In Landmark U.S. Case, Mastermind Behind Two Fraudulent ICOs Pleads Guilty




This is the ICO regulators warned you about. Maksim Zaslavskiy, who is the mastermind behind two ICOs for tokenized real estate and diamonds, has pled guilty to fraud in a federal district court in Brooklyn, N.Y. As the first case of ICO fraud in the U.S., this one sets a precedent, with a judge in September having decided that ICOs are subject to securities laws.

Zaslavskiy is now facing more than three years in prison for “conspiracy to commit securities fraud,” according to Bloomberg. In every investor’s worst nightmare, Zaslavskiy finally admits that he lied, backpedaling on previous claims that his cryptocurrencies were backed by real estate and diamonds.

“I, along with others, made these false statements to obtain money from investors,” he said.

And obtain money from investors they did to the tune of hundreds of thousands of dollars, according to reports, for REcoin and Diamond Reserve Club. A clear warning sign for ICO investors is an ecosystem that has yet to materialize in the way of products or sales, for instance. But in this case, Zaslavskiy strung investors along, going so far as to suggest that REcoin had invested in the real estate of developed countries and that investors had already gobbled up millions of tokens, all of which were lies.

The SEC saw through the scam, having originally brought charges against Zaslavskiy and his two companies in September 2017.  Zaslavskiy finally admitted in the Brooklyn court:

“We had not yet purchased any real estate,” and, “We had not purchased any diamonds.”

His attorney attempted to couch it as simply putting the cart before the horse, reportedly saying:

“This is a case where he had a good-faith belief in his cryptocurrency products, but he marketed it as further along than what had been actually developed.”

Meanwhile, the SEC continues to investigate multitudes of ICOs.

ICO Market Landscape

Meanwhile, the ICO fundraising tally took a hit in Q3 2018 to $1.8 billion across nearly 600 projects versus more than $8.3 billion in Q2 2018, according to crypto rating firm ICORating. The firm attributed the results to the bear market but also “many fraudulent projects.” Those ICOs that appear to have succeeded could be undone by “conflicts between founders, failure to deliver the promised technology or a failure of solutions offered to be widely adopted,” the ICORating report suggests. Meanwhile, a 2017 SEC report states that most ICO tokens are securities, which has fueled a rise in security token offerings, a budding trend that the ICORating report suggests will persist.

Sentencing for Zaslavskiy will take place in April 2019.

Featured image from Shutterstock.

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