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ICO scammer to serve 18 months behind bars

Elliot Hill

A Brooklyn man has been sentenced to 18 months in jail after pleading guilty to defrauding investors out of $300,000 through fake ICO sales.

Maksim Zaslavskiy has now become the first person in the US to be officially convicted of running a fraudulent ICO token sale.

The 39-year-old businessman was the mastermind behind two separate ICOs which were sold as asset-backed tokens collateralised by real estate and diamonds. The collateral, which essentially made the tokens into securities, never existed.

The ICOs, called ‘REcoin’ and ‘Diamond Reserve Club’, were offered to investors both inside and outside the US. They were launched at the height of the ICO mania in 2017.

Law360 originally reported on May 6 that Zaslavskiy was standing trial for securities fraud, where he entered a guilty plea to conspiring to violate securities regulation under US law 10b-5.

Zaslavskiy previously lost a bid to dismiss the case on the basis that his tokens were not securities, and therefore he hadn’t broken any securities fraud laws.

However, US District Judge Raymond Dearie wrote:

“The label Zaslavskiy chooses to attach to the alleged scheme does not control our analysis. Stripped of the 21st-century jargon, including the defendant’s own characterisation of the offered investment opportunities, the challenged indictment charges a straightforward scam.”

The ruling is one of the first instances where tokens have been deemed to pass the US Supreme Court’s Howey Test for determining a security.

Coin Rivet reported in September 2018 that this ruling was a new precedent in token securities laws.

Losses over $300,000

Zaslavskiy’s scheme was directly responsible for the loss of over $300,000 from up to 1,000 investors, who bought the tokens believing they were backed by physical assets Zaslavskiy held in escrow.

However, Zaslavskiy argued that he had already taken measures to repay his victims a total of $308,963 – which if factored in by the judge would have reduced his sentence to just 10 months.

Despite this, federal prosecutors pushed for a sentence of at least two-and-a-half years for Zaslavskiy’s role in the scams.

Richard Donoghue, prosecuting, said:

“Zaslavskiy committed an old-fashioned fraud camouflaged as cutting-edge technology. This office will continue to investigate and prosecute those who defraud investors, whether involving traditional securities or virtual currency.”

Although Zaslavskiy’s 18-month prison sentence is considerably lower than similar financial fraud cases, it sets a powerful precedent for would-be ICO fraudsters.

For more information on how to avoid falling victim to an ICO scam, read our guide to help you spot the early warning signs of a fake ICO.

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