Regulators allege AriseBank initial coin offering was a crypto scam
Corrections & Clarifications: This news story has been corrected to delete erroneous allegations the Securities and Exchange Commission made in the initial federal court complaint filed by the Wall Street regulator. The SEC filed an amended court complaint on Feb. 2, 2018, that acknowledged the allegations were inaccurate and apologized for them.
Regulators have halted what was touted as one of the largest cryptocurrency mobile systems in the U.S., alleging the venture instead was a crypto scam.
The Securities and Exchange Commission obtained emergency federal court action late Monday, stopping an initial coin offering Dallas-based AriseBank claimed had raised $600 million of a $1 billion investment goal in just weeks.
AriseBank's purported offering lacked required SEC registration, the federal market regulator alleged. The bank also falsely claimed it could offer investors FDIC-insured accounts, as well as AriseBank-branded VISA cards to spend any of 700-plus cryptocurrencies, the SEC alleged.
The bank also failed to disclose to investors that co-founder Jared Rice Sr. recently pleaded guilty to 2015 charges of felony theft and tampering with government records, the complaint alleged.
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The SEC action followed a cease-and-desist order the Texas Department of Banking issued Jan. 5 after concluding AriseBank had falsely implied it offered banking business in the state.
"We allege that AriseBank 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," said Stephanie Avakian, co-director of the SEC's enforcement division. "We sought emergency relief to prevent investors from being victimized by what we allege to be an outright scam."
There was no immediate information available Tuesday about attorneys representing AriseBank, Rice and Stanley Ford, the company's other co-founder. Both men are named in the SEC complaint.
AriseBank's website appeared to be offline Tuesday. However, a Jan. 18 news release claimed the company had raised $600 million for its initial coin offering and had bought KFNC Bank Holding Company, a 100-year-old commercial bank, along with TPBG, an investment banking and management firm.
"Having a crypto bank being able to successfully acquire a traditional bank — or in this case two — will go down as a monumental moment in banking history," Rice said in the news release.
In a corrected news release issued Jan. 25 — the day the SEC filed its court complaint under seal — AriseBank said the "decentralized nature" of its software platform made it "wholly unnecessary for the platform to be FDIC regulated or insured" because account holders "maintain full control of their funds."
According to the SEC complaint, AriseBank began raising investor funds as early as Nov. 2017 through a securities offering of AriseCoin, purportedly the company's own digital currency. The complaint did not specify how much money AriseBank actually raised from investors.
A federal judge in Dallas approved an emergency asset freeze over AriseBank, Rice and Ford, court records show. The court also appointed a receiver who can immediately secure Bitcoin, Litecoin, Bitshare, Dogecoin and other cryptocurrencies held by AriseBank.
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc