US Federal Judge: ICO Frauds Categorized Under Securities Law

Last Updated: September 12, 2018 at 1:20 AM EST

US federal judge, Raymund Dearie, ruled that a criminal case against two allegedly fake initial coin offerings fall under securities laws. The decision was finalized on Tuesday, September 11 at Brooklyn, New York.

The case in question was against a reportedly fraudulent ICOs directed by Maksim Zaslavkiy. The judge ruled that the case would proceed, denying the defendant’s motion to dismiss.

Zaslavskiy is being accused of doing securities fraud by selling tokens which embodied shares in a real estate venture and a diamond business. Prosecutors assert that neither of the real estate venture nor the diamond business actually bought the assets the customers were investing in.

As argued by Zaslavkiy’s lawyers in the motion, “securities laws are unconstitutionally vague as applied” to the accusation against the defendant.

To this, Judge Dearie responded: “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called,” alluding to a previous 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,” he added.

In the exact sense of the word, securities laws as they apply to the indictment and the charges against the Mr. Zaslavkiy are anything but vague, Dearie stated.

It is worth noting that the judge has not stated as to whether ICOs are specifically securities. However, he said that this “can only fairly be a question of proof at trial, based on all of the evidence presented to a jury.”

The Howey Test– a United States official standard for determining whether something is a security- might be applied to Zaslavkiy’s case, Dearie wrote.

“The question is whether the ‘elements of profit-seeking business venture’ are sufficiently alleged in the indictment, such that, if proven at a trial, a reasonable jury could conclude that ‘investors provide[d] the capital and share[d] in the earnings and profits; [and] the promoters manage[d], control[ed] and operate[d] the enterprise.’”

He added: “For present purposed we conclude that they are.”

With that, an analysis of the Howey Test as it could possibly apply will be required for a final determination at trial.

Bloomberg first reported the news.