Brooklyn, New York con artist Maksim Zaslavskiy has pled guilty to conspiracy to commit securities fraud after collecting funds for two fake initial coin offerings (ICOs), REcoin and Diamond Reserve Club. Some 1,000 investors were tricked and a civil case for the monetary losses will be adjudicated once sentencing for the criminal case is complete. He faces five years in prison.
REcoin, which was incorporated under REcoin Group Foundation LLC, touted itself as the first ever cryptocurrency backed by real estate. Further, Zaslavskiy said there was a team of lawyers, professionals, brokers, and accountants on the REcoin team that would reinvest proceeds from the ICO into real estate. While real estate tokens are a serious concept in the crypto space,REcoin was not backed by anything of the sort.
Zaslavskiy did not even take the time to create a cryptocurrency for REcoin and investors received paper certificates for their investment. United States Attorney for the Eastern District of New York Richard P Donoghue said, “The calculated lies of Zaslavskiy and others led unsuspecting investors who thought they were purchasing cryptocurrency securities to buy worthless certificates.”
Diamond Reserve Club, incorporated under DRC World Inc., claimed to be a cryptocurrency backed by physical diamonds. Once again there was no actual cryptocurrency, investors received paper certificates, and there were no physical diamonds backing the certificates.
Ultimately, Zaslavskiy’s ICOs fall under the category of securities fraud. He tried to get the charges dismissed by claiming that the certificates were a currency but the court asserted that just because something is labeled as a cryptocurrency does not change it from a security into a currency.
Even if REcoin and Diamond Reserve Club were legitimate, it would have been illegal to issue crypto securities as Zaslavskiy did according to Securities and Exchange Commission (SEC) laws. The only legal way to do that is by getting official approval from the SEC, which is a difficult process that requires the utmost compliance. Without approval, the issuer of the securities can face monetary penalties exceeding the amount of investment and possibly, criminal charges.
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