Security or Currency? Jury to Decide Next Year in ICO Fraud Case

A jury will decide whether tokens issued through two allegedly fraudulent initial coin offerings count as securities, a U.S. district court judge said Tuesday.

Businessman Maksim Zaslavskiy is accused of violating anti-fraud and registration provisions of federal securities laws after launching two token sales that officials say defrauded investors.

In response, the DOJ and SEC claimed that Zaslavskiy knew his actions were unlawful, if for no other reason than because the SEC contacted him prior to the DRCW token sale.

The agencies claimed that both the REcoin and DRCW tokens passed the Howey Test, meaning they fit the legal definition of securities offerings.

Zaslavskiy's trial is potentially precedent-setting, considering that it hinges on a key question: whether his issuance of tokens across two ICOs constituted illegal securities offerings.

Judge Raymond Dearie didn't rule directly on the question of whether the tokens involved are securities, kicking that question to the trial, which is tentatively set to begin as early as January 2019.

Jury members will decide "Whether this is a currency or a security," Dearie remarked.

In remarks during the hearing, Zaslavskiy's legal team accused the U.S. government of sending mixed signals on how ICO tokens are to be classified, with one attorney stating that "The government has ruled that virtual currencies are commodities and now the government is saying they're securities ... the SEC wants to regulate something."

For its part, the government put forward the idea that the two tokens in question can't be considered currencies as they never actually existed.

While the SEC has not issued formal guidance on ICOs, chairman Jay Clayton has repeatedly stated in public appearances his belief that every ICO token he's seen is a security.