By Rebecca Kahn, J.D.
The SEC has obtained a court order to stop an allegedly fraudulent initial coin offering (ICO) targeting retail investors to fund "the world’s first decentralized bank." Dallas-based AriseBank and its principals allegedly used social media, a celebrity endorsement and other wide dissemination tactics and claimed to raise $600 million of its $1 billion goal in just two months by offering the unregistered securities (SEC v. AriseBank, Jan. 25, 2018).
In its recently unsealed complaint, the SEC alleged that AriseBank and its co-founders Jared Rice Sr. and Stanley Ford offered and sold unregistered investments in their purported "AriseCoin" cryptocurrency. The defendants depicted 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 claimed that it developed an algorithmic trading application that automatically trades in various cryptocurrencies.
Asset freeze and receiver appointed. AriseCoin’s public sale began in late December of 2017, and was originally set to conclude on January 27, 2018, with distribution to investors on February 10, 2018. To protect the digital assets from being dissipated, an emergency asset freeze over AriseBank, Rice and Ford was approved by the Texas federal court. The court also appointed a receiver to secure AriseBank and its digital assets (including cryptocurrencies 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.
False statements. AriseBank falsely stated that it had purchased an FDIC-insured bank, enabling it to offer customers FDIC-insured accounts. According to the complaint, the FDIC has no such records. Defendants also offered customers an AriseBank-branded VISA card to spend the cryptocurrencies via its "partner" service, Marqeta. Marqeta publicly denied any relationship with AriseBank or that it provides any such cryptocurrency spending program.
Criminals at the top. AriseBank also failed to disclose the criminal background of its key executives. Rice is currently on probation for felony theft and tampering with government records, and AriseBank’s president, Kelvin Spencer, has a history of multiple arrests and convictions. He served a five-year sentence for felony robbery for which he was also ordered to pay $250,000. The SEC alleged that these omissions bear directly on the honesty and professional competence of AriseBank’s principals and would have been highly material to investors. This criminal history impacts the ability to obtain licenses to own or operate financial institutions, including FDIC restrictions.
Violations and relief sought. All defendants are charged with unregistered offer and sale of securities in violation of Securities Act Sections 5(a) and (c), fraud under Securities Act Sec. 17(a)(2), Exchange Act Section 10(b), and Rule 10b-5 thereunder. Rice and Ford are also charged with aiding and abetting these violations. The SEC seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains plus interest and penalties, and to bar Rice and Ford from serving as officers or directors of a public company or offering digital securities in the future.
Attorneys: Timothy L. Evans for the SEC.
MainStory: TopStory Enforcement FraudManipulation SecuritiesOfferings TexasNews
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