Centra Tech operators agree to disgorge over $40M to settle SEC charges
Several months after the Securities and Exchange Commission (SEC) announced that it had reached a settlement in principle with Centra Tech co-founders, the regulator has submitted proposed consent judgments at the New York Southern District Court.
The regulator now seeks the Court’s approval for its proposed consent judgments as to defendants Sohrab “Sam” Sharma, Raymond Trapani, and Robert Farkas. If approved, the Final Judgments would fully resolve this action.
Let’s recall that, on April 20, 2018, the Commission filed its Amended Complaint against Defendants. The Complaint alleges that, from approximately July 30, 2017, through October 5, 2018, Defendants conducted a fraudulent and unregistered initial coin offering (ICO) of CTR tokens through Centra Tech, Inc., an entity the defendants controlled, and that the offering raised over $32 million from investors.
The defendants made numerous material misrepresentations in marketing the CTR tokens, including Centra’s claimed “partnerships” with Visa, MasterCard and The Bancorp, when Centra did not have any “partnership” or relationship with those institutions.
The SEC says that the proposed Final Judgments are “fair and reasonable” in light of the defendants’ criminal convictions, preliminary forfeiture orders, and sentences in the Criminal Proceeding and, with respect to the injunction, would not disserve the public interest.
Among other things, the Final Judgments would:
- Enjoin each of the Defendants from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder‒‒the provisions the Amended Complaint charges Defendants with violating;
- Find Sharma liable for disgorgement in the amount of $36,088,960.00, representing profits gained as a result of the conduct alleged in the Amended Complaint, plus prejudgment interest of $1,613,036.57, for a total of $37,701,966.57, which would be deemed satisfied by the Sharma Forfeiture Order in the amount of $36,088,960 in the Criminal Proceeding and the approximately $4,422,383.45 in Appreciation Proceeds in possession of the United States. The proposed judgment would further order that, if no final order of forfeiture is entered in the Criminal Proceeding or any portion of the money judgment in the Criminal Proceeding is vacated or reduced, Sharma shall receive a credit towards his $37,701,966.57 disgorgement obligation, for any amounts ordered to be paid in the Criminal Proceeding. The difference between the $37,701,966.57 and the amount ordered in the Criminal Proceeding shall become due and payable (14) days after entry of the Final Judgment, or (14) days after entry of the mandate vacating or reducing the amount due in the Criminal Proceeding, whichever is later;
- Find Farkas liable for disgorgement in the amount of $347,062.58, plus prejudgment interest of $47,846.39, for a total of $394,908.97, which would be deemed satisfied by the Farkas Forfeiture Order for $36,088,960 in the Criminal Proceeding and the approximately $4,422,383.45 in Appreciation Proceeds in possession of the United States. The proposed judgment would further order that, if no final order of forfeiture is entered in the Criminal Proceeding or any portion of the money judgment in the Criminal Proceeding is vacated or reduced, Farkas shall receive a credit towards his $394,908.97 disgorgement obligation, for any amounts ordered to be paid in the Criminal Proceeding. The difference between the $394,908.97 and the amount ordered in the Criminal Proceeding shall become due and payable fourteen (14) days after entry of the Final Judgment, or fourteen (14) days after entry of the mandate vacating or reducing the amount due in the Criminal Proceeding, whichever is later;
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Find Trapani liable for disgorgement in the amount of $2,400,000, plus prejudgment interest of $208,869.68, for a total of $2,608,869.68, which would be deemed satisfied by the Trapani Forfeiture Order for $2,400,000 in the Criminal Proceeding and the approximately $4,422,383.45 in Appreciation Proceeds in possession of the United States. It would further order that, if no final order of forfeiture is entered in the Criminal Proceeding or any portion of the money judgment in the Criminal Proceeding is vacated or reduced, Trapani shall receive a credit towards his $2,608,869.68 disgorgement obligation, for any amounts ordered to be paid in the Criminal Proceeding. The difference between the $2,608,869.68 and the amount ordered in the Criminal Proceeding shall become due and payable fourteen (14) days after entry of the Final Judgment, or fourteen (14) days after entry of the mandate vacating or reducing the amount due in the Criminal Proceeding, whichever is later; and
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Not impose a civil monetary penalty.
According to the SEC, the Court should approve the proposed judgments because these terms are fair and reasonable, and, with respect to the injunction, do not disserve the public interest. Not imposing a civil monetary penalty against the defendants in this settled resolution is fair and reasonable, the SEC argues, adding that the defendants’ criminal convictions, along with their sentences will provide appropriate and sufficient punishment and deterrence.