SEC's $600 Million Crypto Case Ends With $2.7 Million Penalty

(Bloomberg) -- AriseBank claimed to have raised an eye-popping $600 million at the height of crypto craze, making it a high-profile target when U.S. regulators accused the company of fraud in January.

Almost a year later, the case has ended in a whimper, a reflection of the fact that most of the money never existed. Dallas-based AriseBank and its founders agreed to pay about $2.7 million in a settlement with the Securities and Exchange Commission announced Wednesday.

The SEC had obtained a court order in January freezing the assets of AriseBank. At the time, the agency accused the company of illegally raising funds through an initial coin offering without registering the token sale with regulators. The case was one of the first targeting alleged cryptocurrency misconduct in what would evolve into a broad crackdown on the industry.

Among AriseBank’s notable claims were that it operated the world’s first “decentralized” bank and that it could handle transactions involving more than 700 different virtual currencies, according to the SEC. The company won endorsements from celebrities, including former World Heavyweight boxing champion Evander Holyfield.

AriseBank Chief Executive Officer Jared Rice and co-founder Stanley Ford each agreed to pay about $185,000 in penalties for their roles in perpetuating the scheme, the SEC said Wednesday. The two, which settled the claims without admitting or denying the agency’s findings, also agreed to lifetime bars from serving as officers and directors of public companies as well as digital securities offerings.

“The officer-and-director bar and digital securities offering bar will prevent Rice and Ford from engaging in another cryptoasset-based fraud,” Shamoil T. Shipchandler, head of the SEC’s Fort Worth, Texas office, said in a statement.

The agency alleged they made false claims about how much money they had raised, and falsely told potential investors that they had partnerships with Visa Inc. Last month, federal prosecutors obtained an indictment against Rice over similar allegations. He pleaded not guilty.

Since last year, regulators have been sounding the alarm about ICOs, in which companies raise money selling digital tokens instead of stock. SEC Chairman Jay Clayton has repeatedly warned that crooks seemed to be harnessing the latest technology craze for scams that have been around forever, such as pump-and-dump schemes.

©2018 Bloomberg L.P.