The U.S. Securities and Exchange Commission’s Fort Worth Regional Office has charged Dallas-based AriseBank and its executives with fraud, illegally selling unregistered securities and providing misleading information to potential investors – all part of an initial coin offering of its own crypto-currency.
In a potentially precedent-setting case, U.S. District Chief Judge Barbara Lynn issued an order Friday halting all business operations of AriseBank, which claimed to be the world’s first “decentralized bank,” and appointed a receiver to take over the business.
AriseBank officials, which reportedly had an office in downtown Dallas, claimed it was raising $600 million from its initial coin offering, which would have made it the largest ICO in history.
Legal experts following the case say it is a first-of-its-kind enforcement action by the SEC and a harbinger of many similar cases to come.
“This case is absolutely representative of what is coming,” says CoinSource General Counsel Arnold Spencer. “We are about to see a sustained wave of these kind of enforcement actions in the crypto-currency industry.
“This case shows that the SEC is clearly comfortable with taking over a crypto-currency corporation,” says Spencer, who is a former federal prosecutor.
Founded in March 2017, AriseBank officials claimed to have “one of the largest crypto-currency platforms ever built.” The company’s website, which was shutdown over the weekend, said it “focuses on bringing crypto-currency to the average consumer and using it to revolutionize banking.”
AriseBank even secured the endorsement of former heavyweight boxing champ Evander Holyfield as part of its attempt to raise more than $600 million in investments through the sale of its own crypto-currency called “AriseCoin.”
But SEC Regional Director Shamoil Shipchandler and his team say it is nothing more than “an outright scam.”
Shamoil Shipchandler
The SEC, in federal court documents filed Friday but unsealed late Monday, claims that AriseBank illegally offered and sold unregistered investments and falsely stated that it purchased an FDIC-insured bank, which enabled it to offer customers FDIC-insured accounts.
AriseBank also failed to disclose to investors that its two top executives – co-founders Jared Rice Sr. and Stanley Ford – have prior criminal convictions.
The SEC reports that Rice recently pleaded guilty to 2015 charges that he committed felony theft and tampering with government records. Ford served a five-year prison term for felony robbery and was released from prison in October 2015.
“Attempting to conceal what we allege 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,” Shipchandler said.
Chief Judge Lynn approved an emergency asset freeze over AriseBank, Rice, and Ford. She also became the first federal judge in the U.S. to appoint a receiver – Jones Day partner Mark Rasmussen, a legal expert in crypto-currency – to take over AriseBank, including over its digital assets.
“We are trying to figure out what assets are there,” Rasmussen said in an interview with The Texas Lawbook.
Rasmussen, who was appointed at the recommendation of the SEC but acts independently from the federal agency as receiver, said he and his legal team at Jones Day, including Dallas partners Jay Johnson and Jim Cox, are searching crypto-currency wallets on the defendants’ computers and wallets that may be held by others.
The SEC argued that the intervention was needed 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.
“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,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.
Neither Rice nor Ford reportedly have legal counsel. Efforts to contact them for a comment have been unsuccessful.
But in an interview posted Saturday on YouTube by someone identified as “Crypto Connie,” Rice says he was awakened Friday morning by FBI agents pointing guns in his face. He maintains no wrongdoing.
“While this is a new and cutting edge industry, people need to know that there are existing regulations that impacts various aspects of the crypto-currency business,” Spencer says.
The SEC’s investigation was conducted by enforcement lawyer David Hirsch, who has spoken at various Bitcoin conferences. The litigation is being conducted by Timothy Evans, Christopher Davis, and Hirsch, and is supervised by B. David Fraser.