In moving closer to the governmental goal of cryptocurrency regulation, a United States federal judge has passed a ruling suggesting that U.S. securities laws could cover Initial Coin Offerings (ICOs).
A Push Towards Regulation
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.”
The ruling was made in Brooklyn, New York. Now, governments can make a case for ICOs to be regulated under federal criminal law.
According to coinschedule.com, ICOs have led to nearly $18.7 billion in revenue this year. That said, the cryptocurrency market is filled with fundraising scams and frauds looking to prey on investors. Because of this deception, Securities and Exchange Commission (SEC) Chairman Jay Clayton believes that the entire process should be regulated, especially as blockchain and digital assets become more mainstream.
In an interview with Bloomberg, Wayne State University Law Professor, Peter Henning, stated that “this ruling affirms the SEC’s position that it has authority over ICOs and that market manipulation and anti-fraud provisions in the law apply.”
The case is now left to the jury, but they’re likely to come to the same conclusion as Dearie. It’s important to note that the ruling was based purely on Zaslavskiy’s ICOs, but changing the law would, of course, affect all future ICOs.
Dearie defended his decision:
“Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract — a security — into a currency.”
ICOs and Their Role in the Industry
Similar to initial product offerings, initial coin offerings are one of the most popular ways to launch a cryptocurrency project.
In the digital asset market, funds are pre-allocated and raised before the development of the product. The money raised will go towards the initial mining process, marketing, development, the team, and into the eventual token ecosystem. The process is not unlike investing in a Kickstarter project.
With an unregulated, multi-billion dollar market such as cryptocurrency, groups like the SEC often speak on the importance of rules and regulation, especially regarding the wild nature of ICOs.
Clayton believes that all ICOs should register with the SEC and place their coins on popular exchanges.
As of this writing, Zaslavskiy still denies doing anything wrong.
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