The Curious Case Of Maksim Zaslavskiy: US's First ICO Crypto Token Fraud

The first case of fraud concerning ICOs recently ended in a guilty plea when a man from New York admitted that he lied to over 1000 people. The man, Maksim Zaslavskiy, 39, said that he wanted to raise funds for two ICOs. These ICOs were backed by investments in diamonds and real estate. However, the assets did not exist and it was purely a scam. He said that he and others made the false claims to gain money from people in a court in Brooklyn, NY.

Zaslavskiy misled investors by marketing the REcoin ICO that was backed by real estate investments in developed economies and promised investors “the highest potential returns,” according to prosecutors in Brooklyn. Later that year he began to advertise a blockchain-based Diamond Reserve Coin, or DRC, which he claimed was a “brand new cryptocurrency” that he said was hedged by physical diamonds.

It was an “old-fashioned fraud dressed in a new-fashioned label,” federal regulators said in a lawsuit. Zaslavskiy’s lawyers argued that securities laws don’t apply to cryptocurrencies and asked the judge to throw the case out.

U.S. District Judge Raymond Dearie handed the government a win when he concluded “Congress’s purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called” and said the indictment “charges a straightforward scam.”

Earlier this month, prosecutors filed a revised indictment against Zaslavskiy, adding a charge of conspiracy to commit wire fraud, which carries a maximum 20-year prison term, to the two counts of securities fraud and conspiracy charges he’d already faced.

“Federal judges in Brooklyn, New York, are about to rule on the question. In doing so, they could determine whether Bitcoin and other stateless currencies are securities that can be regulated like stocks or bonds. Courts across the country are likely to consult these rulings when considering other cryptocurrency cases.”

He was set to plead guilty last week to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison for making misrepresentations on which investors relied for both the REcoin and DRC schemes, said the person asked not to be identified because the matter isn’t public.

The U.S. Securities and Exchange Commission also sued Zaslavskiy in a parallel case which Dearie agreed to put on hold until the criminal case was resolved.

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