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Lack of regulation has been a major problem for the cryptocurrency sector and government agencies trying to get a hold of this market. Now a new ruling from a US federal judge brings initial coin offerings (ICOs), the wildest space in the crypto markets, under the US securities law. The ruling gives the government a highly anticipated victory to take charge of the ICO market and regulate billions of dollars of investments in this space. It can also help upcoming ICOs appear more appealing to traditional or more prudent investors as they will be regulated like stocks.

Criminal Case Leads to Crypto Victory

US District Judge Raymond Dearie in Brooklyn, New York, has denied a motion to dismiss a case filed by a man who reportedly promoted digital currencies backed by diamonds and real estate, which didn’t exist. On Tuesday, Sept. 11, Judge Dearie said that the government could proceed with the case as ICOs can be counted as securities for purposes of the federal criminal law.

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The man in question is Brooklyn businessman Maksim Zaslavskiy, who has been charged with two counts of securities fraud and conspiracy for promoting two ICOs. He argued that ICOs aren’t securities but currencies, adding that the securities law is too vague.

However, Judge Dearie said in his ruling:

“Per the indictment, no diamonds or real estate, or any coins, tokens, or currency of any imaginable sort, ever existed — despite promises made to investors to the contrary. Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract — a security — into a currency.”

According to the judge, it would be up to the jury to decide whether the ICOs in question will be considered a security or not. The ruling focused on the ICOs particularly pertaining to the case against Zaslavskiy. But if this is upheld on appeal, it could have greater significance, such as the government getting a chance to regulate ICOs.

Is the SEC Watching?

Securities and Exchange Commission Chairman Jay Clayton has previously expressed interest in regulating such controversial fundraising method. According to CoinSchedule, over $18.7 billion has been raised by ICOs this year. As the popularity of cryptocurrencies is increasing, the unregulated industry is also becoming rife with fraud.

Wayne State University law school professor Peter Henning commented on the judgment, saying:

“This ruling affirms the SEC’s position that it has authority over ICOs and that market manipulation and anti-fraud provisions in the law apply.”

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