What’s Going On?
A US federal judge has ruled that national securities laws may cover an initial coin offering (ICO).
Why Does It Matter?
The ruling hands the government a legal victory in its effort to regulate billions of dollars in cybercurrency offerings, reported Bloomberg.
The shock announcement came in the case of Maksim Zaslavskiy, who is accused of fraud in relation to two ICOs in which investors were told tokens were backed by real estate and diamonds, reported the Financial Times. Zaslavskiy has denied the charges and attempted to have the case thrown out on the basis that the tokens were not securities.
Is This The End of The ICO?
No, but it will certainly give many pause for thought. “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,” said Peter Henning, a professor at Wayne State University’s law school in Detroit, reported Treasury & Risk. “The defence here was arguing that it’s not a security, but the judge has rejected that claim, saying that this case can fit under the securities laws, and that’s an important first step.”
Judge Raymond Dearie denied the motion to dismiss the case on Tuesday, when he said tokens in an ICO could be considered securities, reported the FT. “The question is whether the ‘elements of a profit-seeking business venture’ are sufficiently alleged in the indictment, such that, if proven at trial, a reasonable jury could conclude that ‘investors provide[d] the capital and share[d] in the earnings and profits; [and] the promoters manage[d], control[ed] and operate[d] the enterprise.’ For present purposes, we conclude that they are,” wrote Judge Dearie.