Rensel v. Centra Tech, Inc., No. 17-cv-24500, 2019 WL 6828270 (S.D. Fla. Dec. 13, 2019)

On December 13, 2019, the U.S. District Court for the Southern District of Florida granted the plaintiffs’ motion for default judgment in a putative securities class action against Centra Tech, Inc. (“Centra Tech”). The putative class action complaint alleged that the defendants violated Sections 12(a) and 15 of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in connection with the sale of unregistered securities.

From July 23, 2017, through April 20, 2018, Centra Tech allegedly conducted an ICO of tokens called “Centra Tech Tokens” or “CTR Tokens” that raised proceeds worth more than $32 million. Centra Tech allegedly was founded in May 2016 to run an ICO to fund (among other things) a debit card backed by Visa and Mastercard that would allow cardholders to make purchases using cryptocurrency.

During the course of the proceedings, all individual defendants were dismissed such that Centra Tech was the only remaining defendant. On January 30, 2019, a clerk’s default was entered against Centra Tech for failure to retain counsel and respond to the plaintiffs’ amended complaint. Centra Tech moved to set aside the clerk’s default on June 15, 2019, but the court denied the motion on September 12, 2019. The court also denied the plaintiffs’ motion for class certification on September 16, 2019, and their renewed motion for class certification on November 20, 2019, because the motions were untimely and the class was unascertainable.

The court ultimately granted the plaintiffs’ motion for default judgment. The court held that CTR Tokens were unregistered securities sold in violation of the federal securities laws because: (1) the plaintiffs invested digital currencies to purchase CTR Tokens; (2) the success of the CTR Tokens was tied to the success of the products that Centra Tech was developing; and (3) the value of the CTR Tokens was dependent on the efforts and actions of Centra Tech and its founders. The court also held that Centra Tech made material misrepresentations (1) that its debit card would be backed by Visa and Mastercard and allow purchases using cryptocurrency when, in fact, the card was not authorized to operate on the Visa or Mastercard network and did not allow purchases using cryptocurrency; (2) concerning fictional executives; (3) concerning a nonexistent insurance policy; and (4) concerning state licenses. The court awarded the plaintiffs approximately $2.9 million in damages. Centra Tech subsequently filed a motion for reconsideration.