U.S. securities law can cover cryptocurrencies, judge rules

Express News

By Reuters News|Updated: September 11, 2018

NEW YORK (Reuters) – U.S. securities law can be utilized to prosecute fraud cases over cryptocurrency offerings, a New York federal judge ruled on Tuesday in what appeared to be the first court choice to resolve the problem.
The ruling from U.S. District Judge Raymond Dearie in Brooklyn allows federal district attorneys to pursue their case versus Maksim Zaslavskiy. The Brooklyn resident was apprehended in November on charges that he defrauded investors in 2 cryptocurrencies, breaching the federal Securities Exchange Act.

Attorneys for Zaslavskiy did not immediately react to ask for comment. A spokesman for the office of U.S. Lawyer Richard Donoghue, which is prosecuting the case, decreased to comment.

Cryptocurrencies, like the popular Bitcoin, are digital possessions that may be treated as currency by their users, though they are not legal tender. So-called “initial coin offerings” getting financial investments in brand-new cryptocurrencies have actually raised billions of dollars in the last few years.

District attorneys have stated that Zaslavskiy in 2015 raised at least $300,000 from investors in a cryptocurrency called REcoin, which he declared was backed by real estate, and another cryptocurrency called Diamond, which he stated was backed by diamonds.

In fact, prosecutors said, no real estate or diamonds backed the virtual currencies.

In March, Zaslavskiy’s legal representatives asked Dearie to dismiss the charges, arguing that REcoin and Diamond were currencies, not securities, and therefore not covered by the Securities Exchange Act.

Dearie turned down that argument, writing on Tuesday that the federal securities law must be translated “flexibly.” The judge kept in mind that the U.S. Securities and Exchange Commission, which brings civil securities fraud actions, has stated that it thinks about some cryptocurrencies to be securities.

Dearie’s viewpoint and other filings in the event did not mention any previous court decisions addressing whether the federal securities law can be used in a fraud prosecution involving cryptocurrencies.

Guideline of virtual currencies is still in its early stages, and Congress has actually not passed any laws addressing it directly.

In March, another federal judge in Brooklyn ruled that cryptocurrencies could be regulated as commodities by the U.S. Commodity Futures Trading Commission.