It was only a matter of time it seems, before scam artists connected traditional banking and cryptocurrencies in an initial coin offering (ICO).
On Monday, the Securities and Exchange Commission obtained a court order halting an allegedly fraudulent 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 January 25 and unsealed on January 29, Dallas-based AriseBank used social media, an endorsement from professional boxer Evander Holyfield, and other wide dissemination tactics to sell unregistered investments in its purported “AriseCoin” cryptocurrency.
AriseBank claimed that it had purchased two financial institutions in January, 100-year-old FDIC-insured KFMC Bank Holding Co. and TPBG, a 25-year-old investment banking and management firm. (Neither bank can be found in the FDIC database, nor in searches online.)
AriseBank’s founders claimed the acquisitions would enable them to offer customers FDIC-insured accounts and an AriseBank-branded VISA card that would allow them to spend on products and services using any of 700-plus cryptocurrencies.
ICOs are an unregulated means by which funds are raised for a new cryptocurrency venture. AriseBank began raising money at least as early as November 2017, and in mid-January said it had raised $600 million of its $1 billion goal. The distribution to investors was supposed to happen on February 10.
Things began to unravel for AriseBank’s co-founders, Jared Rice Sr. and Stanley Ford, on January 5, when the Texas Department of Banking issued a cease-and-desist order, claiming the bank was neither chartered in Texas nor supervised with any federal regulatory agency.
The SEC filed its complaint on January 25. The Dallas court approved an emergency asset freeze over AriseBank, Rice, and Ford and appointed a receiver over AriseBank, including over its digital assets. The SEC says it 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.
“This is the first time the commission has sought the appointment of a receiver in connection with an ICO fraud,” said Steven Peikin, co-director of the SEC’s enforcement division.
The SEC is seeking 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.
According to the SEC, in 2015 Rice was charged with felony theft and tampering with government records. He recently pleaded guilty and remains on probation for the charges.