Centra Tech Co-Founder Sentenced to a Year in Prison

The co-founder of a cryptocurrency company that raised more than $25 million from investors in an initial coin offering (ICO), promoted by boxer Floyd Mayweather and musician DJ Khaled on Twitter, was sentenced to a year in prison after he pleaded guilty to securities fraud. Robert Farkas, age 34, was also ordered to forfeit $347,062.58 and a Rolex watch he purchased with the ICO's proceeds.

"Farkas and his coconspirators created fictitious executives and fabricated business relationships with legitimate institutions to dupe investors into handing over millions of dollars for a fraudulent ICO," stated prosecuting attorney Ilan Graff.

Farkas, along with his colleagues at a luxury rental car company, formed Centra Tech, a crypto financial services company, in 2017 and claimed to offer a debit card that converted cryptocurrencies into dollars. During the company's much-hyped ICO, they made a number of false claims, including the existence of a partnership with Mastercard Incorporated (MA) and Visa Inc. (V) as well as a "Harvard-educated" chief executive officer.

"… 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. As the complaint alleges, these and other claims were simply false," the SEC stated after arresting those involved in 2018. The agency made settlements with Khaled and Mayweather later that year. Farkas's colleagues in the venture also pleaded guilty and forfeited their earnings from the fraud.

The Centra Tech offering was one the most high-profile cases of the ICO bubble that started in 2017 and continued till the end of 2018. During this period, coin offerings outpaced venture capital as the preferred method for entrepreneurs to raise capital. The offerings touted a range of crypto coins and products and raised money from lay investors with nothing more than a whitepaper and the promise of a product sometime in the future.

The SEC took note and cracked down on several offerings, leading to multiple arrests and convictions. As of this writing, the ICO market is a fraction of its fundraising volume in 2017.