Crypto Diehards Stand by Celebrity-Hyped Coin U.S. Calls a Fraud
(Bloomberg) -- It appears that even federal fraud charges can’t rattle a cryptocurrency’s true believers.
A week after U.S. authorities arrested two men behind an initial coin offering that raised more than $25 million, their digital token continues to trade.
The Securities and Exchange Commission said April 2 that Sohrab “Sam” Sharma and Robert Farkas persuaded investors to buy into Centra Tech -- which planned to create a virtual currency debit card -- by falsely claiming that it had partnerships with Visa Inc. and Mastercard Inc.
Instead of being relegated to the dustbin of history, their coin lives on in cyberspace. At least three exchanges delisted Centra Tech’s CTR Token after the SEC and Justice Department announced fraud allegations. While it’s difficult to assess the number of market participants, data posted on CoinMarketCap’s website indicates undeterred investors keep shifting trading to new unregulated venues.
The persistence of the CTR Token shows the challenge regulators face in policing a market that has won multiple celebrity endorsements and that some on Wall Street have compared to the Wild West. Boxing great Floyd Mayweather once hyped Centra Tech’s coin on Twitter, while music producer DJ Khaled touted the company on social media.
SEC Chairman Jay Clayton has repeatedly warned that many ICOs are probably pump-and-dump schemes or involve other types of misconduct. The alarm bells haven’t stopped the industry -- in which companies raise money by selling digital tokens instead of shares -- from attracting an estimated $9.8 billion since the start of last year, according to Coinschedule.
Regulators “can no longer halt an asset’s trading by going to a single choke point," said Andy Bromberg, chief executive officer of CoinList, which helps companies raise money through ICOs. "Seeing exchanges continuing to list a project that has been so thoroughly discredited by agencies is irresponsible and shouldn’t happen."
Farkas’s attorney declined to comment, while a lawyer representing Sharma didn’t respond to a request for comment. Company officials at Miami Beach-based Centra Tech didn’t respond to voice and email messages seeking comment. SEC Spokesman Chris Carofine declined to comment.
The value of a CTR Token initially plunged following the arrests of Farkas and Sharma. But it then stabilized and started to rise. The coin tumbled again after the Binance platform delisted it on April 8. Yet, on it trades.
The SEC has had more success cracking down on crypto companies that are listed on traditional stock exchanges.
For instance, Nasdaq halted trading of Longfin Corp. earlier this month ahead of SEC allegations that two people affiliated with the company had violated securities laws by selling unregistered shares. The regulator’s enforcement action came after Longfin skyrocketed on an announcement that it would acquire a cryptocurrency business. The company disclosed this week that it had received notice from Nasdaq that its shares will be delisted.
©2018 Bloomberg L.P.