Maksim Zaslavskiy faces prison term over defrauding investors in two ICOs

As US authorities step up their efforts to put an end to cryptocurrency related fraud, there has been some development in the proceedings against Maksim Zaslavskiy.

On Thursday, November 15, 2018, Zaslavskiy pleaded guilty before United States Magistrate Judge Ramon E. Reyes, Jr. in federal court in Brooklyn to conspiracy to commit securities fraud in connection with two Initial Coin Offerings (ICOs) – REcoin Group Foundation, LLC (REcoin) and DRC World, Inc., also known as Diamond Reserve Club (Diamond).

FBI Assistant Director-in-Charge Sweeney stated that “Investing often involves risk, but nobody should be at risk of being preyed upon by unscrupulous individuals. 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.”

As he admitted at his guilty plea, Zaslavskiy fraudulently marketed RECoin as “The First Ever Cryptocurrency Backed by Real Estate,” and subsequently touted Diamond as an “exclusive and tokenized membership pool” hedged by diamonds. In fact, Zaslavskiy bought neither real estate nor diamonds, and the certificates he sent to investors were not backed by the promised blockchain technology.

Moreover, Zaslavskiy falsely advertised that REcoin had a “team of lawyers, professionals, brokers and accountants” who would invest the proceeds from the REcoin ICO into real estate, that 2.8 million REcoin tokens had been sold (only about 1,000 investors paid for REcoin tokens) and that the investment in Diamond tokens was “hedged by physical diamonds.”

Earlier this year, United States 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. The court upheld the validity of the laws, noting that “there can be no serious debate” that the indictment was sufficient. The court further held that a jury was entitled to decide if REcoin and Diamond tokens were securities. This is in line with rulings in similar cases.

“Stripped of the 21st-century jargon,” the court said, referring to Zaslavskiy’s ICO marketing solicitations, the indictment described a “scam, replete with common characteristics of many financial frauds.” The court added, “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.

Zaslavskiy faces up to five years’ imprisonment. In addition to the criminal charges filed by this Office, the Securities and Exchange has filed civil charges against Zaslavskiy. The civil case was stayed pending resolution of the criminal matter.