Late last month, federal prosecutors in the Southern District of New York pushed for a heavy prison sentence against one of the founders of Centra Tech, Inc. (“Centra Tech”). As discussed earlier this year on the BitBlog, Centra Tech, which was founded in 2017 by Robert Farkas, Sohrab Sharma and Raymond Trapani, marketed itself as having developed a debit card allowing users to make purchases with digital currency at any business accepting Visa or MasterCard. Centra Tech’s ICO was promoted by artist DJ Khaled and legendary boxer Floyd Mayweather.         

Farkas pleaded guilty in June to two counts of fraud relating to his role in the ICO that swindled more than $25 million from investors from July through October 2017 in June of this year. Farkas’s personal monetary benefit was approximately $350,000.

In advance of sentencing, the parties filed sentencing memorandums. Although the parties agreed that the advisory Sentencing Guidelines range in this case is 70 to 87 months’ imprisonment, the defense and prosecution requested vastly different sentences. Farkas requested a sentence of time served (which was a total of 55 days) “with home confinement and a substantial amount of community service,” while the prosecution requested “a substantial term of imprisonment”.

The prosecution’s sentencing memorandum focused its arguments on preventing like-future conduct: “General deterrence is particularly important here in light of the nature of the fraudulent scheme. . . . [F]raudulent ICOs leave victims with little recourse because it is often difficult to trace investments that are made using cryptocurrencies.”^[1] The prosecution added that: “[A] significant prison sentence will serve to deter others who may consider engaging in similar crimes, and buttress confidence in the financial markets by sending the message to the investing public that individuals who raise money through lies and deceit about their companies, their products, and themselves for their personal benefit and for the benefit of their co-conspirators will be appropriately punished.”^[2]

U.S. District Judge Lorna Schofield has yet to impose Farkas’ sentence. But this case serves as yet another example of the commitment of the DOJ and the SEC to take action against fraudsters that violate the securities laws and commit fraud disguised as an offering of a digital asset or token as part of an ICO. As the Polsinelli FinTech and Regulation Practice have noted in public statements in the past, parties conducting illegal offerings of digital assets that commit fraud are risking their freedom.

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^[1]United States v. Farkas, No. 18-cr-00340-LGS (S.D.N.Y. 2020), Doc. 405 at 29.

^[2]Id. at 29-30.