A civil case brought by investors against former heavyweight boxing champion Floyd Mayweather and celebrity DJ Khaled alleging they induced their social media followers to buy into a fraudulent ICO (initial coin offering) has been dismissed.
Allegations of touting unregistered securities were also dismissed against Centra Tech’s CTO Steven Sykes and the Company’s Director of Public Relations, Steven Stanley.
The decision is interesting because it rejects the relatively broad interpretation of touting asserted by the plaintiffs.
Instead, the dismissal seems to suggest that genuine touting of unlicensed securities must involve fairly direct solicitation between parties.
Centra Tech founders Sharma, Farkas, and Trapani are also named in the civil suit and remain so.
According to background provided by the presiding judge Robert N. Scola, Jr, the three founders, “…are currently the subjects of an SEC enforcement action…and are being criminally prosecuted in the Southern District of New York for the fraudulent Centra Tech scheme.”
According to Judge Scola, “Between July 23, 2017 and April 20, 2018, Centra Tech’s ICO raised more than $32 million from thousands of investors…(via) a fraudulent marketing campaign…(in which they claimed they were producing) the world’s first Debit Card…designed for use with…8+ major cryptocurrency blockchain assets…(accepted) anywhere that accepted Visa and Mastercard.'”
“None of the claims made by Centra Tech were true,” writes Scola.
The judge also claims that, “To further promote its product, Centra Tech created fictional executives with impressive backgrounds.”
Celebrities were also recruited to promote the CTR token, and both Floyd Mayweather and DJ Khaled tweeted about Centra Tech and CTR to their fan bases in 2017.
In particular, “Mayweather posted a tweet with a picture of himself holding a Centra Tech debit card and captioned the picture: “Spending bitcoins Ethereum and other types of cryptocurrency in Beverly Hills…”
Later, on September 18, 2017, Mayweather reportedly tweeted “Centra’s (CTR) ICO starts in a few hours. Get yours before they sell out, I got mine.”
Mayweather also appeared in a video promoting Centra Tech in which he demonstrates the use of a Centra Tech debit card.
DJ Khaled also posted a picture of himself on Instagram in which he is seen holding a Centra Tech debit card.
Under the photo, the caption read:
“I just received my titanium centra debit card. The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens! Use your bitcoins, ethereum, and more cryptocurrencies in real time across the globe. This is a game changer here. Get your CTR tokens now!”
That Mayweather and Khaled promoted Centra Tech is clear. But the judge found that plaintiffs failed to prove that they were clearly induced by the two celebrities to buy CTR tokens:
“The parties do not dispute that the CTR Tokens are unregistered securities and that the Defendant used the facilities of interstate commerce. The question is whether Mayweather qualifies as someone who ‘sold or offered to sell’ securities. The Defendant argues that there is no evidence that Mayweather transferred title to the CTR Tokens. Therefore, Mayweather would fall under the second category articulated in Pinter, one who successfully solicits the purchase of unregistered securities…However, according to Mayweather, the Plaintiffs fail to allege successful solicitation because there is no evidence that Mayweather’s tweets actually resulted in the purchase of CTR Tokens…Furthermore, the Defendant argues that direct communication between the seller and buyer is required under Section…The Plaintiff’s complaint fails to establish that Mayweather ‘successfully solicited’ the Plaintiffs to purchase CTR Tokens.”
The motion against Mayweather was also dismissed because he did not create the market for CTR tokens.
Khaled was exempted for similar reasons.
“Khaled’s motion to dismiss puts forth largely the same arguments as Mayweather’s motion to dismiss,” namely that he could not be proven to have “successfully solicited” or induced his social media followers into buying CTR tokens even though he did endorse them.
Complainants also failed to produce evidence that they followed DJ Khaled’s social accounts prior to buying CTR tokens.
Civil claims against Sykes were also dismissed because, although Sykes was closely involved with the Centra Tech website:
“The Complaint… is devoid of any specificity with regard to the content of the website, when the website was launched, the alleged misstatements on the website, who determined the content on the website, and if the Plaintiffs ever even visited the website.”
As well, “Sykes’s general involvement with the company in his capacity as CTO does not establish that he had any contact with investors or in any way solicited investors to purchase CTR Tokens.”
And though Stanley, “answered questions in online forums and posted press releases about Centra Tech…there are no allegations that Stanley directed his communications to any particular Plaintiff or that Plaintiffs read this information.”
As well, “the Complaint fails to allege that the Plaintiffs saw Stanley’s online posts, frequented the forums, or relied on this information in any way. Similarly, the Plaintiffs cannot rely on the-fraud-created-the-market presumption of reliance for a claim…because there is no indication that but for Stanley, a person posting in online investor forums, the CTR Tokens could not have been offered on the market.”
In November 2018, Floyd Mayweather and DJ Khaled agreed to pay disgorgement, penalties, and interest to the SEC for promoting CTR tokens, though they did so without admitting or denying guilt.
Mayweather reportedly paid a $300,000 disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest.
Khaled agreed to pay a $50,000 disgorgement, a $100,000 penalty, and $2,725 in prejudgment interest.
Both agreed not to promote any securities for a period of years.KHALED MAYWEATHER ICO TOUTING DISMISSAL