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Regulators won a crackdown on cryptocurrency crimes, with a judge ruled that initial coin offers were subject to US securities fraud laws.
Judge Raymond Dearie ruled on Tuesday that Maksim Zaslavskiy should be tried for fraud against ICOs, dismissing the Brooklyn businessman's efforts to have the case dismissed.
The decision in the District of East New York was the first time a federal court had weighed on the government's jurisdiction over ICOs in a criminal case, lawyers said. It is likely that this will strengthen the hand of the US authorities in the case of the so-called bad actors in multi-billion dollar cases.
In an ICO, a company creates a new cryptocurrency and sells it to investors to raise funds. These offers grew in popularity last year, and many operators have touted them as a way for start-ups to raise capital without the burdensome regulations and heavy fees of a traditional IPO. The OIC promoters have taken advantage of the interest generated by the success of bitcoin to raise funds for projects ranging from instant messaging to cannabis.
Regulators were suspicious of the craze. The Securities and Exchange Commission said many ICOs were unsaved offers of securities, making them potentially illegal, and warned that many could be fraudulent.
ICOs continued despite increasing regulatory control. According to research firm Autonomous NEXT, some $ 12 billion was collected in country offices from October to the end of June.
Federal prosecutors filed criminal fraud charges against Zaslavskiy last year in connection with two allegedly promoted OCIs. One of them, for a new digital piece called REcoin, would have been backed by real estate, while the other, Diamond Reserve Coin, would have been backed by diamonds. The SEC is pursuing civil charges of securities fraud against the businessman in a parallel case.
Zaslavskiy pleaded not guilty and denied fraud. One of his lawyers, Jason Nagi, was unable to comment on Tuesday.
Counsel for the businessman argued that the virtual currencies in this case were not securities under US law and that his activities were therefore not within the enforcement powers of the government. But Judge Dearie rejected these arguments and wrote that a "reasonable jury" could "conclude that Zaslavskiy has promoted investment contracts (ie securities) under the RECoin and Diamond programs".
The decision was relatively narrow – it only settled the question of whether Mr. Zaslavskiy's case would go to trial. But for Gary DeWaal, a special advisor at Katten Muchin Rosenman LLP, the SEC and the Department of Justice won an important victory over digital tokens.
"This will certainly allow the Ministry of Justice to carry other business in this area," DeWaal said. "Courts confirm the position of regulators."
Representatives of the SEC and the United States District Attorney's Office in New York, leading the criminal case against Zaslavskiy, declined to comment.
The SEC unveiled its case against the Brooklyn businessman in September, during the first shot of what has become a series of cases against the ICOs. Zaslavskiy told investors that REcoin had behind him a "team of lawyers, professionals, brokers and accountants", while no employees had been hired, the SEC said. . His other ICO project did not buy diamonds or participate in commercial operations, the agency said.
Write to Alexander Osipovich at [email protected]
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