U.S. Securities and Exchange Commission building. Photo: Diego M. Radzinschi/ALM

The U.S. Securities and Exchange Commission has delivered potential knockout punches to a pair of now-former executives who used an endorsement from boxing legend Evander Holyfield as part of an effort to promote an allegedly fraudulent initial coin offering, or ICO.  

Jared Rice Sr. and Stanley Ford, who served as CEO and COO respectively of the Dallas-based AriseBank, have been barred for life from serving as officers and directors of public companies and from participating in digital securities offerings as part of a settlement with the SEC.

The case marks the first time that the SEC has sought the appointment of a receiver to help retrieve investors' money in an ICO fraud action, according to Steven Peikin, co-director of the SEC's enforcement division.

AriseBank was billed as a “first-of-its-kind decentralized bank,” but it turned out to be a sham, according to the SEC, which announced the settlement Wednesday. Under the arrangement, Rice and Ford, who did not admit to any wrongdoing, must pay nearly $2.7 million in penalties. The payment includes more than $2.2 million in disgorgement and $68,000 in prejudgment interest.

AriseBank allegedly failed to file a registration with the SEC ahead of the ICO, which made the offering illegal, according to the complaint. The SEC also alleged that AriseBank lied to potential investors by claiming that it could offer Federal Deposit Insurance Corp.-insured accounts and transactions because it had bought a 100-year-old bank. In reality, AriseBank and the established bank it claimed to have bought were never insured depositories under the Federal Deposit Insurance Act, according to the SEC's complaint.

The agency further alleged that AriseBank misled investors about offering an AriseBank-branded VISA card and failed to disclose to investors that Rice was on probation for felony theft and tampering with government records.

Attorneys with Brown & Hofmeister in Richardson, Texas, and Garland, Samuel & Loeb in Atlanta represented AriseBank and Rice, respectively. Attempts to reach the attorneys were not successful.

Rice revealed in an accounting affidavit that he'd spent $55,000 in bitcoin on marketing AriseBank and its ICO. He also stated that he'd transferred $2.1 million in cryptocurrency to a man named Richard Smith Jr. Smith of Syracuse, New York, is named alongside Palm Beach, Florida, resident Kurt Matthew Jr. in a federal complaint that AriseBank's court-appointed neutral receiver, Mark Rasmussen, filed in Dallas. Smith and Matthew's attorney, John Teakell of Dallas, could not be reached for comment Thursday.  

In a news release, Stephanie Avakian, co-director of the SEC's enforcement division, described AriseBank's ICO, which the SEC halted earlier this year, as an “outright scam.”

Shamoil Shipchandler, director of the SEC's regional office in Fort Worth, Texas, warned that scheming to “conceal what we alleged to be fraudulent securities offerings under the veneer of technological terms like 'ICO' or 'cryptocurrency' will not escape the Commission's oversight or its efforts to protect investors.”

In January, the SEC filed a complaint against AriseBank, Rice and Ford in U.S. District Court for the Northern District of Texas, Dallas Division. The suit alleged that AriseBank began promoting its dubious ICO late last year, when it offered the public sale of an eponymous digital currency and claimed to have raised more than $600 million on the way to achieving a goal of $1 billion.  

Chief Judge Barbara M.G. Lynn of the U.S. District Court for the Northern District of Texas ordered the sanctions Dec. 11.

While the SEC case has settled, Rice's troubles are far from over. The FBI arrested him last month after he was indicted by the U.S. Attorney's office Nov. 28 on three counts each of criminal securities fraud and wire fraud. The Dallas Morning News reported that he could face up to 120 years in federal prison if convicted on all counts.

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