The first fraud charges involving initial coin offerings (ICOs) were issued by The U.S. Securities and Exchange Commission (SEC), marking a significant enforcement milestone in digital token regulation. The complaint, filed in New York district court, alleges that a businessman and two companies defrauded investors through ICOs purportedly backed by real estate and diamonds.
ICOs Purportedly Backed by Real Estate and Diamonds
The SEC alleges that Maksim Zaslavskiy and his companies REcoin Group Foundation and DRC World Inc., also known as Diamond Reserve Club, fraudulently sold digital tokens to unsuspecting investors. In two separate offerings, REcoin and DRC investors were told to expect sizeable returns on the false premise that the tokens would appreciate in value in accord with REcoin’s real estate assets and DRC’s diamond assets.
The SEC says that the statements made by REcoin and DRC were false and neither company had any real operations. According to the complaint, Zaslavskiy and REcoin also allegedly misrepresented that they had raised between $2 million and $4 million from investors when the actual amount was $300,000. This type of misrepresentation is a common hallmark of securities fraud and violates federal securities laws designed to protect investors.
Companies Make False Claims to Lure Investors
The SEC alleges that Zaslavskiy, REcoin, and DRC made false statements in order to raise money through initial coin offerings from investors through the companies’ websites, press releases, and through social media posts.
The statements touted REcoin as the “first ever cryptocurrency backed by real estate” and told investors that REcoin had a team of professionals who would invest REcoin’s ICO proceeds into real estate. In truth, no such professionals had been hired, and no real estate investments were made. Similarly, DRC claimed to be backed by diamonds, but these representations were entirely fabricated to attract investor capital.
SEC Seeks Permanent Injunctions and Asset Freeze
The SEC charges Zaslavskiy, REcoin, and Diamond with violating anti-fraud and registration provisions of federal securities laws. The complaint seeks permanent injunctions and disgorgement, plus interest and penalties. In addition, the SEC seeks to bar Zaslavskiy from acting as an officer or director of any public company and from participating in any digital securities offerings.
In July of that year, the SEC warned investors that token offerings resembling traditional securities sales, including the participation of individuals investing money with the expectation of profit, will be treated as such for regulatory purposes. The complaint marks the first time the SEC has pursued charges involving ICOs.
In the interim, the SEC has obtained an emergency court order to freeze the assets of Zaslavskiy and his companies, preventing further dissipation of investor funds.
What This Means for ICO Investors
This landmark enforcement action demonstrates that the SEC treats fraudulent ICOs with the same seriousness as traditional securities fraud. Investors who lost money in ICOs may have legal recourse to recover investment losses, particularly when offerings violated securities law or involved material misrepresentations.
If you believe you have been the victim of investment fraud involving digital tokens, initial coin offerings, or other securities law violations, you may have certain legal rights that require your immediate attention.
Have You Lost Money in Initial Coin Offerings?
Victims of ICO fraud or other forms of investment fraud should consult with an experienced securities fraud attorney to understand their options for recovering losses and holding wrongdoers accountable.
Call an Investment Fraud Attorney Today
If you are looking for an investment fraud attorney to review your rights and options, the investment fraud lawyers at Kaplan Rothstein Prüss Peraza, P.A. have recovered more than $100 million from banks and brokerage firms for their wrongful actions.
With offices in Los Angeles, New York, West Palm Beach and Miami, our investment fraud attorneys represent clients nationwide and may be able to help you recover your investment losses.
Contact an investment fraud attorney at Kaplan Rothstein Prüss Peraza, P.A. today to schedule an appointment or consultation to review your rights and options.
