The SEC has made good on its warning to ICOs regarding tokenization schemes as unregistered securities. The charges were leveled at REcoin and DRC (Diamond Reserve Club), both ICOs founded by Maksim Zaslavskiy.
Real estate coin scam
REcoin was initially touted as a coin offered with backing in real estate assets purchased with proceeds from the ICO. Zaslavskiy told investors that the company had a ‘team of lawyers, professionals, brokers and accountants’ that would complete the purchases, when in fact, no one had been hired.
He also indicated to investors that he had raised between $2 and $4 mln, when the actual figure was closer to $300,000.
Zaslavskiy also sold coins within the DRC ICO scheme, telling investors that the company had relationships with diamond wholesalers who would sell to him at a discount. Investors were promised sizable gains from the diamond arbitrage process.
However, as with REcoin, the DRC scheme was simply a shell for taking funds from unsuspecting investors. Zaslavskiy had actually never done any business dealings with diamond sellers, nor was there any company business being transacted.
Proving the warning true
The SEC reiterated their warnings, both to investors and potential ICOs. To the public, the Commission made it clear that investors should beware, saying:
"Investors should be wary of companies touting ICOs as a way to generate outsized returns. As alleged in our complaint, Zaslavskiy lured investors with false promises of sizeable returns from novel technology."
At the same time, the charges serve as a warning to other ICOs who seek to lure in investors with promises of returns. The SEC’s recent actions should serve as a strong warning that ICOs will be researched and targeted for prosecution unless they are careful about regulatory honesty.
The SEC has obtained a court order to freeze Zaslavskiy’s assets and is seeking repayment to investors as well as penalties, interest, and an order barring him from an officer or director position in the future.