Why the SEC Halted AriseBank’s Initial Coin Offering

AriseBank, a self-dubbed cryptocurrency bank, recently saw an abrupt halt to its initial coin offering (ICO) when the U.S. Securities and Exchange Commission (SEC) intervened to put a stop to it.

The SEC alleged that AriseBank, which had painted itself as a unique and decentralized bank for cryptocurrencies with a special algorithm that automatically traded in digital assets, had falsely mentioned that it had bought an FDIC-insured bank and an investment bank.

An announcement from AriseBank read:

“AriseBank now holds 100 percent of the equity in both KFMC Bank Holding Company, a 100 year-old commercial bank, and TPBG, a 25 year-old investment banking and management firm.”

However, SEC alleged that the company had never acquired such entities.

With the news of obtaining that license, AriseBank also mentioned that it could provide FDIC-insured accounts. It had also stated that it would provide a VISA card to its customers to directly spend any of the 700 cryptocurrencies for which the bank offered its services. However, since the FDIC-insured bank was never acquired, these claims could not be fulfilled from the start.

As a result of the court order that SEC obtained against AriseBank, an emergency asset freeze was immediately imposed over the company and its co-founders, Jared Rice Sr. and Stanley Ford. A receiver was also appointed over AriseBank and its digital assets, halting the ICO which was originally scheduled to be completed on January 27, a month from when it had started.

The receiver also secured cryptocurrency assets held by AriseBank which included but are not limited to Bitcoin and Litecoin. This marked the first time that the SEC had appointed a receiver over such a company dealing in digital assets, a move which was also acknowledged by Steven Peikin, the co-director of SEC’s Enforcement Division.

Peikin said in a statement:

“This is the first time the Commission has sought the appointment of a receiver in connection with an ICO fraud. 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.”

What do the company officials have to say about this

Rice, who served as AriseBank’s CEO, is adamant that it was a legitimate operation, even though he admitted that the announcement it made about acquiring the FDIC-insured bank had not been true. He mentioned that the press release had been written by a third party, which instead of mentioning that AriseBank had been “in talks” with the authorities to obtain those assets, confirmed that the purchase had gone through.

Rice mentioned that he approved the press release without reading it, and its circulation then led to the company issuing another statement correcting the mistake. However, the damage had been done by then.

Currently on probation, Rice mentioned that he knew about the authorities going after the operation.

“I didn’t know they were going to come so soon, but I knew they would.” He stated while speaking to Forbes.

AriseBank had also mentioned that it had raised over $600 million in its ICO before it was even completed, a statement that was received with skepticism by most of the cryptocurrency industry since any ICO raising that much of an amount would have played out differently.

Texas and false operations

It seems that Texan authorities have a gift to identify any cryptocurrency operation that seems fishy.

There had first been reports of a cease-and-desist against BitConnect, which has now shut down.

The authorities then issued a cease-and-desist against Arise Bank, whose action of branding itself as a cryptocurrency bank did not go well with the Texas Department of Banking.

As per a press release issued in the last week of January, the Texas Department of Banking explained that it had originally ordered a cease-and-desist for AriseBank on account of providing banking services in the State without completing the regulatory requirements. However,  AriseBank did not respond to the cease-and-desist within the deadline, which effectively proved to be final in the State of Texas.

This adds to various other stories of ICO scams

The SEC has been issuing numerous alerts to warn investors about the risks of investing in ICOs and the warning signs to look for before they hand out their funds to such companies; however, it seems that people are still going after anything that promises to make them profits, even if the offering seems too good to be true.

As with any other investment, it is very important that investors go through all pertaining factors of any ICO to check its legitimacy. Only by being vigilant can such individuals save themselves from getting duped, and ensuring this practice is all the more important now with the rise in digital currency scams.

By | 2018-02-14T22:39:32+00:00 February 14th, 2018|Cryptocurrency News|0 Comments

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