In September of last year, the SEC filed charges against Maksim Zaslavskiy for attempting to defraud investors in two separate ICOs. Zaslavskiy stood accused of advertising his REcoin as being the first real-estate backed digital currency though no real estate had been purchased to back up his cryptocurrency. In a similar scheme, he claimed to have a digital currency backed by diamonds when neither he nor his associates had purchased any diamonds to back up said token.
During a hearing on Zaslavskiy's motion to dismiss the indictment, which was held in May of this year, Zaslavskiy's lawyer argued that the case should be dismissed on the grounds that securities laws do not apply to ICOs – and even if they did the laws are too unclear and would have no bearing on Zaslavskiy's case.
In response to the defendant's argument, the judge brought up the dual nature of digital currency and inquired if it could be classified as both a commodity and security depending on the nature of the individual case. The judge also said he would have to wait and review how the charges brought against Zaslavskiy relate to the "Howey Test," which is used to determine if an investment product qualifies as a security.
On November 15, Zaslavskiy pled guilty to conspiracy to commit securities fraud.
While Zaslavskiy awaits sentencing, the SEC issued a press release announcing it had settled a case against two different cryptocurrency companies: CarrierEQ Inc. (Airfox), a Boston-based blockchain startup developing mobile applications for earning digital tokens that can be traded for data, and Paragon Coin Inc., which is working on bringing blockchain solutions to the legal cannabis industry.
The SEC claims that both companies failed to register their ICOs and neither one of them qualified for an exemption. The SEC stated, "These are the Commission's first cases imposing civil penalties solely for ICO securities offering registration violations." It felt justified in filing these charges after warning that ICOs could be considered securities offerings in its DAO Report of Investigation.
Both companies have consented to register their tokens as securities, file periodic reports with the SEC for at least one year, pay $250,000 in fines, and compensate investors. Neither company has denied or confirmed any wrongdoing.
Stephanie Avakian, co-director of the SEC's Enforcement Division, stated, "These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets."
Correction (11/19/2018): An earlier version of this article incorrectly stated that CarrierEQ Inc. and Paragon Coin Inc. were charged with defrauding investors.