The New York court stated that the legislation governing securities is directly related to two ICOs which turned out to be scams. This verdict was one of the first of its kind and, in fact, laid the foundation for the further prosecution of fraudulent actors in America. In the opinion of crypto enthusiasts, the whole world has long needed legislative initiatives of this kind, but they should be introduced very carefully, after scrupulous consideration of all the factors that can be decisive in assessing the severity of the blame.

Details of the Proceedings

In 2017, businessman Maksim Zaslavskiy was charged with two episodes of securities fraud and the organization of a deliberately deceptive scheme for misleading investors. According to the Prosecutor's Office, Zaslavskiy sold unregistered securities under the names REcoin Group Foundation and DRC World.

The SEC report follows that the suspect at times exaggerated the amount that REcoin collected, saying that it was between $2 and 4 million, while the real amount was only $300,000. According to the prosecution, Zaslavskiy advised investors to wait for significant results.

The ruling of the court says that the assurances of Maksim Zaslavskiy that the investment attractiveness of both companies is provided by "investing in diamonds, real estate, and tokens and currencies of every kind" had nothing to do with the real state of affairs. In his defense, the defendant insisted that the ICO is not securities, but currencies. He also stated that the existing securities laws are still rather vague.

The prosecutors, in turn, assured that investments are contracts that should be treated only as securities. "Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract—a security—into a currency," the judge ruled.

Despite the fact that the court decision extends exclusively to this case, the decision itself can become a significant precedent for future trials regarding ICO scams.

Expert Opinions

According to a number of experts, ICOs should be regarded as securities, and therefore, regulated as such. Back in March, the head of the SEC, Jay Clayton, said that many of the ICOs he sees are securities.

Professor at the Wayne State University's law school Peter Henning said in an interview with Bloomberg that he completely agreed with the SEC's position that they should work with the ICOs.

Interestingly, in June, the director of the SEC's Division of Corporation Finance William Hinman announced that Bitcoin and Ether are not securities, but "whatever it is, he will not take it out of the purview of the U.S. securities laws."

In general, the legislative field in respect of the ICOs is still in the making: it will take some time before the more or less clear rules of the game are outlined. "At the moment, there is a sufficient number of inadequately enterprising people in these turbid waters. In this case, not everything that looks like a scam may be such, however, the opposite is true, too. At the moment, American courts are trying to approach the situation with the ICOs based on the classical regulatory framework (though it is not entirely suitable for the new realities) and some share of conventional reason. In the specific case of RECoin and DRC World, we are dealing with a case law process (taking into account the peculiarities of Anglo-Saxon law), within which the court can be especially strict in edification for other market participants," as Global Marketing Agency CEO Alexander Klimov told DeCenter.

As for necessary and sufficient punishment for this kind of crimes, then, according to the interlocutor, it should vary depending on the degree of severity. "If you approach the assessment of the plane in which it is advisable to consider the situation with the ICOs, whether it be administrative or criminal, then, of course, the very type of prospective fraud and its severity will be the benchmark. Still, to promise investors a high yield and flee with the investors' money are two different things," Klimov added.

The problem of uncertainty around the legal regulation of the ICOs has remained extremely important for many years, and the institution of a criminal case in the U.S. against Zaslavskiy is one of the most striking proofs thereof. "As for the definition of the branch of law, in this case, it is possible to answer the question from a subjective and objective standpoint," as Alexander Kozlov, administrator of the Kriptoyurist community, told DeCenter.

The final judgment in relation to cases depends on the influence of both approaches. "From an objective point of view, if the investigator was accused of committing fraudulent actions, then obviously it is a question of criminal proceedings. On the other hand, in view of the fact that in U.S. legislation, there is really no unambiguous definition that the acquisition of ICO tokens is similar to the acquisition of company securities, I believe that starting with criminal proceedings without an appropriate legislative basis is a repressive measure. If investors believe that their rights to purchase tokens from Zaslavskiy were violated, then to protect their interests, there are courts of general jurisdiction that will consider this problem from the civil law sector, and this, in my opinion, is really the correct way to resolve the conflict," as Kozlov explained.

It should be noted that, at the moment, there is no established and tried legislative base for scam ICOs anywhere in the world. On the one hand, the process of implementing legislative initiatives is rather long, and ICOs do not yet have a unified world legal classification either. It is these gaps in the legislation that enable dishonest startups and fraudsters to deceive investors. "In the next couple of years, we will certainly witness dozens of trials regarding the initiators and management of ICO projects, and these processes will eventually form the basis for law enforcement practice for the coming years," as Klimov summed up.