Cryptocurrency Startup Centra Faces Class Action Over $30M Coin Offering
Miami-based Centra Tech has advertised itself as building debit-card system for cryptocurrency and drawn endorsements from the boxer Floyd Mayweather. But a new suit alleges its fundraiser violated federal securities law.
December 15, 2017 at 03:07 PM
3 minute read
Centra Tech Inc., a Miami-based startup that has advertised itself as building a debit-card system for cryptocurrency and drawn endorsements from the boxer Floyd Mayweather, has been hit with a class action over an initial coin offering (ICO) topping $30 million.
A suit filed Wednesday in the U.S. District Court for the Southern District of Florida alleges that Centra's ICO was an unregistered sale of securities under federal law and seeks to allow what could be thousands of investors to get their money back. It appears to be the first such federal suit filed against the company since its ICO closed in October.
The complaint argues that Centra has “crafted a flimsy facade” and that the CTR Tokens it issued are not securities but are instead “utility tokens” outside of the purview of the securities laws and the Securities and Exchange Commission.
“In reality, the Centra ICO was obviously an offer and sale of securities,” the complaint argues, pointing to instances where the company's executives said the value of the digital token would “surge in value” or would yield rewards similar to dividends.
The case was filed by Hollywood, Florida-based Komlossy Law and the firm Levi & Korsinsky.
Centra did not immediately respond to messages seeking comment on the lawsuit Friday.
The lawsuit is the latest in a flurry of legal and regulatory action over ICOs, also referred to as digital token offerings. The SEC in the past two weeks announced enforcement actions against an alleged Canada-based fraudster behind “Plexcoin” and a food app company called Munchee that pulled the plug on its ICO after being contacted by the agency.
A blockchain startup called Tezos, which drew hundreds of millions of dollars worth of cryptocurrency in its July ICO, is also facing several class actions in federal court in San Francisco and in the U.S. District Court for the Middle District of Florida. Like the Centra action, those cases allege that Tezos violated securities laws by making an unregistered offering.
Centra's ICO was the subject of an in-depth article by The New York Times in late October, which focused on celebrity endorsements of coin offerings, headlined “How Floyd Mayweather Helped Two Young Guys From Miami Get Rich.” Mayweather—the professional boxer—tweeted about Centra's tokens, saying he had bought some and was “going to win big with this one.”
Several days after the article ran, the SEC issued a public statement on the “potentially unlawful” practices of celebrities touting ICOs, saying such endorsements may violate the law if compensation agreements are not publicly disclosed.
The class action complaint also alleges that Centra operated a “bounty program” that paid bloggers and others for positive press around the company's coin offering.
To bolster claims that the CTR tokens are securities, the complaint stresses their value depends entirely on the efforts of the company, and that Centra acknowledged as much in an earlier version of its “white paper.” The complaint cites an excerpt from the paper that says the tokens “could become useless and/or valueless due to technical, commercial, or regulatory challenges, among other reasons.”
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