US regulator the Securities and Exchange Commission (SEC) has struck at an alleged fraudulent cryptocurrency ICO (initial coin offering), in a further blow to the cryptocurrency market on the day South Korea banned anonymous trading.
The SEC said it had obtained a court order halting an allegedly fraudulent initial coin offering (ICO) that targeted retail investors to fund what it claimed to be the world’s first “decentralized bank.”
According to the SEC’s complaint, filed in federal district court in Dallas on 25 January and unsealed late yesterday, Dallas-based AriseBank used social media, a celebrity endorsement, and other wide dissemination tactics to raise what it claims to be $600m of its $1bn goal in just two months.
AriseBank’s false claim
The SEC said: “AriseBank and its co-founders Jared Rice Sr. and Stanley Ford allegedly offered and sold unregistered investments in their purported AriseCoin cryptocurrency by depicting AriseBank as a first-of-its-kind decentralized bank offering a variety of consumer-facing banking products and services using more than 700 different virtual currencies. AriseBank’s sales pitch claimed that it developed an algorithmic trading application that automatically trades in various cryptocurrencies.”
The SEC alleges that AriseBank falsely stated that it purchased an FDIC-insured bank which enabled it to offer customers FDIC-insured accounts and that it also offered customers the ability to obtain an AriseBank-branded VISA card to spend any of the 700-plus cryptocurrencies. AriseBank also allegedly omitted to disclose the criminal background of key executives.
The last tweet from Arisebank was a link to a press release issuing a correction to this announcement.
The press release says: “The company is currently in the process of acquiring two U.S.-based companies, KFMC Bank Holding Company and TPMG. KFMC Bank Holding Company is the owner of a 100-year old US commercial bank and TPMG is a 25-year old investment bank. The name of the actual FDIC-insured bank being acquired will be announced once all paperwork has been filed with the FDIC and regulators have approved its status.”
Stephanie Avakian, co-director of the SEC’s enforcement division said: “We allege that AriseBank and its principals sought to raise hundreds of millions from investors by misrepresenting the company as a first-of-its-kind decentralized bank offering its own cryptocurrency to be used for a broad range of customer products and services. We sought emergency relief to prevent investors from being victimized by what we allege to be an outright scam,”
“This is the first time the Commission has sought the appointment of a receiver in connection with an ICO fraud. We will use all of our tools and remedies to protect investors from those who engage in fraudulent conduct in the emerging digital securities marketplace,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.