Post by sapuco on Sept 23, 2018 7:38:51 GMT 4
The U.S. District Court of the Eastern District of New York ruled that virtual currencies issued through an initial coin offering ("ICO") may constitute securities under the Securities Act and Exchange Act. The ruling - which appears to be the first court decision to address this issue - is consistent with the SEC's application of the Howey test. In a Memorandum & Order, the Court dismissed an alleged cryptocurrency fraudster's argument that he could not be charged with securities fraud because the laws are "unconstitutionally vague" regarding cryptocurrency. The Court found that securities laws are not so vague as to be considered "unconstitutional" and denied the defendant's motion to dismiss the indictment. The case will proceed to trial.
The defendant was indicted for allegedly making false and fraudulent representations and omissions in connection with two virtual currency investment schemes and their related ICOs: REcoin Group Foundation, LLC ("REcoin") and DRC World, Inc. ("Diamond"). In a motion to dismiss, the defendant argued that (i) REcoin and Diamond did not involve securities and should be beyond the scope of federal securities laws, and (ii) securities laws are unconstitutionally vague as applied to cryptocurrencies. The U.S. government asserted, in response, that investments made in REcoin and Diamond were "investment contracts" and, as a result, are considered "securities." The Court ruled that securities laws are meant to be interpreted with "flexibility to effectuate [their] remedial purpose," and that Exchange Act Section 3(a)(10) and Securities Act Section 2(a)(1) are not vague.
The defendant was indicted for allegedly making false and fraudulent representations and omissions in connection with two virtual currency investment schemes and their related ICOs: REcoin Group Foundation, LLC ("REcoin") and DRC World, Inc. ("Diamond"). In a motion to dismiss, the defendant argued that (i) REcoin and Diamond did not involve securities and should be beyond the scope of federal securities laws, and (ii) securities laws are unconstitutionally vague as applied to cryptocurrencies. The U.S. government asserted, in response, that investments made in REcoin and Diamond were "investment contracts" and, as a result, are considered "securities." The Court ruled that securities laws are meant to be interpreted with "flexibility to effectuate [their] remedial purpose," and that Exchange Act Section 3(a)(10) and Securities Act Section 2(a)(1) are not vague.