U.S. securities laws apply to cryptocurrency frauds, says New York federal judge
In what appears to be a landmark judgement, a New York federal judge has ruled that U.S. securities laws are applicable for prosecuting cryptocurrency fraud allegations, according to reports by Reuters. This decision strengthens the efforts of prosecutors who are attempting to crack down on alleged fraud in the cryptocurrency space.
According to the report, U.S. securities law can be used to prosecute fraud cases over cryptocurrency offerings, a New York federal judge ruled on Tuesday in what appeared to be the first court decision to address the issue.
This judgement comes in the wake of the ongoing trial of Brooklyn resident Maksim Zaslavskiy. U.S. District Judge Raymond Dearie ruled that the case against Zaslavskiy, which alleges that he defrauded investors in two cryptocurrencies reportedly backed by real estate and diamonds, can continue.
Dearie ruled on September 11, that federal securities laws should be interpreted “flexibly,” dismissing a motion from Zaslavskiy’s lawyers to drop the charges on the grounds that the cryptocurrencies didn’t fall under the Securities Exchange Act.
‘ICOs projects constitute securities’
Judge Dearie ruled for the first time that ICO projects constitute securities. Securities are investment products that promise returns and are regulated under US financial laws. Ruling ICOs are securities would potential opening them up to a string of future cases.
“Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called,” Dearie said, according to Bloomberg.
Prosecutors have said that Zaslavskiy last year raised at least $300,000 from investors in a cryptocurrency called REcoin, which he claimed was backed by real estate, and another cryptocurrency called Diamond, which he said was backed by diamonds.
Regulation of the crypto market is still in its infancy and the lack of clarity in dealing with these types of cases is a major hindrance for prosecutors in pressing charges against the alleged offenders.
In another development on Tuesday, the Financial Industry Regulatory Authority (FINRA) has charged a Massachusetts resident, Timothy Tilton Ayre with securities fraud and unlawful distribution of an unregistered sale of acryptocurrency called HempCoin. This is the first time that the self regulatory body has taken a stern disciplinary action against an entity related to crypto fraud.
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