For operating a fraudulent Initial Coin Offering, former AriseBank executives have to pay nearly $2.7 million in fines and are prohibited from serving as officers of public companies or engaging in offerings of digital securities.

The U.S. Securities and Exchange Commission (SEC) has ordered two former executives of AriseBank, which was considered to be the first decentralized bank offering a variety of services to retail investors, to pay nearly $2.7 million in fines for fraudulent initial coin offering (ICO). Moreover, they are prohibited from serving as officers or directors of public companies or participating in future offerings of digital securities.

The announcement of the SEC reads:

“Rice and Ford lied to AriseBank’s investors by pitching the company as a first-of-its-kind decentralized bank offering its own cryptocurrency for customer products and services. The officer-and-director bar and digital securities offering bar will prevent Rice and Ford from engaging in another crypto asset-based fraud.”

It all started earlier this year when the SEC halted a fraudulent initial coin offering by AriseBank to raise $1 billion for its “AriseCoin” cryptocurrency, which was considered to be one of the largest initial coin offerings ever. After carrying out an investigation, the Federal Bureau of Investigation (FBI) arrested AriseBank’s CEO Jared Rice for efforts to deceive investors of over $4 million.

The former executive alleged that the company could offer “FDIC-insured accounts and traditional banking services, including Visa-brand credit and debit cards, in addition to cryptocurrency  services.”

The firm was supposedly based in Texas. However, the Texas Department of Banking insisted on its closing as the company was never approved for providing financial services in the state. Rice lied about the firm’s associations with Visa and Federal Deposit Insurance Corporation (FDIC) accounts and was not authorized to offer banking services in Texas. He had no access to FDIC insurance and had no partnership with Visa at all.

The AriseBank’s CEO was embezzling investors’ funds while posting AriseBank’s “nonexistent” benefits both in printed press releases and online.

After the case has been cleared, AriseBank’s assets have been frozen, as the appointment of a receiver for those assets has been approved tied to the ICO fraud. AriseBank founders Jared Rice and Stanley Ford will pay civil penalties of $184,767 each. Moreover, they will pay $2.26 million in disgorgement and $68,423 in prejudgement interest.

ICOs Can Still be Effective Way to Raise Capital, SEC Chairman

AriseBank is one of the first to be sued by U.S. regulators over its initial coin offering. However, that does not mean that the SEC has a negative attitude towards ICOs.

Recently, SEC Chairman Jay Clayton spoke at the Consensus Invest Conference, where he enumerated the advantages of ICO for fundraising. He said:

“I believe that ICOs can be effective ways for entrepreneurs and others to raise capital.”

At the same time, Clayton pointed out a number of concerns surrounding the ICOs, saying that under the existing state, ICOs provide less investor protection in comparison to other fixed income markets and traditional equities., that’s why investors should be careful.

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