A New York judge ruled on Tuesday that the US Securities and Exchange Commission can proceed with its legal case against the organizer of two initial coin offerings (ICOs), who currently stands accused of defrauding investors.
The decision, the first of its kind, grants the SEC the go-ahead to pursue criminal cases against ICO organizers under current US securities laws.
As reported by Bloomberg, this decision came from a case against “a man charged with promoting digital currencies backed by investments in real estate and diamonds that prosecutors said didn’t exist.”
A Brooklyn executive, Maksim Zaslavskiy, was accused of conspiracy and securities fraud after his participation in two suspicious ICOs. Zaslavskiy claimed that ICOs are not securities, but currencies.
The accused attempted to get the case dismissed, but U.S. District Judge Raymond Dearie had none of it, stating that “there was no blockchain, no real estate, there were no diamonds.” He continues, “it just wasn’t there. It’s a gossamer. There’s just nothing to it.”
“Though ‘investment contract’ has not been defined by Congress, the test for whether a “given financial instrument or transaction constitutes an ‘investment contract’ under the federal securities laws,” has long been settled,” Dearie said.
SEC Chairman Jay Clayton made it clear in June that the agency won’t bend the rules for cryptocurrency when it comes to defining what is or what isn’t a security. As of Tuesday, bitcoin and ether are the only cryptocurrencies the SEC has come out and said are exempt from Securities law.
Clayton has also said that all other initial coin offerings constitute securities, and “if it’s a security, we’re regulating it.”
Other well-known cryptocurrency founders have challenged the SEC’s current view on cryptocurrencies. Blockchain start-up Ripple has repeatedly said its XRP cryptocurrency is not a security. Others argue they should be viewed as “utility tokens” because they often promise access to a network, platform or service instead of just profits. But they’re often backed by an abstract idea, or nothing at all.