US Judge Rules ICO Frauds Fall Under Securities Law

A U.S. federal judge has ruled that a criminal case against two reportedly fraudulent initial coin offerings fall under securities laws.

District judge Raymond Dearie ruled Tuesday that the case against a pair of allegedly fraudulent ICOs conducted by Brooklyn resident Maksim Zaslavskiy would proceed, denying the defendant's motion to dismiss.

As previously reported, Zaslavskiy has been accused of committing securities fraud for selling tokens which represented shares in a real estate venture and a separate diamond business.

In the motion, Zaslavskiy's lawyers argued that "Securities laws are unconstitutionally vague as applied" to the indictment against the defendant.

Dearie wrote, "Congress' purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called," citing a previous ruling.

Securities laws as they pertain to the indictment and charges against Zaslavskiy are not vague, Dearie ruled.

Notably, Dearie did not say whether ICOs are specifically securities, instead saying that this "Can only fairly be a question of proof at trial, based on all of the evdience presented to a jury."

He added that "Zaslavskiy's primary contention - that the investment scheme at issue did not constitute a security, as that term is defined under Howey, is undoubtedly a factual one."

Dearie echoed a previous decision he'd made in the case, when he first ruled that a jury would decide whether Zaslavskiy's token sales qualified as securities offerings.

While his attorneys argued that the U.S. Securities and Exchange Commission cannot regulate token sales as securities, prosecutors said the point was moot as no tokens had ever been developed.