By Hellen Zaboulani
Monday November 18th, marked the first time a person was sentenced to jail time for running an Initial Coin Offering (ICO) scam. Maksim Zaslavskiy, a Brooklyn man was sentenced to 18 months in prison for promoting cryptocurrencies. The amount of restitution he will need to pay will be determined by the court at a later date.
As reported by Crain’s NY, two years ago, Zaslavskiy, a computer programmer from Sheepshead Bay with masters’ degrees in finance and law, launched an ICO for Recoin. He was looking for a way to raise money to purchase real estate. He issued a host of misleading and even false statements about the ICO, claiming that it was backed by property investments in the U.S. and overseas, and that it was led by a team of experienced real estate professionals. Later, he swapped his story, promoting a coin that he described as an “exclusive and tokenized membership pool” backed by diamonds. That marketing pitch was also not true.
All this happened while the Bitcoin bubble was at its peak, people had made money with virtual coins and others were eager to believe it and get it in on the easy gains. In the summer of 2017, roughly 1,000 investors poured at least $300,000 into Zaslavskiy’s ICOs.
In 2017, federal prosecutors brought a case against Zaslavskiy, making him the first person charged criminally with ICO fraud. Last year, he pleaded guilty to conspiracy to commit securities fraud in relation to issuing ICOs for REcoin Group Foundation LLC, and DRC World, Inc., also known as Diamond Reserve Club.
Zaslavskiy, a native of the USSR who immigrated to New York with his family when he was 12, told Brooklyn federal Judge Raymond Dearie that he was sorry for doing things he knew were wrong. He admitted that he “exaggerated and made false statements” in his efforts to get investors, but said it was not a plan to cheat or steal. His lawyer claimed that he tried to pay back clients with his paypal account, until his account was shut down. “At no point am I a thief,” Zaslavskiy insisted in court on Monday morning. “You are a thief,” Judge Dearie replied. “You took something that didn’t belong to you under false pretenses.”
Assistant U.S. Attorney Julie Nestor noted that cases like this are “a dime a dozen,” so a severe sentence was essential to set a precedent for other crypto-currency fraudsters. “This Office will continue to investigate and prosecute those who defraud investors, whether involving traditional securities or virtual currency,” said Richard P. Donoghue, U.S. Attorney for the Eastern District of New York.
“This is a very unusual case for a lot of reasons. It involves new technologies and new currencies,” Judge Dearie said. “But there is nothing new about lying or flagrant fraud.”
