Defendant in First ICO Fraud Case Pleads Guilty

Defendant in First ICO Fraud Case Pleads Guilty

Siamak Masnavi

On 15 November 2018, Bloomberg reported that Maksim Zaslavskiy, the defendant in the first fraud case involving initial coin offerings (ICOs), pleaded guilty. The case is U.S. v. Zaslavskiy (1:17-cr-00647), U.S. District Court, Eastern District of New York (Brooklyn).

Zaslavskiy was charged in November 2017 on three counts of securities fraud in connection with two ICOs: "REcoin" and "DRC". The Department of Justice (DOJ) claimed that Zaslavskiy had lied to investors when selling these two cryptoassets. According to the indictment, he told investors that both of these were backed by real world assets: real estate in the case of REcoin and diamonds in the case of DRC.

In February 2018, Zaslavskiy's legal team made a motion to dismiss the case on the grounds that (a) he had not committed securities fraud since REcoin and DRC were not securities; and (b) the securities laws are so vague that it would be unreasonable to expect an ordinary person to know that his alleged conduct was unlawful.

 As covered by CryptoGlobe, on 11 September 2018, the court denied this motion, with the judge ruling that, assuming all of the DOJ's allegations are true, REcoin and DRC are securities, and securities laws are not so vague as to be unconstitutional. This meant that the case would be going to trial.

According to the DOJ's press release, on Thursday, Zaslavskiy pleaded guilty before U.S. Magistrate Judge Ramon E. Reyes, Jr., to "conspiracy to commit securities fraud in connection with two Initial Coin Offerings (ICOs) – REcoin Group Foundation, LLC (REcoin) and DRC World, Inc., also known as Diamond Reserve Club (Diamond)."

The guilty plea was announced by Richard P. Donoghue, U.S. Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI).

U.S. Attorney Donoghue said:

“The calculated lies of Zaslavskiy and others led unsuspecting investors who thought they were purchasing cryptocurrency securities to buy worthless certificates. This Office will continue to aggressively prosecute those who exploit and defraud investors, whether through traditional means of securities fraud, or new forms – such as the use of purported cryptocurrency offerings and blockchain technology.”

FBI Assistant Director-in-Charge Sweeney stated:

“Criminals who manipulate and defraud the public for their own personal financial gain undermine the stability and security of our investment markets. nvesting often involves risk, but nobody should be at risk of being preyed upon by unscrupulous individuals. Zaslavskiy and his associates cloaked old-fashioned criminal schemes in the language of new currency in order to take advantage of investors, and as today’s conviction demonstrates, the FBI will continue to pursue any individual who seeks to profit by exploiting others.”

On 19 April 2018, when Zaslavskiy is due back in court for sentencing, he faces up to five years in prison. In addition to the criminal charges filed by the U.S. Attorney's Office (Eastern District of New York), it seems that the U.S. Securities and Exchange Commission (SEC) has filed civil charges against Zaslavskiy (this civil case "was stayed pending resolution of the criminal matter").

Mildred Whalen, the defendant's lead attorney, said after the hearing:

"This is a case where he had a good-faith belief in his cryptocurrency products, but he marketed it as further along than what had been actually developed."

 

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