The Securities and Exchange Commission today charged a businessman and two companies with defrauding investors in a pair of initial coin offerings (ICOs), according to an announcement late Friday. The digital coins were purportedly backed by investments in real estate and diamonds.
The SEC complaint alleges that Maksim Zaslavskiy and his companies have been selling unregistered securities, and the digital tokens or coins being peddled don’t really exist.
Investors in Zaslavskiy’s companies, REcoin Group Foundation and DRC World (also known as Diamond Reserve Club), had been told they could expect sizable returns from the companies’ operations.
Zaslavskiy allegedly touted REcoin as “The First Ever Cryptocurrency Backed by Real Estate.” REcoin was launched in July 2017. Investors were told the company had a “team of lawyers, professionals, brokers, and accountants” that would invest REcoin’s ICO proceeds into real estate when in fact none had been hired or even consulted.
A whitepaper on the REcoin website further stated that “[t]he value of the currency can grow at least two ways: through the steady increasing value of the real estate investments that REcoin is used to purchase, and a higher REcoin value when the demand for REcoin rises.”
Zaslavskiy and REcoin allegedly misrepresented that they had raised between $2 million and $4 million from investors; the actual amount was about $300,000. The ICO was scheduled to run until October 9.
The scheme was repeated with Diamond Reserve Club, which purportedly invested in diamonds and obtained discounts with product retailers for individuals who purchased “memberships” in the company. Investors in the Diamond ICO were told to expect returns of 10% to 15% from Diamond’s operations.
The SEC alleges that Zaslavskiy and Diamond had not purchased any diamonds nor engaged in any business operations.
The SEC obtained an emergency court order to freeze the assets of Zaslavskiy and his companies.
“Investors should be wary of companies touting ICOs as a way to generate outsized returns,” said Andrew M. Calamari, director of the SEC’s New York regional office. “As alleged in our complaint, Zaslavskiy lured investors with false promises of sizable returns from novel technology.”
The SEC’s complaint, filed in federal district court in Brooklyn, N.Y., charges Zaslavskiy, REcoin, and Diamond with violations of the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctions and disgorgement plus interest and penalties. For Zaslavskiy, the SEC also seeks an officer-and-director bar and a bar from participating in any offering of digital securities.