U.S. District Judge, Raymond Dearies has delivered a landmark judgment about Initial Coin Offerings (ICOs). Raymond ruled that the existing U.S. securities laws cover ICOs. It is a legal victory for the government which is looking forward to regulating the digital currency offerings like stocks.
In the U.S. District Court Eastern District of New York, the ruling came in a case against an ICO promoter Maksim Zaslavskiy who was charged for promoting digital currencies backed by real estate and diamonds which never exist. Charges on Maksim Zaslavskiy are to defraud investors for more than $300,000 in REcoin ICO scam.
Know more about REcoin ICO Scam
Last year in September, Security and Exchange Commission (SEC) charged Maksim Zaslavskiy and two of his companies for defrauding investors through various ICO scams including REcoin. Maksim Zaslavskiy marketed REcoin as a digital asset which is backed by diamond and real estate but the backed assets never exist. Zaslavskiy’s lawyer pled the case to dismiss because according to the lawyer ICOs are currencies, not securities that is why they must be kept outside the jurisdiction of the SEC Act but the argument was refused by the District Judge Raymond Dearies. Raymond also refused to dismiss the case against Maksim Zaslavskiy. Raymond Dearies also said that for the purpose of the federal criminal law, the government can also proceed with a case alleging that ICO is a security.
A professor of Wayne State University’s law school, Peter Henning said that the ruling affirms the position of Security and Exchange Commission. The ruling confirms that SEC has the authority over ICOs and anti-fraud and market manipulation provisions apply on the ICOs.
According to the chairman of the Security and Exchange Commission (SEC), Jay Clayton all fundraising methods must be regulated. With the increasing popularity of blockchain technology and digital currencies, frauds are increasing in the market. Initial coin offerings (ICOs) are similar to initial public offerings (IPOs). In the equity market, companies use IPOs to raise funds from the general public while blockchain startups use ICOs for fundraising purpose. However, in ICOs, the money is raised before the product is ready. As the ICO scams are increasing at a rapid pace, the Federal regulators have advised the investors to be cautious with ICOs.
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