Two companies and their founder have been charged with violating anti-fraud and registration provisions of federal securities laws by the Securities and Exchange Commission after allegedly launching initial coin offerings (ICOs) backed by assets which did not exist.
The announcement from the SEC late Friday is the latest indication that the agency is paying more attention to the Wild West of ICOs. Earlier this week the regulator said it had created two new units focused on policing cybercrimes — including violations related to distributed ledger tech and ICOs — and protecting mom-and-pop investors.
Businessman Maksim Zaslavskiy sold digital tokens as part of the Diamond Reserve Club World and the REcoin Group Foundation, the SEC said. REcoin’s ICO was purportedly meant to raise funds for investing in real estate, the agency said.
Zaslavskiy told investors that REcoin had a “team of lawyers, professionals, brokers, and accountants,” according to the SEC’s press release, but had not hired any personnel to invest the raised funds.
He also claimed that the company had raised “between $2 million and $4 million” but in fact had only raised $300,000, the regulator said.
DRC World was formed after the government «interfered» with REcoin, according to a statement attributed to Zaslavskiy and posted on a bitcoin forum on Sept. 11. According to the SEC, DRC World advertised that it would invest in diamonds, and would provide its investors with discounts for products, but the company did not invest in diamonds or have any business operations.
Both companies and Zaslavskiy’s assets were frozen through an emergency court order by a federal district court in Brooklyn, N.Y.
The SEC is looking for the companies to pay penalties in addition to returning all funds raised. In addition, the SEC is looking to prevent Zaslavskiy from participating in any digital securities offerings in the future.
The investigation is ongoing.
SEC image by Shutterstock.