Brooklyn programmer gets 18 months jail term over fraudulent ICOs

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A Brooklyn cryptocurrency entrepreneur was sentenced to a year and a half in prison for issuing two fraudulent ICOs. The man, Maksim Zaslavskiy pleaded guilty to the charges of securities fraud back in November 2018, and has been pushing for a lighter sentence.

Zaslavskiy’s was the first criminal case to consider the applicability of federal securities laws to digital securities, Law360 reported.

The Brooklyn entrepreneur issued two ICOs: RECoin and Diamond Reserve Club. He allegedly misled his investors into believing that the tokens were backed by real estate and diamonds respectively, and promised them that the tokens would appreciate in value rapidly.

However, none of this was true. U.S. prosecutors first brought fraud and conspiracy charges against Zaslavskiy in 2017. They charged him with duping over 1,000 investors into purchasing non-existent digital tokens.

Zaslavskiy fought back, asking the court to dismiss the case, claiming that the tokens he offered weren’t securities and were therefore exempt from securities laws. He lost his bid, with the presiding judge ruling that a jury would have to determine the issue. Zaslavskiy then asked the court in May this year for probation, against the two and a half years that the prosecutors had pushed for.

When all his attempts failed, he took a plea deal. As part of the deal, he agreed not to appeal a sentence lower than three years and five months. The sentence was based on the federal sentencing guidelines, under the calculation that assumed he had caused more than $250,000 in losses to his investors, according to the report.

Additionally, Zaslavskiy will have to make restitution to all his victims, with the judge stating that the court shall determine the amount at a later date.

Richard Donoghue, the U.S. Attorney for the Eastern District of New York said in a statement, “Zaslavskiy committed an old-fashioned fraud camouflaged as cutting-edge technology. This office will continue to investigate and prosecute those who defraud investors, whether involving traditional securities or virtual currency.”