RECoin, Diamond ICO scammer Maksim Zaslavskiy jailed 18
Regulation,  Uncategorized

RECoin, Diamond ICO scammer Maksim Zaslavskiy jailed 18 months

Prosecution of the RECoin and Diamond initial coin offering set precedent defining cryptocurrencies as securities

Initial coin offering scammer Maksim Zaslavskiy was sentenced to 18 months in prison on November 18 for conspiracy to commit securities fraud in the RECoin and Diamond cryptocurrency offerings.

Brooklyn-based Zaslavskiy faced up to five years for the two initial coin offerings (ICO), which touted cryptocurrencies backed by real estate and diamonds, respectively.

“Zaslavskiy committed an old-fashioned fraud camouflaged as cutting-edge technology,” said Richard Donoghue, United States Attorney for the Eastern District of New York. “This office will continue to investigate and prosecute those who defraud investors, whether involving traditional securities or virtual currency.” 

About 1,000 investors bought RECoin, Donoghue’s office said in a statement. Zaslavskiy will also be ordered to make restitution in an as-yet-undetermined amount.

Donoghue thanked the Securities and Exchange Commission for assisting in the prosecution. A spokesman for that agency declined to comment on the sentence.

Zaslavskiy had marketed RECoin as “The First Ever Cryptocurrency Backed by Real Estate,” and claimed that Diamond Reserve Club’s Diamond token was backed by a cache of diamonds.

“In reality, Zaslavskiy bought neither real estate nor diamonds, and the certificates he sent to investors were not backed by the promised blockchain technology,” Donoghue said.

Zaslavskiy had falsely promised that RECoin had a team of lawyers, accountants, and real estate professionals ready to invest property with the proceeds, the SEC said at the time of the September 2017 indictment.

RECoin investors had put an estimated $300,000 into the nonexistent cryptocurrency, the agency said. Zaslavskiy had claimed that non-existent investors had already purchased that 2.4 million tokens for between $2 million and $4 million, the SEC added.

Zaslavskiy plead guilty on November 15, 2018. At the time, U.S. District Court Judge Raymond Dearie described Zaslavskiy marketing of RECoin and Diamond coin a “scam, replete with common characteristics of many financial frauds,” Donoghue’s office announced at that time.

The case was particularly important to the cryptocurrency industry, as Judge Dearie used it to set a precedent confirming that cryptocurrencies offered in ICOs were securities, not currencies.

Zaslavskiy’s attorneys had filed a motion to dismiss the indictment, arguing “that the securities laws did not apply to cryptocurrency offerings and were unconstitutionally vague,” Donoghue’s office noted.

Dearie replied that “simply labeling an investment opportunity as ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract—a security—into a currency.”  

The legal argument over whether a cryptocurrency is a security or a currency continues today, most notably in two civil actions. These are the SEC’s lawsuits against the $1.7 billion ICO for messaging service turned blockchain producer Telegram’s TON tokens, and for Kik’s $100 million Kin token ICO.

The SEC’s vague guidance hasn’t cleared up much of the confusion, according to many in the cryptocurrency community. The agency recently declared that Ethereum’s Ether (ETH) tokens are no longer securities, joining Bitcoin (BTC) in that category.

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.