US Govt seeks 30-37 months’ imprisonment sentence for ICO fraudster Maksim Zaslavskiy

Maria Nikolova

US Government argues that general deterrence is important to send the message not just to Zaslavskiy, but to others like him.

Shortly after Maksim Zaslavskiy, who has pleaded guilty to conspiracy to commit securities fraud in connection with two Initial Coin Offerings (ICOs), asked for a sentence of probation, the US Government has filed its sentencing submission in this case.

In the document, filed earlier today with the New York Eastern District Court, the Government specifies that it seeks a sentence of 30-37 months of imprisonment for Zaslavskiy.

The charges against the defendant stem from a conspiracy to defraud investors and potential investors in connection with two initial coin offerings (ICOs) – Recoin and Diamond.

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.”

In the document submitted today, the Government argues that a Guidelines sentence of 30-37 months of imprisonment is appropriate because the two fraudulent schemes the defendant carried out were significant in nature and scope. The defendant made blatant misrepresentations to thousands of potential investors and to at least 1,000 individuals who actually invested in Recoin. He promised outsized returns that he never intended to deliver.

Moreover, the Government notes, even after the Securities and Exchange Commission (SEC) interjected in the defendant’s fraud, he tried to transition into a new fraudulent venture – Diamond. While the name of the ICO changed, the misrepresentations as to Diamond were nearly identical to those regarding Recoin.

Zaslavskiy argues that while he “exaggerated and made false statements” about Recoin and Diamond, it was all in an effort to get investors to invest in his venture, not to steal or cheat investors.

According to the Government, Zaslavskiy’s attempted justification for his blatant fraud simply misses the point. First, but for the defendant’s false statements, nearly 1,000 individuals would not have invested in the two ICOs he falsely advertised. Second, the defendant’s claim that he returned money to certain investors after he was contacted by the SEC and made aware of the investigation (less than a month after the presale for Recoin tokens began) indicates nothing more than he was caught and felt he had no other choice.

Furthermore, the Government says, Zaslavskiy did not actually return money to many of his investors. The payment processors that received the money caught the fraud and on their own initiative began to return investor funds.

Notably, companies and individuals are increasingly using ICOs as a way to participate in investment opportunities because the digital assets underlying the ICOs present a new and sometimes efficient means for carrying out financial transactions and because the investments often promise lucrative returns. However, ICOs also bring increased risk of fraud and manipulation because the markets for these assets are less regulated than traditional capital markets.

The Government argues that general deterrence is especially important in this case to send the message not just to this defendant, but to others like him, who seek to use new technology to engage in old fashioned fraud in the hopes that such fraud will be more difficult to detect.

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