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Alleged AriseBank Initial Coin Offering Scam Stopped

Alleged AriseBank Initial Coin Offering Scam Stopped

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SEC Stops AriseBank’s Allegedly Fraudulent Initial Coin Offering Targeting Retail Investors to Fund the World’s First “Decentralized Bank.”

AriseBank Used Social Media and Celebrity Endorsements to Raise $600 Million of Its $1 Billion Goal in Two Months
Unregistered Investments in “AriseCoin” Cryptocurrency Allegedly Offered and Sold

On January 30, 2018, the Securities and Exchange Commission (“SEC”) announced (“SEC Halts Alleged Initial Coin Offering Scam”) that it 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 “decentralized bank.”

According to the SEC’s complaint, Dallas-based AriseBank 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 decentralized bank offering a variety of consumer-facing banking products and services using more than 700 different virtual currencies.  AriseBank’s sales pitch claimed that it developed an algorithmic trading application that automatically trades in various cryptocurrencies.

The SEC alleges that AriseBank falsely stated that it purchased an 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.

Stephanie Avakian, Co-Director of the SEC’s Enforcement Division said, “We allege that AriseBank 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.  We sought emergency relief to prevent investors from being victimized by what we allege to be an outright scam.”

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.

AriseCoin’s public sale began around Dec. 26, 2017, and was originally scheduled to conclude on Jan. 27, 2018, with distribution to investors on Feb. 10, 2018.  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.

Initial Coin Offering & Cryptocurrency Investors

Initial Coin Offering and cryptocurrency (e.g., Bitcoin, Litecoin) investors are encouraged to use caution when considering cryptocurrency investments and Initial Coin Offerings, in addition to reviewing the following information:

SEC Chairman Jay Clayton Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11, 2017)

SEC Division of Enforcement and SEC Office of Compliance Inspections and Examinations Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others (Nov. 1, 2017)

Investor Alert: Public Companies Making ICO-Related Claims(Aug. 28, 2017)

Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (July 25, 2017)

Investor Bulletin: Initial Coin Offerings (July 25, 2017)

Investor Alert: Bitcoin and Other Virtual Currency-Related Investments (May 7, 2014)

Investor Alert: Ponzi Schemes Using Virtual Currencies (July 23, 2013)

CFTC Customer Advisory: Understand the Risks of Virtual Currency Trading (December 15, 2017)

A CFTC Primer on Virtual Currencies (October 17, 2017).

Source: SEC Press Release 2018-8, SEC.gov CFTC.gov

Kehoe Law Firm, P.C.