The SEC charged a New York-based businessman and two of his companies with defrauding investors through two "so-called" initial coin offerings ("ICOs").
In a Complaint filed in the United States District Court for the Eastern District of New York, the SEC alleged that Maksim Zaslavskiy raised $300,000 from investors for digital tokens offered through two of his companies (REcoin and Diamond). According to the SEC, Mr. Zaslavskiy solicited investments with the representation that proceeds would be invested in and "backed by" real estate and diamonds. Mr. Zaslavskiy claimed that the appreciation of real estate and diamond assets, the appreciation of token value with the expansion of business, and increasing demand for the tokens would generate substantial profits for investors. Mr. Zaslavskiy allegedly rebranded the token offerings as "memberships" to avoid registration requirements. According to the Complaint, the "tokens" did not exist, and Mr. Zaslavskiy did not purchase real estate assets or diamonds with any of the investors' funds.
The SEC alleged that Mr. Zaslavskiy made misrepresentations concerning (i) the amount of funds previously raised by the companies, (ii) professional staff involved with the ICOs, and (iii) reasons for shutting down the REcoin ICO.
Mr. Zaslavskiy and his companies were charged with violating Exchange Act Section 10(b) and Rule 10b-5, and Securities Act Sections 5(a), 5(c) and 17(a). The SEC is seeking permanent injunctions in addition to disgorgement of ill-gotten gains and interest.
Commentary / Jeff Robins
According to the SEC's complaint, the REcoin and Diamond solicitations were pure frauds. Zaslavskiy simply stole the money he raised and neither invested it nor issued anything of value in exchange. What makes the case somewhat more interesting is that Zaslavskiy, who holds an LLM, hit on the device of characterizing his offerings as ICOs in an attempt to evade the securities laws. The SEC seems to have concluded that the offerings were securities because Zaslavskiy claimed (vaguely) that they were "backed" by investments as well as usable as a crypto-currency, in essence marketing them as commodity funds. Thus, the complaint lines up with the SEC's action on the DAO (see previous coverage), where tokens were marketed as conveying ownership rights in a profit making enterprise, and not merely as a digital record that can be used as a unit of account or that conveys a right to use services.
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