US Federal Judge in New York Claims ICOs Are Covered By Securities Laws

US Judge Claims ICOs Are Covered By Securities Laws in Case Against Maksim Zaslavskiy

The crypto industry achieved a landmark legal milestone in the United States today as a US judge claimed ICOs are covered by existing securities laws.

As reported by Bloomberg, an American court has decided that U.S. securities laws cover initial coin offerings.

A federal judge in Brooklyn, New York refused to dismiss the case of a man charged with promoting digital currencies through an ICO. The ICO tokens were purportedly be backed by investments in real estate and diamonds. Unfortunately for the ICO and its backers, however, prosecutors claim the real estate investments and diamonds never existed.

It’s believed to be the first criminal case of its kind.

U.S. District Judge Raymond Dearie of New York agreed with the government on Tuesday by stating that an initial coin offering is a security sale for purposes of federal criminal law.

In other words, we don’t need to create a new set of regulations around ICOs: initial coin offerings are already covered by existing regulatory framework in the United States.

The case first made headlines back in January. “Can bitcoin be regulated? US courts are about to decide,” announced Bloomberg in their first writeup on the case.

“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 cybercurrency cases.”

The case is a big deal because it’s not even clear if the United States has the authority to regulate initial coin offerings.

The Brooklyn case is believed to be the first criminal case in the United States involving an initial coin offering.

The case involves Brooklyn-based businessman Maksim Zaslavskiy, whose name was revealed when the case was unsealed in November. Zaslavskiy was charged with promoting digital currencies backed by investments in real estate and diamonds that US prosecutors claim didn’t exist. The Securities and Exchange Commission (SEC) also sued Zaslavskiy.

Zaslavskiy’s lawyers opted for a creative defense. They chose to challenge whether or not ICOs can be considered a security under US law.

As revealed today, the US judge sided with prosecutors and dismissed Zaslavskiy’s lawyers’ claims that the tokens sold in the ICO were not securities. Moving forward, US prosecutors will charge Zaslavskiy based on existing US securities laws. They won’t treat ICO tokens as a special asset class with unique laws.

Will This Ruling Extend to All ICOs?

Some see this as a victory for crypto: it’s a way for crypto to continue entering mainstream financial markets without rewriting financial rules.

Others see it as a defeat, because it means all tokens sold during ICOs could be declared securities.

This court case will likely be referenced in future court cases regarding ICOs as evidence that US regulators consider ICO tokens to be securities. However, it seems unlikely that the ruling could extend to all ICOs and all companies.

It’s also important to note that most ICO operators already acknowledge existing American securities laws. They specifically address the Howey Test, for example, and claim their ICO token passes the Howey Test. If the ICO token doesn’t violate the Howey Test, then it won’t be declared a security, and does not need to abide by existing securities laws. It’s when tokens violate the Howey Test that they start getting into trouble – as is the case with Zaslavskiy’s ICO from last year.

Ultimately, the impact of this Brooklyn crypto court case remains to be seen. For now, it seems that ICOs are covered under existing American securities laws – and that means ICO operators must abide by existing American securities laws or risk facing consequences.

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