SEC Charges Two ICOs With Defrauding Investors

After already releasing a bulletin in July warning investors about the potential risks associated with initial coin offerings, the Securities and Exchange Commission may be getting closer to cracking down on token sales after it charged a businessman and two of his companies with defrauding investors through ICOs.

In a statement announcing the charges, the SEC alleges that Maksim Zaslavskiy and two of his companies “have been selling unregistered securities, and the digital tokens or coins being peddled don’t really exist.” Investors in Zaslavskiy’s two companies – REcoin Group Foundation and DRC World (also known as Diamond Reserve Club) – were allegedly “told they can expect sizeable returns from the companies’ operations when neither has any real operations.”

Zaslavskiy allegedly touted REcoin as “The First Ever Cryptocurrency Backed by Real Estate.” Alleged misstatements to REcoin investors included that the company had a “team of lawyers, professionals, brokers, and accountants” that would invest REcoin’s ICO proceeds into real estate when in fact none had been hired or even consulted. Zaslavskiy and REcoin allegedly misrepresented they had raised between $2 million and $4 million from investors when the actual amount is approximately $300,000.

Zaslavkiy then allegedly carried that scheme over to the Diamond Reserve Club “which purportedly invests in diamonds and obtains discounts with product retailers for individuals who purchase ‘memberships’ in the company.”

The SEC obtained an emergency court order that has frozen the assets of Zaslavskiy and his companies.

“Investors should be wary of companies touting ICOs as a way to generate outsized returns,” Andrew M. Calamari, Director of the SEC’s New York Regional Office, said in a statement. “As alleged in our complaint, Zaslavskiy lured investors with false promises of sizeable returns from novel technology.”

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