ICO Fraud Case: U.S. Federal Court To Rule Whether ICO Tokens Are Securities In A Criminal Proceedings Dismissal Case

The U.S. Department of Justice is preparing for an “oversized” response to a case seeking dismissal of an ICO fraud lawsuit against a New York businessman- Mr. Maksim Zaslavskiy. The defendant is indicted for misrepresentation and fraud involving ICOs for his two businesses – REcoin Group Foundation and Diamond Reserve Club (Diamond). The accused allegedly marketed the ICOs for his who firms by purporting to the investors that REcoin capital is hedged against the Real estate and the DRC is secured against diamonds. Reports alleged that the businessman made approximately $300,000.00.

ICO Fraud Lawsuits

Interestingly, Mr. Maksim is facing civil and a criminal lawsuit. The criminal lawsuit was filed by the FBI Office’s Business and Securities Fraud Section on November 1, 2017. The charge sheet alleges that the Businessman committed criminal charges against the American capital markets by exploiting investors and corrupting the market system. Such fraud is capable of diminishing investor confidence in the ICO markets and the entire capital markets at large – with catastrophic effects on the U.S economy. Furthermore, the ICOs are not registered with the market regulators – which amounts to exposing the investors to illegal financial practices. The Assistant U.S. Attorney Julia Nestor is the public prosecutor facing off the defense lawyers,

On the other hand, the Securities and Exchanges Commission (SEC) filed a civil lawsuit against the defendant on December 1, 2017. The SEC claims that the defendant defrauded investors by promising them nonexistent Diamonds and Real estate. The accused is also responsible for breaking the law by running an unregistered business and undertaking unregistered business activities in full knowledge of the existing laws. This case is pending conclusion of the criminal proceedings against the defendant.

Motion Of Dismissal Of The Criminal Lawsuit

In a twist of events, the defendant filed a dismissal motion asserting that he is not guilty as charged, as he was not trading in securities but a new business model. The defense lawyers, further, purport that Mr. Zaslavskiy is not liable as the law is vague on the following grounds;
• The grounds for the dismissal filed on 27th February 2018 are; Judicial precedence as set out by the SEC vs. W.J. Howey Co.
• The articulation of tokens did not satisfy the U.S. Supreme Court’s test of determining investment contract-security. U.S. security laws are silent on Cryptocurrencies.
• ICO fraud charges – involving Cryptocurrencies – are null and void as the constitution is silent on them.

In response to the motion the government, through the U.S attorney Richard Donoghue is filing a series of affidavits to counter the defense. With a deadline of 19th March 2018, all stakeholders are keen to see the verdict of the Federal Courts on the dismissal claim and the following proceedings or no proceedings of the criminal and civil charges.

Implication Of The Verdict

This indictment outcome will set an important precedence for the ICO Markets and the Cryptocurrencies cases. Additionally, the House of Representatives committee examining ICO Markets and Cryptocurrencies trade will propose approaches as per the verdicts of the courts involved. Summarily, the future of the ICO Markets and the Cryptocurrencies technology in the U.S. formal economy will be determined in the weeks to come. With U.S. as the global financial trendsetter, many other countries especially in the European Union, the Americas, Africa and Oceania will follow suit.