By Michael W. Ross and Andrew J. Lichtman
September saw a flurry of activity that will help further define the cryptocurrency regulatory landscape. The Financial Industry Regulatory Authority (“FINRA”) brought its first-ever crypto-fraud case and a court ruling by the U.S. District Court for the Eastern District of New York gave backing to the view that digital assets will be viewed as securities. And, in two enforcements actions, the U.S. Securities and Exchange Commission (“SEC”) branched out beyond actions against fraudulent crypto-schemes and went after crypto companies for failing to register with the SEC. The latter two cases signal that the SEC is committed to enforcing applicable securities law requirements beyond those accused of fraud, and therefore SEC enforcement activity remains an area for legitimate businesses to watch.
A Federal Court Rules On Whether Digital Assets Are Securities
Last October, the U.S. Attorney’s Office in Brooklyn brought charges against Maksim Zaslavskiy alleging that Zaslavskiy made false representations in connection with two cryptocurrencies and their related initial coin offerings (“ICOs”) in violation of U.S. securities law. According to the indictment, Zaslavskiy induced investors to purchase tokens in an ICO for “REcoin” by falsely claiming that REcoin was backed by real estate investments. Similarly, the government alleged, Zaslavskiy falsely claimed that a second cryptocurrency, “Diamond,” was backed by actual diamonds when it was not.