Securities and Exchange Commission (SEC) in April of 2018. The Securities and Exchange Commission (SEC) asserted that the initial coin offering (ICO) was an unregistered offering of securities and that Sharma and his co-founders had misled investors on the partnerships and licenses that they held.
Sharma entered a guilty plea in July 2018 to allegations that she was involved in a conspiracy to commit securities fraud and wire fraud. He was also compelled to make restitution in the amount of $36.2 million after receiving a term of eight years in prison. Both Farkas and Trapani entered guilty pleas to crimes that were comparable to one another and were sentenced to jail.
According to the SEC’s amended complaint, filed April 20, 2018, Sharma, Farkas, and Trapani made numerous material misrepresentations in marketing the CTR tokens, including touting Centra’s claimed partnerships with Visa, MasterCard, and The Bancorp, when in fact, Centra did not have any “partnership” or any relationship with these institutions. The amended complaint further alleges that Defendants created fictitious executive bios, made misrepresentations about the viability of the company’s core financial services products, and manipulated trading in the CTR Tokens to generate interest in the company and prop up the price of the tokens.
In April 2018, the United States Attorney’s Office for the Southern District of New York brought criminal charges against Sharma, Trapani and Farkas for their roles in the fraudulent Centra ICO in United States v. Sharma et al, 18-Cr. 340 (S.D.N.Y.) (LGS). Sharma, Trapani, and Farkas have each pleaded guilty and have been sentenced to a term of imprisonment.
On May 17, 2022, the U.S. District Court for the Southern District of New York entered final judgments on consent against Sharma, Trapani, and Farkas. The judgments enjoin each from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and the registration provisions of Section 5 of the Securities Act.
The judgments also order: (1) disgorgement, including prejudgment interest of $37,701,966, $2,608,869, and $394,908 against Sharma, Trapani and Farkas respectively, each of which was deemed satisfied by the orders of forfeiture entered in the parallel criminal proceeding against each of them; (2) officer-and-director bars; and (3) permanent injunctions from conducting any offering of digital asset securities or other securities.
The SEC’s litigation was conducted by Alison R. Levine and Jon A. Daniels of the Crypto Assets and Cyber Unit and Luke M. Fitzgerald of the Asset Management Unit. The case was supervised by Mark R. Sylvester and A. Kristina Littman of the Crypto Assets and Cyber Unit and Lara S. Mehraban of the New York Regional Office.
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