SEC files charges against creator of two ICOs
Mon 2 Oct 2017
The U.S. Securities and Exchange Commission (SEC) has filed charges against the creator of two initial coin offerings (ICOs), on the basis that they were fraudulent.
‘REcoin’ and ‘DRC’ (‘Diamond Reserve Club’), both run by Maksim Zaslavskiy, were supposedly backed by investment in real estate and diamonds respectively and were marketed as having all the makings of legitimate companies, such as staff and lawyers.
However, the SEC found that neither of the companies had ‘any real operations.’ The Commission argued that Zaslavskiy misled potential investors and that the coins they were offering did not actually exist.
ICOs are an increasingly popular but controversial way for companies, often startups, to raise funding. They use blockchain technology, made popular by Bitcoin, to sell coins linked to the value of the company, which may then appreciate in value.
Since the first ICO in 2013, they have been used by an increasing number of companies, sometimes rapidly raising large sums, such as in the case of web browser Brave, which raised $35 million (approx. £26 million) in 30 seconds.
However, there are often questions over the legitimacy and legality of ICOs, with many token offerings being linked to questionable businesses, scams, and Ponzi schemes. The REcoin and DRC case follows the SEC’s announcement in July that it would treat some ICOs in the same way as traditional securities.
That announcement meant that stricter regulation could be enforced, and fraudulent activity could be cracked down on by the Commission. It announced that each ICO would be taken on a case by case basis, rather than treating all in the same manner.
The news comes after South Korea’s recent decision to ban ICOs, following in the footsteps of Chinese regulators. The Chinese labeled ICOs ‘illegal fundraising’ and as well as banning their use, also asked individuals and organisations to refund any money they had made through ICOs.