United States District Court, S.D. Florida
ORDER GRANTING PLAINTIFFS' MOTION FOR DEFAULT
N. Scola, Jr. United States District Judge.
with Federal Rule of Civil Procedure 55(b)(2), the Plaintiffs
seek the Court's entry of a default judgment against
Defendant Centra Tech, Inc. (“Centra Tech”). A
Clerk's default was entered against Centra Tech on
January 30, 2019. (ECF No. 169.) Centra Tech moved to set
aside the Clerk's default on June 15, 2019 (ECF No. 214),
but the Court denied Centra Tech's motion on September
12, 2019. (ECF No. 234.) The Plaintiffs motion is now
properly before this Court.
December of 2017, the Plaintiffs in this case filed a class
action complaint against Defendant Centra Tech and a number
of related individuals. Defendant Centra Tech, a company
founded in May 2016, purported to sell cryptocurrency,
“Centra Tech Tokens” or “CTR Tokens,
” in an initial coin offering (“ICO”). The
ICO allegedly raised funds for, among other things, a debit
card backed by Visa and Mastercard that would allow users to
instantly use cryptocurrencies to make purchases. Between
July 23, 2017 and April 20, 2018, Centra Tech's ICO
raised more than $32 million from thousands of investors. The
founders of Centra Tech, Defendants Sharma, Farkas, and
Trapani are currently the subjects of an SEC enforcement
action for securities fraud (S.E.C. v. Sharma et
al., No. 18-cv-2909-DLC (S.D.N.Y.) and are being
criminally prosecuted in the Southern District of New York
for the fraudulent Centra Tech scheme. United States v.
Sharma et al., No. 18-cr-340-LGS (S.D.N.Y.).
case was originally filed against nine defendants; some are
co-conspirators in the criminal case, while others were only
peripherally involved with the alleged sale of false
securities. The Court granted motions to dismiss as to a
handful of Defendants and the Plaintiffs voluntarily
dismissed the remaining individual Defendants. The only
remaining Defendant is Centra Tech.
Rule of Civil Procedure 55(b)(2) authorizes a court to enter
default judgment against a defendant who fails to plead or
otherwise defend. Fed.R.Civ.P. 55(b)(2). A “defendant,
by his default, admits the plaintiff's well-pleaded
allegations of fact, ” as set forth in the operative
complaint. Eagle Hosp. Physicians, LLC v. SRG Consulting,
Inc., 561 F.3d 1298, 1307 (11th Cir. 2009). In issuing a
default judgment, a court may award damages “without a
hearing [if the] amount claimed is a liquidated sum or one
capable of mathematical calculation, ” as long as
“all essential evidence is already of record.”
S.E.C. v. Smyth, 420 F.3d 1225, 1231, 1232 n.13
(11th Cir. 2005) (quoting Adolph Coors Co. v. Movement
Against Racism & the Klan, 777 F.2d 1538, 1544 (11th
Violation of Section 12(a)(1) of the Securities Act
12(a)(1), 15 U.S.C. § 77l(a)(1), of the Securities Act
creates a private right of action against any person who
“offers or sells a security in violation of”
Section 5, 15 U.S.C. § 77e, of the Securities Act.
See, e.g., Raiford v. Buslease, Inc., 825 F.2d 351,
353 (11th Cir. 1987). In order to establish liability under
Section 12(a)(1), a Plaintiff must prove (1) the defendants
sold or offered to sell securities; (2) no registration
statement was in effect as to the securities; and (3)
interstate transportation or communication and the mails were
used in connection with the sale or offer of sale. SEC v.
Levin, 849 F.3d 995, 1001 (11th Cir. 2017).
transaction or an investment contract qualifies as a security
if it is: (1) an investment of money; (2) in a common
enterprise; (3) with a reasonable expectation of profits to
be derived from the entrepreneurial or managerial efforts of
others. SEC v. R.G. Reynolds Enters., 952 F.2d 1125,
1130 (9th Cir. 1991) (citing Hocking v. Dubois, 885
F.2d 1449, 1455 (9th Cir. 1989) (en banc), cert.
denied, 494 U.S. 1078 (1990)).
each of these elements is present. First, Plaintiffs invested
Bitcoin, Ethereum, and other digital currencies to purchase
CTR Tokens. (ECF No. 97 at ¶¶ 3, 32-41, 316.) As
this Court has already recognized, under established law, an
investment of cryptocurrency constitutes an “investment
of money.” (ECF No. 79 at 9-10 (citing SEC v.
Friendly, 49 F.Supp.2d 1363, 1368-69 (S.D. Fla. 1999)
by purchasing CTR Tokens, Plaintiffs invested in a
“common enterprise” with Defendant Centra Tech
and its founders. In the Eleventh Circuit, “a common
enterprise exists where the fortunes of the investor are
interwoven with and dependent upon the efforts and success of
those seeking the investment.” SEC v. Unique Fin.
Concepts, Inc., 196 F.3d 1195, 1199 (11th Cir. 1999)
(citation and quotations omitted). As this Court has
recognized, “the fortunes of individual investors in
the Centra Tech ICO were directly tied to the failure or
success of the products the Defendants purported to develop,
” and “[a]n individual investor could exert no
control over the success or failure of this
investment.” (ECF NO. 79 at 10.) Plaintiffs have thus
established the existence of a common enterprise.
the “reasonable expectation of profit” prong is
satisfied when “the efforts made by those other than
the investor are the undeniably significant ones, those
essential managerial efforts which affect the failure or
success of the enterprise.” Bamert v. Pulte Home
Corp., 445 Fed. App'x 256, 262 (11th Cir. 2011)
(quoting Williamson v. Tucker, 645 F.2d 404, 418
(11th Cir. 1981)). Here, because the success of the CTR
Tokens purchased by Plaintiffs was entirely dependent on the
efforts and actions of the Defendant, the third prong is
satisfied. Accordingly, the offering of CTR Tokens was an
investment contract under the Securities Act, such that the
Defendant sold or offered to sell securities by virtue of the
Centra Tech ICO.
no registration statement was ever filed with the SEC in
connection with the Centra Tech ICO or CTR Tokens, ECF No. 97
at ¶ 82, nor has Centra Tech ever claimed that any such
a registration was filed or in effect. Finally, Centra Tech
utilized “an instrumentality of interstate commerce,
” by marketing and selling CTR Tokens on the internet,
including through the Centra Tech Token Sale Home Page and
the Centra Tech Smart Contracts. Id. at ¶ 315;
ECF No. 79 at 11 (citing SEC v. Levin, No.
12-cv-21917, 2013 WL 594736, at *12 (S.D. Fla. Feb. 14, 2013)
(King, J.) (“the Internet which necessarily includes
email, is an ‘instrumentality of interstate
on the foregoing, Plaintiffs have established a sufficient
basis for relief under Section 12(a)(1) and thus, the Court