Crypto Fraudster Sentenced to 8 Years in Token-Offering Scam

(Bloomberg) -- The 29-year-old founder of a defunct Florida cryptocurrency firm will spend eight years behind bars for duping investors out of more than $36 million with the help of celebrities including boxer Floyd Mayweather and music producer DJ Khaled, whom he paid to promote the business.

Sohrab “Sam” Sharma was sentenced to the federal prison term on Thursday, after pleading guilty in July to conspiring to commit securities fraud, wire fraud and mail fraud as part of an initial coin offering scheme. The fraud included the false claim that the company, Centra Tech, was led by a Harvard-educated chief executive officer with decades of business experience.

The sentence “is a break, under the circumstances,” U.S. District Judge Lorna G. Schofield told Sharma at a video conference hearing. “I know it's a long time in your young life to make yourself the person you want to be.”

At times appearing to fight back tears, Sharma apologized to his family, friends, employees and investors, saying his original idea was “groundbreaking” but that he had tried to make the enterprise seem more successful than it was.

‘Fake It Till I Made It'

“I am deeply sorry and devastated for what my actions have done to those who believed in me and my vision,” Sharma said. He added, “I wanted to fake it till I made it, and I was hoping that the ends justified the means.”

Sharma's lawyers had sought 2 1/2 years, saying the business suddenly was more than their client could handle and that “he is not an evil person, nor a hardened criminal.” Prosecutors had argued for the full 14 to 15 years that federal sentencing guidelines give for Sharma's crimes, to punish a “predatory fraudster” and deter others.

“Sharma's most notable inventions were the fake executives, fake business partnerships, and fake licenses that he and his co-conspirators touted to trick victims into handing over tens of millions of dollars,” Deputy U.S. Attorney Ilan Graff said in a statement after the hearing. “We will continue to aggressively pursue digital securities frauds like this one.”

As part of his plea agreement with the government, Sharma forfeited 100,000 units of the cryptocurrency Ether raised from victims who bought digital tokens issued by his company. The government sold the units for about $33.4 million.

Gutted Retirement Savings

Victims of the fraud, including a professor whose picture was used as that of the firm's mythic CEO, addressed the court before the judge handed down Sharma'ssentence. One investor, Lisa Stewart, said Centra Tech had gutted the retirement savings she and her husband had put away. She said they had six small children and might never recover.

“Centra Tech stole from hardworking American families whose only desire is to provide for our children,” Stewart said. “Our family suffered a great deal of emotional and psychological damage over this.” Addressing Sharma, she said, “This was utter victimization, and you really should be ashamed of yourself.”

Sharma created Centra Tech out of a small Miami apartment in 2017, just as virtual currencies such as Bitcoin were attracting more widespread attention from investors. His idea was to provide customers with access to cryptocurrency purchases on credit card networks and an eBay-like exchange using tokens issued by Centra Tech to buy merchandise online, court records show.

Centra Tech was among a wave of businesses that created their own digital tokens and started selling them, instead of equity, to raise money. The same month Sharma started his company, the U.S. Securities and Exchange Commission warned that coin offerings were being used to “improperly entice investors with the promise of high returns.”

Scheme Unravels

Sharma and two others he recruited to Centra Tech quickly raised funds with the help of social media mentions by celebrities including Mayweather and DJ Khaled, who later settled SEC charges that they failed to disclose they had been paid to promote the company. In his pitch to investors, Sharma said Centra Tech had licenses in more than three dozens states and partnerships with large companies including credit card issuers Mastercard Inc. and Visa Inc.

Within three months, the trio had raised more than $25 million for their initial coin offering and moved to luxury offices in Miami Beach. But by August 2017, a blogger had revealed that a photograph of the purported Centra Tech CEO on a document circulated to investors was actually that of a Canadian physiology professor. The SEC sent a subpoena in November seeking documents from Centra Tech.

Five months later, the three co-founders were arrested and charged in New York. Sharma's two recruits pleaded guilty, too, with one sentenced to a year and the other yet to be sentenced.

The case is U.S. v. Sharma, 18-cr-340, U.S. District Court, Southern District of New York (Manhattan).

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