ICO Scammer Pleads Guilty To Defrauding Investors

Crime, News | November 16, 2018 By:

Maksim Zaslavskiy, who is charged in the first fraud prosecution involving initial coin offerings (ICO), has pleaded guilty to defrauding investors.

Zaslavskiy was charged last year with promoting ICO tokens backed by investments in real estate and diamonds that didn’t actually exist. Zaslavskiy reportedly raised at least $300,000 in two ICO tokens – REcoin and Diamond Reserve Coin – by promising investors “the highest potential returns.”

Earlier this year, US District Court Judge Raymond J. Dearie denied Zaslavskiy’s motion to dismiss the indictment. Zaslavskiy asserted that the securities laws did not apply to cryptocurrency offerings and were unconstitutionally vague. However, Dearie dismissed those claims, saying that “simply labeling an investment opportunity as ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract—a security—into a currency,” and does not, therefore, remove the offerings from the ambit of securities law.”

On Thursday, at a court in the New York borough of Brooklyn, Zaslavskiy admitted that he fraudulently marketed RECoin as “The First Ever Cryptocurrency Backed by Real Estate,” and subsequently touted the Diamond Reserve Coin as an “exclusive and tokenized membership pool” hedged by diamonds.

“I, along with others, made these false statements to obtain money from investors,” Zaslavskiy said. “We had not yet purchased any real estate… We had not purchased any diamonds.”

Richard P. Donoghue, US Attorney for the Eastern District of New York, said that the calculated lies of Zaslavskiy and others led unsuspecting investors who thought they were purchasing cryptocurrency securities to buy worthless certificates.

“This Office 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 said.

William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), said that criminals who manipulate and defraud the public for their own personal financial gain undermine the stability and security of our investment markets.

“Investing often involves risk, but nobody should be at risk of being preyed upon by unscrupulous individuals,” said Sweeney. “Zaslavskiy and his associates cloaked old-fashioned criminal schemes in the language of new currency in order to take advantage of investors, and as today’s conviction demonstrates, the FBI will continue to pursue any individual who seeks to profit by exploiting others.”

Zaslavskiy faces up to 37 months in prison at sentencing for conspiracy to commit securities fraud. In addition to the criminal charges filed by the DOJ, the US Securities and Exchange Commission (SEC) also sued Zaslavskiy in a parallel case. The civil case was stayed pending resolution of the criminal matter.