The Securities and Exchange Commission said Tuesday that it obtained a court order to freeze the assets of AriseBank for fraudulently raising money in an initial coin offering that it claimed would fund the world's first decentralized bank.
Dallas-based AriseBank claimed to raise $600 million of its $1 billion target within two months by using social media and a celebrity endorsement to target individual investors, according to the SEC's statement. AriseBank told investors that it developed an application to automatically trade in various cryptocurrencies, while its co-founders Jared Rice and Stanley Ford allegedly sold unregistered investments in its own digital currency, AriseCoin, the watchdog said.
“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,” Stephanie Avakian, co-director of the SEC’s enforcement division, said in the statement. “We sought emergency relief to prevent investors from being victimized by what we allege to be an outright scam.”
AriseBank had announced January 18 that it acquired two traditional banks in the U.S., allowing it to offer accounts insured by the Federal Deposit Insurance Corp. But the company did not purchase an FDIC-insured bank and falsely stated that its customers could obtain an AriseBank-branded VISA card to spend on more than 700 cryptocurrencies, the SEC alleged. AriseBank issued a correction on January 25, saying it would never offer FDIC-insured accounts.
“We want to ensure that our customers and the public understand clearly that we are not FDIC regulated,” Rice, AriseBank's CEO, said in the January 25 statement. “Transparency is a trait that we take great pride in at AriseBank.”
According to the SEC, Rice and the firm's president Kelvin Spencer failed to be transparent with investors about their own backgrounds.
Rice recently pleaded guilty to felony theft and tampering with government records, while Spencer served five years in prison for felony robbery, the SEC said in its complaint, filed January 25 in federal district court in Dallas and unsealed January 29. Their biographies on AriseBank's website and in its white papers did not disclose this “highly material” information, the watch dog said in the complaint.
AriseBank attracted the endorsement of former world heavyweight boxing champion Evander Holyfield, who planned on using cryptocurrency to raise money for disaster preparedness, according to a January 17 statement.
AriseCoin's public sale began in late December and was originally scheduled to conclude on January 27, with distribution to investors next month, according to the SEC. The court has approved an emergency asset freeze over AriseBank, Rice, and Ford, and appointed a receiver over AriseBank and its digital assets, 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,” Steven Peikin, co-director of the SEC’s enforcement division, said in Tuesday's statement. “We will use all of our tools and remedies to protect investors from those who engage in fraudulent conduct in the emerging digital securities marketplace.”