First Securities Fraud ICO Case To Plead Guilty

A New York man charged in the first fraud prosecution involving initial coin offerings has pleaded guilty to lying to about 1,000 investors.

Maksim Zaslavskiy admitted to participating in what the U.S. regulators called an “old-fashioned fraud dressed in a new-fashioned label” by raising money for two ICOs backed by investments in real estate and diamonds that didn’t actually exist.

“I, along with others, made these false statements to obtain money from investors,” he said Thursday (November 15) in federal court in Brooklyn, New York, according to Bloomberg.

Prosecutors have charged that Zaslavskiy raised at least $300,000 last year from investors in two cryptocurrencies: one called REcoin, which he said was backed by real estate, and the other called Diamond, which he claimed was backed by diamonds. However, prosecutors revealed that neither crypto was backed by either real estate or diamonds.

Zaslavskiy faces up to 37 months in prison when he’s sentenced in April for conspiracy to commit securities fraud.

“This is a case where he had a good-faith belief in his cryptocurrency products, but he marketed it as further along than what had been actually developed,” his lawyer, Mildred Whalen, said.

In September, a federal judge ruled that prosecutors could move forward with their case against Zaslavskiy. His lawyer had argued that REcoin and Diamond were currencies, not securities, and should not be covered by the Securities Exchange Act. However, the judge rejected that request, writing that the federal securities law must be interpreted “flexibly.”

The judge also pointed to the U.S. Securities and Exchange Commission (SEC) ruling earlier this year, saying that while some well-known cryptocurrencies like bitcoin and Ethereum are not securities, the coins offered during initial coin offerings (ICOs) very likely are entirely — or mostly — securities. As such, they can expect to come under the regulatory control of the SEC and relevant securities laws.

“Central to determining whether a security is being sold is how it is being sold, and the reasonable expectations of purchasers,” said William Hinman, the SEC’s head of the Division of Corporate Finance, at the time.