Potentially Precedent-setting ICO Fraud Case Awaits Jury Decision
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9 May

A U.S. district court judge announced on Tuesday that a jury will decide whether tokens issued through two allegedly fraudulent initial coin offerings (ICOs) count as securities.

Maksim Zaslavskiy, a New York businessman, is accused of breaking federal securities laws by failing to comply with anti-fraud and registration provisions.

Last year, Maksim Zaslavskiy launched two ICOs, REcoin and DRCWorld, which allegedly turned out to be scams. The stated purpose of each ICO was to convert fiat currency into tokens that would be backed by investments into various assets - real estate (REcoin) and diamonds (DRCWorld) - coordinated by a “team of lawyers, professionals, brokers and accountants”. The SEC claims that no token issuance ever took place, and that there is no evidence of Zaslavskiy actually running ICOs. While the REcoin ICO was claimed to have raised between $2 million to $4 million, the actual amount raised was close to $300,000. Neither company hired any personnel to carry out the investments. Zaslavskiy pled not guilty to the charges in December, before moving to dismiss the cases brought forward by the SEC and DOJ, arguing that he wasn’t aware of being in violation of the law, and that the token sales could not be considered securities offerings.

According to both agencies, REcoin and DRCW have passed the Howey Test, meaning they fit the legal definition of securities offerings. Zaslavskiy was also contacted by the SEC prior to the DRCW token sale, which he described as “interference”, indicating he had knowledge that his actions were unlawful.

During the hearing, a member of Zaslavskiy’s legal counsel accused the SEC and the American government for misleading the market with their unclear positions on ICOs. The attorney claimed the government has referred to virtual currencies both as commodities and securities, creating confusion.

“The SEC wants to regulate something...the fact that on the same floor, in the same court in Brooklyn, New York, the government is saying different things based on which agency is bringing the change, that brings vagueness,” the attorney said.

The government believes that the two tokens cannot be considered currencies as they were merely promised to investors, but never actually existed.

Why it is important

    1. This makes Maksim Zaslavskiy one of the first people to be accused of fraud related to ICOs. The case could potentially set a precedent for future ICO-related cases, as it seeks to answer a key question: whether his issuance of tokens could be interpreted as securities offerings.

The trial is set to begin in January 2019.

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