Traditionally when purchasing goods or services, Americans used money, issued by the U.S. government and its fiscal agent, the Federal Reserve System. Then, in 2009, Bitcoin, the first cryptocurrency, was created.
Wikipedia defines cryptocurrency as a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.1 Cryptocurrency does not have a physical presence, like a coin does. It exists only in cyberspace where bitcoin can be globally transferred directly between individuals. It needs no bank or PayPal-type company to serve as a gatekeeper to regulate transactions.2 While Bitcoin is perhaps the most famous form of cryptocurrency, there are more than 4,500 other cryptocurrencies available.3
As cryptocurrency has proliferated, so too have cryptocurrency investment scams.
In January, the Securities and Exchange Commission shut down one such scam by Dallas-based AriseBank, which, in just two months, had already raised more than $600 million of its $1 billion goal to establish what it claimed would be the world’s first “decentralized bank.”4 AriseBank courted investors through social media, including a Facebook page. They also used celebrity endorsements and other wide dissemination tactics to raise investment funds.
The SEC complaint against AriseBank was filed in federal district court in Dallas on January 25.The complaint alleges that “Arise Bank 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,” according to Stephanie Avakian, co-director of the SEC’s Enforcement Division. Ms. Avakian further stated that the SEC “sought emergency relief to prevent investors from being victimized by what the SEC alleges to be an outright scam.”
AriseBank and its co-founders Jared Rice Sr. and Stanley Ford are charged by the SEC with allegedly offering and selling unregistered investments in their purported “AriseCoin” cryptocurrency. They did so by depicting AriseBank as a one-of-its-kind decentralized bank offering a variety of consumer-facing banking products and services using more than 700 different virtual currencies. In their sales pitch to investors the claimed to have developed an algorithmic trading application that automatically trades in various cryptocurrencies.
The SEC also claimed that AriseBank falsely stated that it purchased an FDIC-insured bank which investors were told would enable AriseBank to offer customers FDIC-insured accounts. It also offered customers the ability to obtain an AriseBank-branded VISA card to spend any of the 700-plus cryptocurrencies. Another omission was the disclosure of the criminal backgrounds of key executives in the company.
In an historic move for an Initial Coin Offering (ICO) scam investigation, when the SEC complaint was filed, the agency also sought the appointment of a receiver. The SEC request was granted and, in addition to approving emergency asset freezes for AriseBank and it co-founders, a receiver was appointed over AriseBank, including over its digital assets. AriseBank investors who believe they may be a victim are asked to report it to the SEC as a tip or complaint.
In an unrelated, but significant move related to cryptocurrency investing, on March 14, Google announced that it would ban cryptocurrency and initial coin offering ads starting in June 2018. According to Mike Luce, in an article for International Business Times, “the move is seen as Google’s way of following in the footsteps of Facebook when it comes to blocking marketing content that promotes high-risk financial products.”5
If you have questions about cryptocurrency scams, investment fraud, financial schemes, broker misconduct, or about your broker’s management of your account, please contact our Securities Law Firm at: 313-334-7767 for a Free case evaluation.
1 Cryptocurrency, Wikipedia.org
2 What You Need to Know About Bitcoin and Cryptocurrency, Coryanne Hicks, Staff Writer, U.S. News and World Report, March 14, 2018
3 Cryptocoin Charts
4 SEC Halts Alleged Initial Coin Offering Scam, U.S. Securities and Exchange Commission, January 30, 2018
5 Cryptocurrency Ban: Why is Google Blocking Cryptocurrency, Initial Coin Offering Ads? Mike Luce, International Business Times, March 14, 2018