SEC Charges ‘Real Estate and Diamond’ ICO With Fraud

On September 29th 2017, the U.S. Securities Exchange Commission (SEC) charged an Initial Coin Offering (ICO) operator with fraud. The ICO project in question, REcoin, claimed their token was the “first ever cryptocurrency backed by real estate,” and that they also invested the company’s assets in diamond reserves.

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SEC Charges the ICO REcoin for Promising Sizeable Returns from Fraudulent Operations

Over the past two months, U.S. regulators have been “concerned” for retail investors taking their chances with blockchain-based ICOs. Just recently the SEC chairman, Jay Clayton, explained he was uneasy with the latest ICO hype and referred to the projects as  “pump-and-dump schemes.” Clayton stated these remarks the day after the SEC created a new “Cyber Unit” taskforce to combat ICO fraud. Now the regulatory agency has exposed an Ethereum-based ICO that was purportedly backed by real estate and diamonds.

The SEC has charged Maksim Zaslavskiy and his companies for selling “unregistered securities” in two ICOs that used fake properties and gems to lure investors.

“Investors in REcoin Group Foundation and DRC World (also known as Diamond Reserve Club) have been told they can expect sizable returns from the companies’ operations when neither has any real operations,” explains the SEC announcement.

Zaslavskiy allegedly touted REcoin as “The First Ever Cryptocurrency Backed by Real Estate.”  Alleged misstatements to REcoin investors included that 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.

REcoin ICO claimed to be the “first ever cryptocurrency backed by real estate” and diamonds but had no real operations.

SEC: Investors Should be Wary of Companies Touting ICOs

Recoin’s “Diamond Reserve Club”

According to regulators, Zaslavskiy and REcoin claimed to sell $2-4 million during the startup’s token sales but actually only raised $300,000. Further, Zaslavskiy told his clients that his companies invested in diamond reserves and investors could purchase exclusive “memberships” deals for diamond purchases. The SEC says that Zaslavskiy never purchased large reserves of diamonds or has any associations with gem practitioners.

“The SEC obtained an emergency court order to freeze the assets of Zaslavskiy and his companies,” details Andrew M. Calamari, Director of the SEC’s New York division.

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.

SEC Needs a Barrister Who Understands Digital Securities

The legal complaint was filed in Brooklyn, N.Y., and charges Zaslavskiy and his companies with fraud and violating U.S. federal securities laws. The SEC department is also looking for a barrister who understands “digital securities” and is encouraging REcoin victims to contact the agency. 

“The complaint seeks permanent injunctions and disgorgement plus interest and penalties,” the announcement concludes.

What do you think of the SEC busting the Recoin ICO for fraudulent claims of real estate and diamond investments? Let us know in the comments below.

Images via Shutterstock, SEC, and Pixabay. 

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