Earlier today, in federal court in Brooklyn, Maksim Zaslavskiy pleaded guilty before United States Magistrate Judge Ramon E. Reyes, Jr., to conspiracy to commit securities fraud in connection with two Initial Coin Offerings (ICOs) – REcoin Group Foundation, LLC (REcoin) and DRC World, Inc., also known as Diamond Reserve Club (Diamond).
Richard P. Donoghue, United States Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), announced the guilty plea.
“The calculated lies of Zaslavskiy and others led unsuspecting investors who thought they were purchasing cryptocurrency securities to buy worthless certificates,” stated United States Attorney Donoghue. “This Office will continue to aggressively prosecute those who exploit and defraud investors, whether through traditional means of securities fraud, or new forms – such as the use of purported cryptocurrency offerings and blockchain technology.” Mr. Donoghue extended his grateful appreciation to the Securities and Exchange Commission (SEC), New York Regional Office, for their assistance in this case.
“Criminals who manipulate and defraud the public for their own personal financial gain undermine the stability and security of our investment markets,” stated FBI Assistant Director-in-Charge Sweeney. “Investing often involves risk, but nobody should be at risk of being preyed upon by unscrupulous individuals. Zaslavskiy and his associates cloaked old-fashioned criminal schemes in the language of new currency in order to take advantage of investors, and as today’s conviction demonstrates, the FBI will continue to pursue any individual who seeks to profit by exploiting others.”
As he admitted at his guilty plea and as detailed in court documents, Zaslavskiy fraudulently marketed RECoin as “The First Ever Cryptocurrency Backed by Real Estate,” and subsequently touted Diamond as an “exclusive and tokenized membership pool” hedged by diamonds. In reality, Zaslavskiy bought neither real estate nor diamonds, and the certificates he sent to investors were not backed by the promised blockchain technology. In furtherance of his scheme, Zaslavskiy falsely advertised that REcoin had a “team of lawyers, professionals, brokers and accountants” who would invest the proceeds from the REcoin ICO into real estate, that 2.8 million REcoin tokens had been sold (only about 1,000 investors paid for REcoin tokens) and that the investment in Diamond tokens was “hedged by physical diamonds.”
Earlier this year, United States District Court Judge Raymond J. Dearie denied Zaslavskiy’s motion to dismiss the indictment. Zaslavskiy asserted that the securities laws did not apply to cryptocurrency offerings and were unconstitutionally vague. The court upheld the validity of the laws, noting that “there can be no serious debate” that the indictment was sufficient. The court further held that a jury was entitled to decide if REcoin and Diamond tokens were securities. “Stripped of the 21st-century jargon,” the court wrote, referring to Zaslavskiy’s ICO marketing solicitations, the indictment described a “scam, replete with common characteristics of many financial frauds.” The court added, “simply labeling an investment opportunity as ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract—a security—into a currency,” and does not, therefore, remove the offerings from the ambit of securities law.
When sentenced, Zaslavskiy faces up to five years’ imprisonment. In addition to the criminal charges filed by this Office, the SEC has filed civil charges against Zaslavskiy. The civil case was stayed pending resolution of the criminal matter.
The government’s case is being handled by the Office’s Business and Securities Fraud Section. Assistant United States Attorneys Julia Nestor and Andrey Spektor are in charge of the prosecution.
Brooklyn, New York
E.D.N.Y. Docket No. 17-CR-647 (S-1) (RJD)
United States Attorney’s Office