U.S. Judge Rules ICO Scam Case Falls under Securities Law

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by Eugenia Kovaliova · 3 min read
U.S. Judge Rules ICO Scam Case Falls under Securities Law
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According to the recent ruling made by a US federal judge, criminal cases related to shady ICOs officially fall under securities laws.

A US federal judge has ruled that the legal case against Maksim Zaslavskiy, a Brooklyn businessman and organizer of two allegedly fraudelent initial coin offerings (ICOs), can be proceed by the US Securities and Exchange Commission, as ICO scams fall under securities laws.

The case was filed by ICO participants from Recoin and Diamond Reserve Club, who accused Zaslavskiy in misleading investors. Zaslavskiy promoted digital currencies backed by investments in real estate and diamonds that prosecutors said didn’t ever exist.

Despite the motion submitted by the lawyers defending Zaslavskiy, in which securities laws were called “unconstitutionally vague”, New York judge Raymond Dearie wrote that “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called,” citing the ruling:

“Stripped of the 21st-century jargon, including the defendant’s own characterization of the offered investment opportunities, the challenged indictment charges a straightforward scam, replete with the common characteristics of many financial frauds.”

However, Dearie did not say a word about whether ICOs are considered as specifically securities or not. According to his words, this “can only fairly be a question of proof at trial, based on all of the evdience presented to a jury.”

ICO boom broke out in 2017 and continues in 2018. According to a Satis Group study, 81 percent of all ICOs are nothing but scams. In September 2017, the SEC filed its first charges against three ICO organizers. The case against Maksim Zaslavskiy was among them.

According to the data compiled by Coinschedule.com, about $18.7 billion has been raised this year by shady ICOs, which proves the necessity to regulate this method of fundraising. In the world where the popularity of cryptocurrencies and blockchain technology grows in progression it is highly important.

As Peter Henning, a professor at Wayne State University’s law school in Detroit, said in an interview commenting to the recent ruling:

“This ruling affirms the SEC’s position that it has authority over ICOs and that market manipulation and anti-fraud provisions in the law apply. The defense here was arguing that it’s not a security, but the judge has rejected that claim, saying that this case can fit under the securities laws, and that’s an important first step.”

The recent ruling is a first step on the way to ICO regulations. In the near future, we are likely to see other shady ICOs faling under securities laws.

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