The masterminds of a fraudulent cryptocurrency fundraiser, promoted by boxing superstar Floyd Mayweather Jr. and rapper DJ Khaled on social media, have been arrested.
The celebrities were not accused in the scam, but the US Securities and Exchange Commission charged Sohrab "Sam" Sharma and Robert Farkas, co-founders of Centra Tech Inc., with violating the anti-fraud and registration provisions of US securities laws.
Simultaneously, the US Attorney's Office for the Southern District of New York also slapped criminal charges against them.
SEC said the duo raised more than $32 million from thousands of investors through Initial Coin Offerings (ICOs).
A complaint filed Monday in the District Court of Southern New York by SEC alleges that Sharma and Farkas masterminded a fraudulent ICO, and their start-up company Centra Tech offered and sold unregistered investments through a coin created for its ICO - CTR.
CTR got listed on major cryptocurrency exchanges such as Binance and Cryptopia, but the former informed its investors about the high risk associated with the CTR token.
Binance said in a statement that it "may take further action including delisting (CTR)."
Sharma and Farkas allegedly claimed that funds raised in the ICO would help build a suite of financial products. They claimed to offer a debit card backed by Visa and MasterCard that would allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender. SEC alleges that Centra had no relationships with Visa or MasterCard. To promote the ICO, Sharma and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra's website, and paid celebrities to tout the ICO on social media.
Farkas made flight reservations to leave the country, but was arrested before he was able to board his flight. Criminal authorities also arrested Sharma.
Centra Tech paid for public endorsements from celebrities including Floyd Mayweather and DJ Khaled.
"Centra's (CTR) ICO starts in a few hours. Get yours before they sell out, I got mine," Mayweather said in a message posted on his Facebook page on September 18, 2017.
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