The Chief Executive Officer of the AriseBank blockchain startup faces upto 120 years in prison for allegedly defrauding investors out of $4 million. Instead of using the funds to create a product, Jared Rice, the former CEO, used the cash to finance a luxury lifestyle for hotels, food and clothing.
The funds were also allegedly used as a means of appointing a family lawyer and a guardian ad litem, otherwise known as a court figure to determine the best interests of a child.
According to US Department of Justice (DoJ) prosecutors, even as press releases were being released touting his startup’s solution, Rice was quietly using investor funds for his own ends. In total, it is believed approximately $4 million has been stolen.
AriseBank’s non-operational website claimed to be “the first decentralized bank to offer the first and largest cryptocurrency banking platform in the world.” AriseBank further claimed that the software could allow clients to “serve as their own bank.”
In addition, AriseBank, which is registered at a Texas address, claimed that it was in the process of acquiring KFMC Bank Holding Company and TPMG, neither of which is listed in bank databases. The startup was also endorsed by celebrities.
Instead of acting as a central exchange, the start-up promised never to hold crypto funds, but instead would enable “people the freedom to hold, send, receive, buy, sell and spend cryptocurrency directly from their computer or mobile device.”
This, of course, AriseBank claimed to complete after initial investment rounds. Investors on social media platform suggest that cryptocurrencies including Ethereum (ETH), Bitcoin (BTC) and Litecoin (LTC) have been accepted in return for AriseCoin, the native token of the company.
The FBI arrested Rice yesterday on charges of outright fraud. Hundreds of investors were defrauded with the promise that the startup would be offering consumers FDIC-insured accounts and conventional banking services, including Visa debit and credit cards, alongside cryptocurrency transactions.
Law enforcement states that AriseBank did not actually have permission to facilitate banking operations in Texas, was not insured under the US Federal Deposit Insurance Act, and no deal was made with Visa or any other payment card business. Rice was charged with three security fraud accounts and three wire fraud counts.
This is not the Executive’s only case. Rice allegedly claimed in January that AriseBank raised $ 600 million through an initial coin offer (ICO). According to prosecutors, this was a fraudulent claim and the CEO failed to disclose felony charges in connection with a previous Internet – based scheme at the time. Rice pleaded guilty to the accusations.
Rice is also the subject of a civil case (.PDF) with co – founder Stanley Ford, submitted in January by the US Securities and Exchange Commission (SEC) concerning the ICO. SEC says that no registration has been filed for the event and FDIC insurance claims have been incorrect.
