Celebrity plugs boost questionable currency
How boxer Floyd Mayweather helped Miami guys get rich
Boxer Floyd Mayweather is not shy about using social media to display the wealth that his years of prizefighting have won him. On Facebook, you can find videos of Mayweather draped in diamond chains. Want to see him with blocks of $100 bills taped to his torso? There’s that, too.
Recently, Mayweather has shown his appreciation for a new kind of money. In September, he told his 13.5 million followers on Facebook, not once but twice, that they should buy a new virtual currency known as the centra
token.
“Get yours before they sell out,” he wrote above a picture of himself admiring the many boxing title belts he had been awarded over the years. “I got mine and as usual I’m going to win big with this one!”
Mayweather is among the many celebrities who have recently endorsed an initial coin offering, the name for a hot but loosely regulated new method of fundraising in which entrepreneurs sell their own virtual currencies to investors around the world.
The boxer’s endorsement of centra, along with a similar endorsement from the popular rapper DJ Khaled, lent a patina of credibility to a project that has ended up with more than a few problems, including a shaky, fast-shifting business plan.
Actor Jamie Foxx, socialite Paris Hilton and soccer player Luis Suarez have promoted new virtual currencies to their sizable followings on social media.
Thanks in part to endorsements of centra, the founders of the eponymous company behind it raised more than $30 million from investors around the world in just a few weeks. They finished their fundraising in October, just before a grand jury indicted two of the three co-founders on perjury charges stemming from a drunken-driving case.
Centra was one of the 270 or so coin offerings that have raised more than $3.2 billion this year, a 3,000 percent jump from last year’s total, according to data from Tokendata, which tracks coin offerings. Investors have been willing to pay real money for these virtual tokens because they hope their value will go up as fast as the price of bitcoin, the best-known digital currency, has in recent months.
But the story of centra illustrates that beneath the signs of mainstream acceptance, coin offerings still exist in a legal gray zone with few checks on the ambitions of young entrepreneurs.
“It’s undeniable that a celebrity endorsement brings a new audience into the world of cryptocurrencies,” said Peter Van Valkenburgh, director of research at Coin Center, a nonprofit that supports bitcoin and related technology. “But I’m not certain that celebrity endorsements are doing a good job of bringing attention to the legitimate projects. I worry they are bringing attention to the scams.”
The original virtual currency, bitcoin, is a digital token — with no physical backing — that can be sent electronically from one user to another, anywhere in the world. The network on which bitcoin is stored and transferred was designed to operate without any company or government in charge, governed by a far-flung collaboration of volunteer programmers and computers that maintain all the records.
Initial coin offerings have taken advantage of the decentralized structure of bitcoin and another popular virtual currency network, ethereum. People can pay for tokens like centra using bitcoin and ether (the currency inside ethereum), and no financial authority needs to approve the payments or even know they happened.
Coin offerings are riding on the coattails of tech industry enthusiasm for such systems. The centra founders said their token would fuel a new virtual currency debit card and online market. Some venture capitalists have said these new tokens could provide a way to fund and support new global networks — like the next generation of the Internet.
But while bitcoin and ethereum have gone through years of public vetting (and still have plenty of critics), the new tokens are unproven, and marketed on the promises of their creators.
The creators of centra are 26-year-old friends from southern Florida, Sam Sharma and Raymond Trapani. The company’s chief marketing officer, Robert Farkas, was recently given the title of co-founder as well. Neither Sharma nor Trapani have any professional experience with the technology associated with virtual currencies, or with the debit cards they are hoping to build.
The primary business experience of Sharma and Farkas was at Miami Exotics, a luxury car rental business the two built. Trapani’s old Instagram account shows that he was a credit repair specialist with a penchant for pictures of luxury cars and stacks of $20 bills.
The lack of experience in the virtual currency industry did nothing to limit the ambitions of centra’s founders. In July, they created a website that described centra as an answer to the proliferation of virtual currencies.
The site said the debit card would make it possible to spend virtual currencies anywhere Visa cards were taken. The company’s site showed centra cards emblazoned with the Visa logo.
There was one problem with this plan. The company had not been approved, or had even applied, to run a card on the Visa network, a spokeswoman for Visa said.
After the New York Times spoke to Visa, all the mentions of Visa were taken off the website. Sharma said in an interview that the company had shifted its strategy and is now planning to run its cards on the MasterCard network in partnership with a Canadian financial institution. He said this would not require approval from MasterCard because the Canadian institution would issue the cards.
But a MasterCard spokesman, Brian Gendron, disagreed.
“Centra would need approval from MasterCard for something like that, and we are not aware of any approval that has been sought or achieved,” Gendron said.
Because the company began raising money without going through any standard background checks, no one verified its credentials with the credit card networks or other relevant authorities. A basic background check would have turned up the numerous run-ins with the law that Sharma, the company president, has had.
He has been sued in Florida and New York several times on allegations of unpaid bills and business deals gone sour. Twice, people have accused him in court of trying to fraudulently sell or lend them cars he didn’t own, and twice he has been evicted for claims that he failed to pay rent.
Sharma said these problems, a few years ago, had happened when he was “a kid.”
The bigger problem facing Sharma and Trapani is the perjury indictment by a Manhattan grand jury on Oct. 5.
The charges stem from an incident last year, when Sharma was arrested early on a Friday in a Maserati. According to a local news report, Sharma ran a stop sign and had “a flushed face, a strong odor of alcohol on his breath and watery and bloodshot eyes, and was unsteady on his feet.”
Sharma and Trapani both said during Sharma’s trial that on the night in question, Sharma had Sprite and one glass of wine, according to the indictment.
“As defendant Sharma and defendant Trapani knew, the testimony that defendant Trapani gave was false, and the truth was that on March 24, 2016, there were alcoholic beverages ... on the table and the defendant did not order Sprite,” the indictment said.
Sharma said he couldn’t speak about the case because it was still going on, but it should not have any effect on centra.
“I’m obviously not comfortable with that situation,” he said. “But it’s not that I did something so intensely crazy that investors need to worry.”
He and Trapani both said they are moving ahead with their big plans for centra, including more projects with Mayweather.
Trapani said the company was connected with Mayweather and DJ Khaled through social contacts in Miami. Trapani said Mayweather was so intrigued by centra’s technology that he wanted to be paid in centra tokens, and wanted to be a partner for future business ventures. “He’ll do anything we ask,” Trapani said. “He’ll go shopping around Beverly Hills if we ask him to do it with this card.”
The boxing champ understood their deal differently. A spokeswoman for Mayweather, Kelly Swanson, said he had been paid in cash for the posts and was not involved in any continuing relationship with centra.
After being contacted by the Times, Mayweather deleted his Instagram and Facebook posts endorsing centra, though he left up a Twitter post.
Sharma disputed the account of Mayweather’s spokeswoman and said the boxer had received centra tokens. “We dealt with Floyd directly through my guy,” Sharma said. “It was a very direct, individual deal.”
Regulators have been slow to crack down on problematic coin offerings. But the Securities and Exchange Commission did recently bring its first case against what it claimed was a fraudulent project — a relatively small one that collected a few hundred thousand dollars.
Sharma and Trapani are sitting on the $30 million that investors gave them.
Sharma shared and proved his ownership of the ethereum wallet where they are keeping the money.
Assuming regulators don’t step in, Trapani and Sharma can keep the money, even if they don’t build anything. But they say that won’t happen.
Sharma said they are planning to issue the first batch of debit cards this year, regardless of the denials of Visa and MasterCard, and would unveil its broader technology this month. They have rented lavish offices in Miami Beach and hired several people.