Litigation Release No. 24081 / March 26, 2018
Securities and Exchange Commission v. REcoin Group Foundation, et al., Civil Action No. 17-cv-05725 (E.D.N.Y., filed Sep. 29, 2017)
On September 29, 2017, the Securities and Exchange Commission charged a New York businessman and his two companies with defrauding investors in a pair of so-called "Initial Coin Offerings" ("ICOs") purportedly backed by investments in real estate and diamonds.
The SEC alleges that Maksim Zaslavskiy and his companies have been selling unregistered securities, and that the digital tokens or coins being peddled don't really exist. According to the SEC's complaint, investors in REcoin Group Foundation and Diamond (also known as Diamond Reserve Club) have been told they can expect sizeable returns from the companies' operations when neither has any real operations.
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. Zaslavskiy and REcoin allegedly misrepresented they had raised between $2 million and $4 million from investors when the actual amount is approximately $300,000.
According to the SEC's complaint, Zaslavskiy carried his scheme over to Diamond, which purportedly invests in diamonds and obtains discounts with product retailers for individuals who purchase "memberships" in the company. Despite their representations to investors, the SEC alleges that Zaslavskiy and Diamond have not purchased any diamonds nor even identified any storage location. Yet they allegedly continue to solicit investors and raise funds as though they have.
The SEC obtained an emergency court order to freeze the assets of Zaslavskiy and his companies.
The SEC's complaint, filed in federal district court in Brooklyn, N.Y., charges Zaslavskiy, REcoin, and Diamond with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933 ("Securities Act"). The complaint also alleges that Zaslavskiy, REcoin and Diamond violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act, and that Zaslavskiy aided and abetted REcoin's and Diamond's violations. 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 offering digital securities.