Thursday, February 1, 2018

Another Initial Coin Offering Scam

Earlier this week the SEC announced that it had halted another fraudulent initial coin offering (ICO). AriseBank claimed to have raised about $600 million and that it had purchased an FDIC-insured bank.  AriseBank had promised investors that it would allow them to access FDIC-insured bank accounts and other consumer banking products.  The SEC alleges that these representations were false.  It also alleges that AriseBank omitted to disclose the criminal background of key executives.  A gripping American Banker article has more color on the ICO:

The agency said AriseBank’s initial offering of AriseCoin is illegal because there’s no registration filed with the SEC. It also said the offering materials “use many materially false statements and omissions to induce investment in the ICO,” such as AriseBank’s earlier claim that it had bought a commercial bank and could offer FDIC-insured accounts.

The SEC further said in its complaint that AriseBank “omitted to disclose the criminal background of key executives — most notably, Rice, who is currently on probation for felony theft and tampering with government records."

This particular initial coin offering also obtained celebrity endorsements.  Most notably, Evander Holyfield endorsed AriseBank through social media. 


Celebrities should be careful about endorsing ICOs.  In November, the SEC Division of Enforcement released a statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others.  That statement warned that "endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement."  

Although it might be unpopular at times, the SEC's increased involvement in the ICO space should be a good thing for investors.  By taking some of the frauds out of the market, the SEC may make it easier for honest projects to raise funds.

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