SEC stops alleged AriseBank ICO scam
The US Securities and Exchange Commission (SEC) has 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 “decentralised bank”.
According to the SEC’s complaint, filed in federal district court in Dallas, AriseBank (based in the same city) used social media, a celebrity endorsement, and other “wide dissemination tactics” to raise what it claims to be $600 million of its $1 billion goal in just two months.
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 decentralised bank” offering a variety of consumer-facing banking products and services using more than 700 different virtual currencies.
The SEC points out that AriseBank’s sales pitch claimed that it developed an algorithmic trading application that automatically trades in various cryptocurrencies.
It doesn’t end there. The SEC alleges that AriseBank falsely stated that it purchased a Federal Deposit Insurance Corporation (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.
“We sought emergency relief to prevent investors from being victimised by what we allege to be an outright scam,” says Stephanie Avakian, co-director of the SEC’s Enforcement Division.
“This is the first time the Commission has sought the appointment of a receiver in connection with an ICO fraud,” adds Steven Peikin, co-director of the SEC’s Enforcement Division.
The court approved an emergency asset freeze over AriseBank, Rice, and Ford and appointed a receiver over AriseBank, including over its digital assets.
The SEC intervened to protect the digital assets before they could be dissipated, enabling the receiver to immediately secure various cryptocurrencies held by AriseBank including Bitcoin, Litecoin, Bitshares, Dogecoin, and BitUSD.
The SEC seeks preliminary and permanent injunctions, “disgorgement of ill-gotten gains plus interest and penalties”, and bars against Rice and Ford to prohibit them from serving as officers or directors of a public company or offering digital securities again in the future.
Investors in the AriseBank ICO who believe they may be a victim are asked to report it to the SEC as a tip or complaint.
The SEC’s Office of Investor Education and Advocacy also reminded people that it issued an investor alert in August 2017 warning investors about ICO scams.
Such concerns are not limited to the US of course. Last year, the UK’s Financial Conduct Authority was cautioning consumers about the risks of ICOs.
Noted
AriseBank’s site isn’t working – which is not really a surprise. But on Twitter, and while there is no direct response to the SEC, it did say on 25 January the following: “Because of the decentralised nature of the AriseBank software, it is wholly unnecessary for the platform to be FDIC regulated or insured as the individual users maintain full control of their funds.
“The company is currently in the process of acquiring two US-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.”
