Security & Fraud

Fake ICOs Prompt SEC Action

The Securities and Exchange Commission announced late last week that it charged an individual and two companies with defrauding investors via two initial coin offerings that were supposed to be backed by real estate and diamond investments.

According to a press release issued by the SEC, Maksim Zaslavskiy and his companies have been selling unregistered securities and the digital tokens or coins with backings from companies that never existed. Investors in REcoin Group Foundation and DRC World, which also goes by Diamond Reserve Club, were told they can get big returns from the two companies, although neither entity has any real operations.

The businessman called REcoin “the first-ever cryptocurrency backed by real estate,” claiming it had a team of professionals that would take the proceeds from the REcoin ICO and invest it in real estate. According to the SEC, no one was ever hired or even consulted. The businessman and the company also said they raised $2 to $4 million from investors, although the SEC alleges he actually only raised $300,000.

The scam, said the SEC in the release, extended to Zaslavskiy’s Diamond Reserve Club, which supposedly invests in the diamond trade and gets discounts for customers who pay a so-called membership. The SEC contends the company never bought diamonds and didn’t have any business dealings. Still, he continued to try to raise funds from investors.

“Investors should be wary of companies touting ICOs as a way to generate outsized returns,” said Andrew M. Calamari, director of the SEC’s New York regional office, said in the press release. “As alleged in our complaint, Zaslavskiy lured investors with false promises of sizeable returns from novel technology.”

Zaslavskiy, REcoin and Diamond were charged with violations of the anti-fraud and registration provisions of the federal securities laws, and could be subject to permanent injunctions and disgorgement plus interest and penalties. For Zaslavskiy, the SEC also seeks an officer-and-director bar and a bar from participating in any offering of digital securities.

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