Journal of Information & Privacy Law

Cryptocurrency: digital currency or security?

By Quinn P. O’Grady (AKA Peter Bash), Candidacy Editor on Monday, November 27th, 2017
0 Flares 0 Flares ×

Instead of investing in the stock market, some individuals have turned to investing in digital currencies, otherwise known as cryptocurrency. One of the more well-known cryptocurrencies is Bitcoin.1 As of 6:40 am on Friday, November 3, 2017, Bitcoin reached $7,454.04 per coin.2 With the enormous impact that Bitcoin has had on the public, other cryptocurrencies have emerged. Some of the more important cryptocurrencies to keep an eye on include: Litecoin, Ethereum, Zcash, Dash, Ripple, and Monero.3 But with the increase in cryptocurrencies, also come the possibility of cryptocurrencies that are scams.

Recently, Crypotcurrency has been in the news because two types of cryptocurrency have been alleged to be a scam.4 Mr. Maksim Zaslavskiy invented these two scams- RECoin, and Diamond Reserve Club (“DRC”).5 RECoin was a cryptocurrency that was going to be backed by real estate, while the DRC was going to be backed by physical diamonds.6 Mr. Zaslavskiy allegedly collected at least $300,000 from investors in these two cryptocurrencies, but never did what he promised to do.7 According to both the SEC and FBI, RECoin and DRC were not backed by real estate and diamonds respectively.8

On September 29, 2017, the SEC filed suit against Mr. Zaslavskiy alleging violations of Section 17(a)(1)-(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5(a)-(c), Section 5(a) of the Securities Act of 1933, and Section 5(c) of the Securities act of 1933.9 Specifically, the violation Section 5 of the Securities Act of 1933 alleges that Mr. Zaslavskiy sold unregistered securities.10 Securities include things like stocks, but also investment contracts.11 An investment contract is a monetary investment in a common enterprise with profits earned through the efforts of others.12

Following the lead of the SEC, on October 27, 2017, the United States Attorney for the Eastern District of New York filed criminal charges against Mr. Zaslavskiy alleging fraud, specifically conspiracy to commit securities fraud.13 Ultimately, United States v. Zaslavskiy and Securities and Exchange Commission ultimately turn on whether or not the SEC or US Attorney can prove that RECoin and DRC are considered “Securities” under the Securities Act of 1933, and Securities Exchange Act of 1934. The repercussions of these cases will be felt by the cryptocurrency world because cryptocurrency will either need to be regulated like the stock market, or it can continue to be unregulated.

For those interested in keeping up to date on the developments of the two cases, United States v. Zaslavskiy can be at case number 17-mj-0934 in the Eastern District of New York,, and Securities and Exchange Commission v. Zaslavskiy can be found at case number 1:17-cv-05725 in the Eastern District of New York.14

0 Flares Twitter 0 Facebook 0 0 Flares ×
  1. What is Cryptocurrency: Everything You Need To Know [Ultimate Guide], BLOCKGEEKS, https://blockgeeks.com/guides/what-is-cryptocurrency/

  2. Ryan Browne, Bitcoin jumps $400 in one day and soars to a new record high, CNBC (November 3, 2017) https://www.cnbc.com/2017/11/03/bitcoin-price-hits-yet-another-record-high.html
  3. Prableen Bajpai, The 6 Most Important Cryptocurrencies Other Than Bitcoin, INVESTOPEDIA (October 13, 2017, 11:41 AM), http://www.investopedia.com/tech/6-most-important-cryptocurrencies-other-bitcoin/
  4. Securities and Exchange Commission v. RECoin, et. al., SECURITIES AND EXCHANGE COMMISSION, https://www.sec.gov/litigation/complaints/2017/comp-pr2017-185.pdf (last visited November 3, 2017); SEC complaint against Zaslavskiy, SCRIBID, https://www.scribd.com/document/363232034/SEC-complaint-against-Zaslavskiy#from_embed (last visited November 3, 2017)
  5. Aaron Elstein, Brooklyn cryptocurrency promoter charged with fraud, CRAIN’S NEW YORK BUSINESS (November 1, 2017, 3:43 P.M.), http://www.crainsnewyork.com/article/20171101/TECHNOLOGY/171109990/feds-charge-brooklyn-man-with-fraud-over-cryptocurrency-offering
  6. Aaron Elstein, Brooklyn cryptocurrency promoter charged with fraud, CRAIN’S NEW YORK BUSINESS (November 1, 2017, 3:43 P.M.), http://www.crainsnewyork.com/article/20171101/TECHNOLOGY/171109990/feds-charge-brooklyn-man-with-fraud-over-cryptocurrency-offering
  7. Brendan Pierson, New York man charged with conspiracy to defraud investors, BUSINESS INSIDER (November 1, 2017, 7:53 PM), http://www.businessinsider.com/r-new-york-man-charged-with-conspiracy-to-defraud-investors-2017-11
  8. Securities and Exchange Commission v. RECoin, et. al., SECURITIES AND EXCHANGE COMMISSION, https://www.sec.gov/litigation/complaints/2017/comp-pr2017-185.pdf (last visited November 3, 2017); SEC complaint against Zaslavskiy, SCRIBID, https://www.scribd.com/document/363232034/SEC-complaint-against-Zaslavskiy#from_embed (last visited November 3, 2017)
  9. Allen & Overy LLC, SEC files its first enforcement action against alleged sponsors of initial coin offerings, JD SUPRA (October 5, 2017), https://www.jdsupra.com/legalnews/sec-files-its-first-enforcement-action-94970/
  10. Allen & Overy LLC, SEC files its first enforcement action against alleged sponsors of initial coin offerings, JD SUPRA (October 5, 2017), https://www.jdsupra.com/legalnews/sec-files-its-first-enforcement-action-94970/
  11. 15 U.S.C. § 77(b)(a)(1) (2017)
  12. SEC v. Howey, 328 U.S. 293, 298-99 (1946); SEC v. Glenn W. Turner Enterprises, 474 F.2d 476, 481-82 (9th Cir. 1973).
  13. SEC complaint against Zaslavskiy, SCRIBID, https://www.scribd.com/document/363232034/SEC-complaint-against-Zaslavskiy#from_embed (last visited November 3, 2017)
  14. Securities and Exchange Commission v. RECoin, et. al., SECURITIES AND EXCHANGE COMMISSION, https://www.sec.gov/litigation/complaints/2017/comp-pr2017-185.pdf (last visited November 3, 2017); SEC complaint against Zaslavskiy, SCRIBID, https://www.scribd.com/document/363232034/SEC-complaint-against-Zaslavskiy#from_embed (last visited November 3, 2017)

Leave a Reply