Jared Rice Sr., CEO of the Dallas-based bank AriseBank, was arrested by the Federal Bureau of Investigation (FBI) on Wednesday, November 28, 2018, and charged with six counts of securities fraud and wire fraud. Rice is accused of scamming investors out of more than $4 million through a cryptocurrency scam that promised federally insured accounts and brand-name credit cards.
Earlier this year, the U.S. Securities and Exchange Commission’s (SEC’s) regional office in Fort Worth, Texas, received an emergency court order to stop AriseBank’s initial coin offering (ICO) for the cryptocurrency AriseCoin, which Rice falsely claimed had raised a whopping $600 million. According to the court filing, Rice reportedly lied to investors, saying that the bank — which he called the “first decentralized banking platform” — could offer customers FDIC-insured accounts, as well as traditional banking services such as Visa-brand credit and debit cards.
Erin Nealy Cox — the U.S. District Attorney for the Northern District of Texas — states that AriseBank was not FDIC insured, nor did it have the authority to conduct banking operations in Texas. It also did not have an official partnership with Visa.
Rice spoke of AriseBank’s allegedly non-existent benefits online and through press releases while spending investor funds on hotel stays, clothing, meals, Uber rides, a family law attorney and guardian ad litem. Prosecutors also accused Rice of spending the funds on his girlfriend.
Overall, Rice raised roughly $4.25 million from investors who used fiat currency, bitcoin, ether and litecoin funds between the months of June 2017 and January 2018 to buy into AriseCoin.
All the while, Rice ultimately failed to disclose to investors that he had previously pled guilty to state felony charges of tampering with government records for forging a Texas Secretary of State Incorporation document and for stealing funds through a prior internet business scam. Rice is presently on probation for these offenses.
Cox commented, “My office is committed to enforcing the rule of law in the cryptocurrency space. The Northern District of Texas will not tolerate this sort of flagrant deception — online or off.”
Rice faces up to 120 years in prison if convicted. Assistant U.S. attorneys Mary Walters and Sid Mody are prosecuting the case, but a trial date has not been set.
Phony ICOs have become a major problem over the past year. It is estimated that approximately $500 million of investors’ funds have been lost to fraudulent ICOs in 2018 alone, while the SEC’s list of ICO cases is growing regularly.
One similar case involves Brooklyn-based businessman Maksim Zaslavskiy, who recently pled guilty in a New York federal court to conspiracy to commit securities fraud in connection with the ICOs REcoin Group Foundation, LLC (REcoin) and DRC World Inc., also known as Diamond Reserve Club (Diamond).
Zaslavskiy touted the ICOs as being backed by real estate and diamonds respectively, when, in fact, he had purchased neither, and the certificates he sent to his investors were not backed by the blockchain. He’s currently facing up to five years in prison.
To view the full court filing against Rice, click here.