The SEC is charging two cash-and-car-loving crypto founders with fraud after their $32 million initial coin offering

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Federal authorities on Sunday arrested and charged Sam Sharma and Robert Farkas, two of the founders of Centra, with fraud related to the startup's initial coin offering.
Centra, which claimed to be building a debit card for cryptocurrencies, raised $32 million in its September ICO.
Sharma and Farkas are facing both civil charges from the Securities and Exchange Commission and federal criminal charges.

Two Miami-based founders behind the controversial cryptocurrency startup Centra are facing federal criminal and civil charges related to the company's $32 million initial coin offering (ICO) in September.

Criminal authorities charged and arrested Sam Sharma and Robert Farkas on Sunday, accusing them of orchestrating a fraudulent ICO, the US Attorney’s Office for the Southern District of New York announced Monday. Additionally, the Securities and Exchange Commission announced civil fraud charges against the pair in a related action.

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"We allege that Centra sold investors on the promise of new digital technologies by using a sophisticated marketing campaign to spin a web of lies about their supposed partnerships with legitimate businesses," Stephanie Avakian, codirector of the SEC's Division of Enforcement, said in a statement. "As the complaint alleges, these and other claims were simply false."

The SEC first notified Sharma that Centra was under investigation in mid-February, according to the civil complaint. By March 30, "Centra’s bank accounts were depleted and most of its employees had been terminated."

Farkas allegedly made a flight reservation to leave the US on April 1 but was arrested before boarding his flight, according to the complaint.

Centra sold $32 million in "CTR Tokens" to investors in September, saying it planned to create a cryptocurrency debit card backed by Visa and Mastercard that could be used at stores just like a credit card. The SEC alleges that Centra had no relationship with Visa or MasterCard. The SEC also alleges that Sharma and Farkas created "fictional executives with impressive biographies" to promote the ICO to investors.

Following its own investigation, Business Insider in November reported it had similarly found multiple fake executive profiles. At the time, the company attributed those profiles to mistakes made by freelancers.

In addition to the other charges, the SEC alleges the company posted false or misleading marketing materials to its website and paid celebrities to "tout the ICO on social media."

After announcing its product in August 2017, Centra brought on board celebrity endorsers including boxer Floyd Mayweather and musician DJ Khaled to promote its fundraising effort.

Representatives for Centra did not immediately respond to a request for comment.

Read the full story about how Centra's founders raised $32 million here.

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