The United States’ Securities and Exchanges Commission announced yesterday charges against “a businessman and two companies with defrauding investors in a pair of so-called initial coin offerings (ICOs) purportedly backed by investments in real estate and diamonds.”
SEC alleges Maksim Zaslavskiy has been peddling tokens that “don’t really exist” through two ICOs called REcoin Group Foundation and DRC World.
SEC says REcoin claimed to be backed by real estate, but it did not actually have “any real operations,” with SEC further stating that although the company claimed to have a “team of lawyers, professionals, brokers, and accountants,” none had actually been hired or even consulted.
SEC alleges Zaslavskiy carried a similar scheme in regards to the Diamond Reserve Club which was meant to “invest in diamonds and obtains discounts with product retailers,” but no such diamonds were purchased and the company did not engage “in any business operations.”
Proceedings have already begun with SEC obtaining an emergency court order to freeze the assets of Zaslavskiy and the assets of the two companies in question.
Such proceedings are to continue in a federal district court in Brooklyn, N.Y., where Zaslavskiy, REcoin, and Diamond are charged with violations of the anti-fraud and registration provisions of the federal securities laws.
SEC is seeking “permanent injunctions and disgorgement plus interest and penalties. For Zaslavskiy, the SEC also seeks an officer-and-director bar and a bar from participating in any offering of digital securities.”
This is the first court level enforcement action regarding an ICO in the United States as far as we are aware. With the filing suggesting SEC is clearly keeping an eye on this space and won’t refrain from taking action where there is a clear violation of laws, such as outright fraud.
It is unclear whether a likewise action would be taken for a genuine ICO which merely did not seek a license or perhaps breached some technical law somewhere, but nonetheless acted in a genuine and honest manner.
But where clearly fraudulent cases are concerned, which of course in this situation needs to be proven in court, then such action might even be welcomed so that unsuspecting investors are not in effect stolen their money.
This specific action is taken just days after SEC announced a new Cyber Unit that targets, among other things, ICO and blockchain violations, with the enforcement division seemingly having received more resources to enforce the law where clear fraud is concerned.