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Regulators Crack Down on Texas Cryptocurrency ‘Scam’

The Securities and Exchange Commission has lodged a complaint alleging Dallas-based AriseBank misled its customers with fraudulent claims and has since blocked the enterprise from selling its cryptocurrency.

(TNS) — AriseBank in Dallas, Texas, calling itself the world's first decentralized bank, loaded marketing materials with techy buzz words like "blockchain" and "cryptocurrency," generated buzz on social media, got a celebrity endorsement from Evander Holyfield and claimed it collected $600 million from investors buying into its own virtual currency.

But the Securities and Exchange Commission this week had another description for the enterprise: "outright scam." In a complaint filed last week and unsealed late Monday, the SEC said AriseBank falsely told investors it purchased a commercial bank that could offer customers FDIC-insured accounts and VISA cards to spend more than 700 cryptocurrencies it supported. AriseBank also boasted of an algorithmic trading application that automatically traded in cryptocurrencies.

"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," Shamoil Schipchandler, director of the SEC's regional office in Fort Worth, said in a statement. The SEC said it obtained a court order blocking AriseBank from selling its cryptocurrency in an initial coin offering.

Attempts to reach Arise-Bank were unsuccessful.

The SEC's action against AriseBank was the latest by securities regulators against cryptocurrency schemes in Texas. Crypto-currencies are digital assets that use encryption to secure, verify and hide transactions. They initially became a method of payment for illegal activities, such as drugs, but they are being adopted by businesses and countries, and fueling a speculative boom.

Venezuela, whose official currency, the bolivar, has been rendered nearly worthless by hyperinflation, recently said it would launch a cryptocurrency tied to its oil. Kodak, the Rochester, N.Y. imaging company, said it would create a cryptocurrency which would help protect the works of photographers, which are often grabbed off the internet without permission. The best known of the cryptocurrencies, bitcoin, climbed from about $1,000 a unit to $20,000 in 2017, but has since plunged to about $10,000.

In Texas, meanwhile, regulators have warned consumers and investors to beware of cryptocurrency schemes. In January, the Texas State Securities Board issued a cease and desist order against Williams Corp. Ltd., the Hong Kong distributor of another cryptocurrency, R2B Coin, which the company pitched to investors as a "golden nest egg" that would never fall in value.

In December, the state securities board took a similar action against a Dubai firm, USI-Tech, which was pushing Bitcoin as a low-risk investment that would yield annual returns of 150 percent.

Just days before the SEC disclosed its actions against AriseBank, the Texas Department of Banking issued a cease and desist order against the enterprise, finding the AriseBank had violated Texas Financial Code by using "bank" in its name and, in marketing materials, implying it is part of the banking industry in Texas.

The order, it said, requires the company to stop implying it's a Texas bank and to "clearly disclose" it doesn't offer services to consumers in Texas.

In a press release, Arise-Bank claimed it offered "one of the largest cryptocurrency mobile systems" in the United States, and that it had acquired a commercial bank and an investment bank.

The SEC named Arise-Bank CEO Jared Rice Sr. and COO Stanley Ford in the complaint filed in a Dallas federal court. The company didn't disclose that Rice in 2015 was charged with felony theft and tampering with government records, charges for which he pleaded guilty and remains on probation, the SEC said.

The SEC also said the company didn't register the initial coin offering with the agency, and added Rice "has made statements falsely claiming" its cryptocurrency AriseCoin is not subject to SEC regulation. Attempts to reach Rice and Ford were unsuccessful.

"We allege that Arise-Bank and its principals sought to raise hundreds of millions from investors by misrepresenting the company as a first-of-its-kind decentralized bank offering its own cryptocurrency to be used for a broad range of customer products and services," said Stephanie Avakian, co-director of the SEC's Enforcement Division.

Steven Peikin, also an SEC co-director, said the AriseBank case marks the first time the commission has asked a court to appoint a receiver in a fraudulent initial coin offering. The court appointed the receiver and approved an emergency asset freeze over AriseBank and the two executives.

©2018 the Houston Chronicle Distributed by Tribune Content Agency, LLC.

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