Judge rules ICOs could be subject to securities law

  • September 11, 2018
  • 3:09 pm ET
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A U.S. federal judge has ruled that a pair of reportedly fraudulent initial coin offerings fall under securities laws.

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A US Federal judge presiding in the case against Maksim Zaslavskiy ruled today that initial coin offerings could fall under securities laws.

Mr Zaslavskiy has been accused of committing securities fraud in relation to two ICOs and was charged last year by the US attorney’s office for the eastern district of New York.

Investors in Zaslavskiys two companies, Real Estate Coin (RECoin) and Diamond Reserve Club (DRC), were told that the tokens issued were backed by real estate and diamonds, respectively, but prosecutors say those assets never existed.

Zaslavskiy has denied the charges under the argument that existing securities laws were “unconstitutionally vague”, and his legal counsel stated:

“The best reading of the current laws make clear that cryptocurrencies are not securities. First, as currencies, these assets are statutorily exempt from the definition of securities – even under the 1933 and 1934 Securities Acts. Second, cryptocurrencies are not ‘investment contracts’ within the meaning of the law – a key requirement should the SEC argue that cryptocurrencies are securities. Since the cryptocurrencies at issue in this case – REcoin and DRC – are not securities, they are not subject to securities law upon which all of the charges are based. Therefore the indictment charging Mr. Zaslavskiy is defective.”

But on Tuesday, September 11, 2018, District Judge Raymond Dearie denied the motion for dismissal in his case and stated:

“The question is whether the ‘elements of a profit-seeking business venture’ are sufficiently alleged in the indictment, such that, if proven at trial, a reasonable jury could conclude that ‘investors provide[d] the capital and share[d] in the earnings and profits; [and] the promoters manage[d], control[ed] and operate[d] the enterprise.’ For present purposes, we conclude that they are.”

While the ruling may come as big news, it is still ultimately up to the jury to decide the fate of Zaslavskiy at a trial which will be set for a future date.


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