Judge Dearie Rules Security Regulations “may” Apply to ICOs

A recent decision by a United States based Judge stands to have lasting effect on the world of cryptocurrencies.  Judge Dearie of the District Court of Eastern New York has ruled that current security regulations may apply to an on-going case dealing with ICO fraud.

A Scam named ‘REcoin’

Maksim Zaslavskiy is the brainchild of multiple ICO scams that swindled investors out of over $300,000.  Most notably REcoin is being tried in the United States for fraud.

Zaslavskiy promised investors a fantastic opportunity via a digital currency backed by physical assets.  These assets included diamonds, and estate.  In time it was found that these assets did not exist, and his company was a complete fraud.

In an attempt to avoid being prosecuted as a fraudulent security, the defense argued that current regulations were simply too vague.  Due to this they should not be subjected to them, and rather they should be viewed as currencies.  Speaking with Bloomberg, Gregory Xethalis stated, “It demonstrates that you can’t rely on an argument that the law is insufficiently clear and put your head in the sand…it’s saying that operating in a grey area will not bar the court from hearing cases that allege securities laws violations in ICOs.”  Xethalis is a lawyer focusing on cryptocurrencies at Chapman & Cutler LLP.

Empowering the SEC

By ruling as he did, Judge Dearie has essentially given more power to the SEC.  Up until now, despite the SEC saying that security regulations apply to ICOs, it has not been enforced in a United States court of law.  No longer can this be said.

Armed with this knowledge, the SEC is sure to become even more brazen in their mission to hold all ICOs accountable.  In the past, SEC Chairman, Jay Clayton, has stated, “I want to go back to separating ICOs and cryptocurrencies. ICOs that are securities offerings, we should regulate them like we regulate securities offerings. End of story.”  While their stance is that Bitcoin is a currency, their view of ICOs is clear.

With over $18 billion raised in 2017, and even more in 2018, through hundreds of ICOs, they have their work cut out for them.

Setting a Precedent

In one fell swoop, Judge Dearie has not only set a precedent for future cases, but he has empowered the SEC.  At the end of the day, despite the negative implications this ruling may hold for past ICOs, it has brought some much needed clarity to the industry.  This clarity is needed for the world of cryptocurrencies/blockchain to evolve.

With no real clarity being afforded over the course of 2018, the industry has been mired in a period of stagnation as investors wait to see how everything plays out.  Now that a precedent has been set, future ICOs can structure themselves accordingly to comply with rules set in place.

STOs are the future.  That much is clear.