The Feds Charged the Masterminds Behind a DJ Khaled-Endorsed ICO With Fraud

The SEC charged the two guys behind a $32 million cryptocurrency scam hyped by the boxer Floyd Mayweather and DJ Khaled with fraud.

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Apr 3 2018, 4:00pm

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On Monday, the US Securities and Exchange Commission (SEC) filed a complaint against the masterminds of an initial coin offering (ICO) promoted by the boxer Floyd Mayweather and producer DJ Khaled, charging them with fraud. The founders were separately arrested and charged by law enforcement.

The men in question are Sohrab Sharma and Robert Farkas, 26-year old friends who co-founded a startup called Centra Tech Inc and raised $32 million through an ICO by selling CTR tokens last year. ICOs are run by companies to raise capital by selling investors tokens that are meant to be used with the company's product. After an unprecedented wave of ICOs raised billions of dollars from investors last year, the practice came under scrutiny by the SEC, which maintains that many ICOs are selling unlicensed securities. In February, SEC head Jay Clayton told a Congressional committee that “every ICO [he’s] seen” is a security, and no ICOs had registered with the regulator at that time.

According to the SEC complaint against Centra Tech, Sharma and Farkas said the ICO funds would be used for building financial services.

“They claimed, for example, to offer a debit card backed by Visa and Mastercard that would allow users to instantly covert hard-to-spend cryptocurrencies into US dollars or legal tender,” the complaint reads. “In reality, the SEC alleges, Centra had no relationships with Visa or MasterCard.”

This didn’t stop Sharma and Farkas from hyping the product with celebrity endorsements from the likes of Floyd Mayweather, a champion boxer, and DJ Khaled, a well known DJ and producer.

Last September, Mayweather—well known for boosting ICOs on social media—posted a photo to his Facebook featuring him looking at his boxing belts and telling his followers to buy CTR Tokens.

“Get yours before they sell out,” Mayweather wrote in a (since deleted) post to his 13 million followers. “I got mine and as usual I’m going to win big with this one!”

Read More: Inside Floyd Mayweather’s Cryptocurrency Promotion Campaign

As detailed in a New York Times article about the company from last October, no one involved in Centra Tech had any prior experience in cryptocurrencies or technology—before starting Centra, they owned a luxury car rental service. Moreover, at least one of the executives listed on Centra’s website, Michael Edwards, turned out to not even be a real person. Edwards’ photo on the site was in fact a Canadian physiology professor who had no links to the company. According to the Times, the company blamed the phony executive on hasty freelancers.

The use of celebrity endorsements and made-up executives is highlighted by the SEC complaint, which seeks “permanent injunctions, the return of allegedly ill-gotten gains plus interest and penalties, as well as bars against Sharma and Farkas serving as public company officers or directors and from participating in any offering of digital or other securities.”

At the same time, the US attorney’s office for the Southern District of New York pressed criminal charges against Sharma and Farkas. The SEC’s complaint states that its investigation is ongoing, and encourages investors who believe themselves to be a victim to come forward.

Despite ongoing attempts by governments to reign in the largely unregulated world of cryptocurrencies, frauds still abound and a celebrity endorsement is no guarantee that a product is legit. In fact, since a digital token promoted by Steven Seagal got a cease and desist from New Jersey state regulators just last month, it’s starting to seem like just the opposite.