ICO Issuer Faces up to Five Years in Jail Over Defrauding Investors
39-year-old Maksim Zaslavskiy, the owner of REcoin and DRC World, plead guilty before a New York federal judge.
Maksim Zaslavskiy, a Brooklyn businessman, will be sentenced to up to five years’ imprisonment after pleading guilty before a New York federal judge for deceiving cryptocurrency investors, US Department of Justice announced on Thursday. Zaslavskiy is the owner of the now-defunct Initial Coin Offerings (ICOs) - REcoin and DRC World.
In September 2017, US Securities and Exchange Commission (SRC) shut down the two ICO projects for violating federal securities laws and working as Ponzi schemes. Zaslavskiy was marketing REcoin as “the first ever cryptocurrency backed by real estate” and claiming that he had raised between $2 million to $4 million by selling 2.8 million REcoin tokens when in reality he had around $300,000 from 1000 investors. Zaslavskiy’s second ICO, DRC World, also known as Diamond Reserve Club – offered membership in an exclusive club, where investors had access to virtual coins claimed to be backed by diamonds.
After the SEC charges, a team from New York’s federal attorneys and specialists from the Federal Bureau of Investigation (FBI) found that Zaslavskiy neither possessed real estate nor diamonds. The REcoin and DRC World owner was selling “worthless certificates,” according to Richard P. Donoghue, Attorney for the Eastern District of New York.
“[The Justice Department] will continue to aggressively prosecute those who exploit and defraud investors, whether through traditional means of securities fraud, or new forms – such as the use of purported cryptocurrency offerings and blockchain technology,” Donoghue explained in the press release.
The REcoin and DRC World court battles were significant as those cases mark the first-ever SEC charges against ICOs for violating US federal securities laws. Before pleading guilty, Zaslavskiy attempted to challenge the Commission’s authority over ICOs, but the court upheld the SEC’s jurisdiction saying that “simply labeling an investment opportunity as ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract—a security—into a currency.”
Zaslavskiy’s sentence is expected in a few months. Separately from the criminal investigation, the SEC has also filed civil charges against him.