Initial coin offerings (ICOs) may soon come under added pressure from government regulators in the United States following a recent ruling that classified two fraudulent ICOs as security sales.
According to a breaking report by Bloomberg, U.S. District Judge Raymond Dearie in Brooklyn, New York, ruled that two ICOs conducted by Brooklyn resident Maksim Zaslavskiy would be classified as security sales for the purposes to bring the prosecution under federal criminal laws.
“Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract — a security — into a currency,” Dearie stated in his ruling.
While the final ruling as to whether the ICOs were in fact securities will be up to a jury, the overall outcome of Dearie’s ruling could have lasting ramifications for the crypto industry.
Peter Henning, a professor at Wayne State University’s law school in Detroit, told Bloomberg that these rulings further establish that the SEC will look to fully regulate ICOs.
This ruling affirms the SEC’s position that it has authority over ICOs and that market manipulation and anti-fraud provisions in the law apply.
The cooling ICO market has added fuel to the ongoing Ethereum (ETH) sell-off, as investors lose interest and blockchain projects liquidate their ETH holdings obtained via prior fundraising. The amount of capital raised by ICOs recently hit a 16 month low.
Disclaimer: This article’s author has cryptocurrency holdings that can be tracked here. This article is for informational purposes only and should not be taken as investment advice. Always conduct your own due diligence before making investments.