Two executives behind an alleged ICO scam will have to pay a hefty fine, in a settlement that the U.S. Securities and Exchange Commission hopes will send a message to the crypto industry. Jared Rice Sr. and Stanley Ford of the former crypto bank AriseBank have reached a settlement in a Texas federal court for scamming investors and must fork over over approximately $2.7 million to the SEC.
In addition to the fine, the pair are now banned from issuing digital securities or joining the boards of public companies in the future. Rice and Ford, the former CEO and COO of AriseBank, respectively, marketed the startup as a decentralized bank. But they failed to register their tokens as securities, or seek an exemption, causing regulators to bring it to a screeching halt.
According to Shamoil T. Shipchandler, the regional director of the SEC’s Fort Worth regional office, in a press release:
Rice and Ford lied to AriseBank’s investors by pitching the company as a first-of-its kind decentralized bank offering its own cryptocurrency for customer products and services. The officer-and-director bar and digital securities offering bar will prevent Rice and Ford from engaging in another crypto-asset-based fraud.
There were numerous big promises in the ICO marketing materials, such as “revolutionizing banking” and “FDIC-insured accounts and transactions,” that the SEC said in its complaint are false. There was also important information missing, such as AriseBank’s failure to disclose to investors that a key executive had a criminal history.
AriseBank was based in Dallas, Texas, which is where the former execs either live or once lived. They were hoping to raise $1 billion from the sale of the AriseCoin token, of which they reportedly raised $600 million to their coffers. The size of the offering appears to haveplaced a regulatory target on their back.
Now the former ICO execs are “liable for $2,259,543 in disgorgement plus $68,423 in prejudgment interest, and each must pay a $184,767 penalty,” according to the SEC’s announcement. The settlement was reached without the admission or denial of guilt by the pair.
The ICO market has already begun to dim, with security token offerings (STOs) set to take their place. As Galaxy Digital’s Michael Novogratz told Bloomberg, these regulated deals are “a lot less sexy, but you’re going to see that business grow.”
Things could become worse for at least one of the alleged ICO scammers, as last month “U.S. Attorney’s Office for the Northern District of Texas announced parallel criminal charges against Rice.”
The SEC had been circling ICOs over the past year, as billions of dollars continued to pour into token sales. While AriseBank was one of the first token sales to be targeted, it’s not likely to be the last.
The author is not invested in any digital currencies mentioned in the article but does hold investments in cryptocurrencies.