The U.S. Securities and Exchange Commission has charged a businessman and two of his companies with defrauding investors through initial coin offering (ICO) scams, including the REcoin ICO.
According to a SEC press release, Maksim “Max” Zaslavskiy committed fraud by selling unregistered securities backed by nonexistent assets. Zaslavskiy and his companies began the scam with the REcoin ICO, which claimed to be the “first ever cryptocurrency backed by real estate.”
Purportedly, the company had assembled a team of lawyers, brokers, and accountants who would invest the ICO contributions into real estate, earning investors significant dividends. Despite a comprehensive advertising blitz, REcoin raised just $300,000, although Zaslavskiy told investors the total was between $2 million and $4 million.
The SEC says that Zaslavskiy’s fraudulent activity extended to another ICO, Diamond Reserve Club, which he founded after the U.S. government “interfered” with the REcoin ICO, according to a statement posted on a bitcoin forum attributed to Zaslavskiy. Diamond Reserve Club would purportedly invest in diamonds and provide REcoin owners with “tokenized membership” in the new company. From the post:
“After all, the diamonds are forever, especially stored in secure locations in the United States and fully insured for their full value. This way they are truly not susceptible to any government manipulations….[M]embers will be able to exchange their tokens for physical diamonds on the Club’s platform in real time and hassle free.”
However, as with REcoin, the SEC says Diamond Reserve Club had not purchased any diamonds and had no plans to do so.
The SEC filed a complaint against Zaslavskiy and his companies in Brooklyn’s federal district court and is seeking permanent injunctions, penalties, as well as a prohibition on Zaslavskiy participating in any more digital securities offerings.
“Investors should be wary of companies touting ICOs as a way to generate outsized returns,” added Andrew M. Calamari, Director of the SEC’s New York Regional Office. “As alleged in our complaint, Zaslavskiy lured investors with false promises of sizeable returns from novel technology.”
REcoin did not immediately respond to a request for comment.
The REcoin and Diamond Reserve Club ICOs appear to be the first token sales U.S. regulators have filed complaints against. However, the SEC has been positioning itself to crack down on fraudulent and non-compliant ICOs. Just this week, the agency announced the creation of a new cyber task force designed to protect retail investors against cyber threats, including fraudulent ICOs. Moreover, at least one more ICO, Protostarr, shut down in response to SEC pressure and issued refunds to its investors. As long as the ICO boom continues — and it appears that it will indefinitely — one should expect the SEC to take an even more active role in the U.S. ICO markets.