In a criminal case involving two allegedly fraudulent initial coin offerings (ICOs), a jury trial is set for January 2019. However, the judge presiding over the case has not yet ruled on the defense’s motion to dismiss, which argues unconstitutional vagueness and a lack of jurisdiction. The question: do securities laws clearly apply to the defendant’s ICOs?
On May 8, 2018, Judge Raymond Dearie held a proceeding in the criminal case of the United States v. Maksim Zaslavskiy. According to Tuesday's minutes, the defense argued that the case should be dismissed due unconstitutional vagueness[1] and a lack of jurisdiction. Essentially, lawyers for Zaslavskiy contended that securities laws do not apply to the initial coin offerings (ICOs) that their client undertook – and even if securities laws do apply, they are too unclear to be valid in this instance.
The judge's determination will carry great importance to the cryptocurrency community, as entrepreneurs and regulatory stakeholders wait to see whether sales of some blockchain-based tokens are subject to federal securities laws. For what it's worth, at a February 2018 Senate hearing[2], Securities and Exchange Commission (SEC) chairman Jay Clayton said, "I believe every ICO I've seen is a security."
If Judge Dearie denies the motion to dismiss, the ruling could indicate that many ICO executives must abide by the registration and filing requirements that are necessary in the stock market. That said, such a ruling in the case – which deals with the sale of tokens that were supposedly backed by physical assets – might not offer clear insight into ICOs for intangible assets or possible new markets (consider how Airbnb and Uber have changed market structures for the travel industry). The potential for innovative
