(February 1, 2018) A “bank” that claims it raised $600 million in an initial coin offering for its own cryptocurrency has been shut down by the Securities and Exchange Commission (SEC) and a receiver appointed.
In a complaint unsealed on January 29, the SEC alleges that AriseBank, based in Dallas, Texas, and its co-founders were engaged in a “fraudulent and unregistered offering of securities” to investors “who are actively being defrauded.” Such actions violate the Securities Act. As a result of the complaint, the assets of AriseBank were seized and a receiver appointed.
AriseBank claims to be “the world’s first ‘decentralized’ bank” offering such banking services as credit cards “supporting more than 700 different virtual currencies” using “one of the largest cryptocurrency platforms ever built.”
In November 2017, AriseBank offered its own digital currency “AriseCoin” through an initial coin offering (ICO). AriseBank claimed in a January 18 press release that it raised “an astounding $600 million within a course of a few weeks . . . and is quickly approaching being the first $1 billion ICO.” The ICO offered investors crypto coins or tokens on a blockchain or cryptographically secured ledger. AriseBank did not register the offering with the SEC.
AriseBank failed to disclose to its ICO investors that one of its co-founders and the president had criminal records, the SEC complaint said. Co-founder Jared Rice Sr. “was charged with felony theft and tampering with government records. He recently pleaded guilty and remains on probation for these charges.” AriseBank’s president Kelvin Spencer “served a five-year sentence for felony robbery, for which he was also ordered to pay a $250,000 fine. Spender was released from prison in October 2015.” The SEC noted that this information “which bears directly on the honesty and professional competence of AriseBank’s principals—would have been highly material to investors.” The convictions and guilty pleas also “impact Defendants’ ability to obtain licenses to own or operate financial institutions, including restrictions imposed by the FDIC.”
The SEC found that AriseBank also claims it purchased a 100-year-old commercial bank and that its customers were protected with FDIC insurance. “This claim is false,” the complaint notes. “FDIC records show that neither AriseBank nor the commercial bank it allegedly purchased has ever been an insured depository institution under the Federal Deposit Insurance Act.”
The SEC also found that AriseBank received a cease and desist letter from its VISA-branded credit card supplier, which noted it “did not have any relationship with AriseBank and did not provide programs that permit the spending of cryptocurrency.”
In addition to the SEC’s action, the Texas Department of Banking issued a cease and desist order prohibiting AriseBank from using the term “bank” because AriseBank is not chartered or authorized to engage in the business of banking in Texas. In fact, AriseBank is an unincorporated entity.
In a reported comment on the messaging app Telegram, Rice wrote, “Many people’s dreams fail over time, it’s simply a circumstance that surrounds us when we’re trying to do something that can and will change the world.” He noted, “I’m proud of what we’ve built and regardless of what happens, I can sleep at night knowing that I did my best, I gave it my all and I did it with the right intentions.”
In addition to halting the ICO and seizing AriseBank’s assets, the SEC seeks that the Defendants “disgorge ill-gotten gains and benefits” from the violations. The case is set for further hearing on February 8.
Securities and Exchange Commission v. AriseBank, Jared Rice Sr. and Stanley Ford, N.D. Texas No. 18-cv-0186-M.