First US ICO fraud case reaches a head

An American man is facing prison after he pled guilty in the country’s first ever case of fraudulent initial coin offerings.

Maksim Zaslavskiy, who was charged in November of last year with three different charges of securities fraud, submitted his guilty plea last week.

He was accused by the US Department of Justice (or DoJ) of telling untruths to investors in his two ICOs – known as “DRC” and “REcoin”.

The DoJ claimed that Zaslavskiy incorrectly told the investors that DRC was backed up by diamonds, while his REcoin ICO was supposedly backed by property.

Despite his eventual guilty plea, Zaslavskiy, who is 39 years old and was described by the Department of Justice as being a Brooklyn-based businessman, has instructed lawyers to attempt to get the cryptocurrency fraud case thrown out of court over the last year.

In February of this year, for example, his lawyers argued that the ICOs were not securities, and therefore securities fraud could not have taken place.

His lawyers also argued that what they described as the vagueness of securities laws meant that no ordinary person would consider Zaslavskiy’s behaviour to be against the law.

However, the court did not throw the case out.

It is being heard at a US district court in the Eastern District of New York. The guilty plea was given to Judge Ramon E. Reyes, Jr.

The defendant could be given a sentence of anything up to five years in jail. It is understood that he is also facing civil charges levied by the Securities and Exchange Commission (SEC).

After the announcement, a US Attorney covering the case said in a statement that the defendant used “calculated lies”.

“The calculated lies of Zaslavskiy and others led unsuspecting investors who thought they were purchasing cryptocurrency securities to buy worthless certificates”, said Richard P Donoghue, who is US Attorney covering the Eastern District of New York.

“This Office will continue to aggressively prosecute those who exploit and defraud investors, whether through traditional means of securities fraud, or new forms – such as the use of purported cryptocurrency offerings and blockchain technology.”

William F. Sweeney, Jr., the Federal Bureau of Investigation’s (FBI) Assistant Director-in-Charge, also commented: “Criminals who manipulate and defraud the public for their own personal financial gain undermine the stability and security of our investment markets.”

“Investing often involves risk, but nobody should be at risk of being preyed upon by unscrupulous individuals. Zaslavskiy and his associates cloaked old-fashioned criminal schemes in the language of new currency in order to take advantage of investors, and as today’s conviction demonstrates, the FBI will continue to pursue any individual who seeks to profit by exploiting others.”

Lawyers for Zaslavskiy also spoke to the press following his guilty plea: “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”, said Mildred Whalen, who was the lead lawyer for the defendant.

Chris Lee

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