ICOs are securities, says US judge
On September 11 this year, Eastern New York District Judge Raymond Dearie ruled that ICOs could be covered by US law on securities.
The ruling was part of the trial of Maksim Zaslavskiy, an entrepreneur facing SEC charges of scamming $400,000 from investors in two allegedly fraudulent ICOs for Coins based on diamonds and real estate.
Judge Dearie’s decision was clear enough:
‘Zaslavskiy’s contrary characterizations are plainly insufficient to bypass regulatory and criminal enforcement of the securities laws. Because the indictment is sufficient under the Constitution and the Federal Rules of Criminal Procedure, and because the law under which Zaslavskiy is charged is not unconstitutionally vague as applied, Zaslavskiy’s motion is denied. The case will proceed to trial.’
Zaslavskiy’s lawyers say the SEC has no authority because ICOs aren’t securities. The SEC says the opposite. Judge Dearie says the trial is going ahead.
But look at what Judge Dearie doesn’t say.
His judgement doesn’t say that all ICOs are securities. All it does is establish that the SEC has authority to prosecute Zaslavskiy for allegedly defrauding his investors, and state that calling something a token or a currency doesn’t automatically mean it isn’t a security.
So assuming for the moment that this judgement means that in future ICOs will be treated as securities, what does that mean for ICOs?
For one thing it says the US federal government, through the agency of the SEC – the Securities and Exchange Commission – can regulate cryptocurrencies through established law.
That means the SEC can go after ICOs and other crypto-related business activities where there’s clear fraud, where before it wasn’t clear whether it had the authority.
But it doesn’t mean the SEC is going to jump on ETH and BTC – or that it has the power to.
In the short term, this is almost certainly for the best as far as our industry goes. The SEC will be cutting down on fraudulent ICOs that rely on the magic word ‘blockchain’ and a plagiarized white paper to sell hopeful investors a bill of goods. That means real ICOs for real products will benefit by appearing more trustworthy.
It doesn’t establish the whole regulatory framework that will eventually be applied to the blockchain space, but it does mark the beginning of the process in one of blockchain’s most important markets.