ICOs Continuing to Raise Legal Questions in US Courts

ICOs Continuing to Raise Legal Questions in US Courts

While US regulators seem unsure about the strategy to adopt for the future direction of cryptocurrencies in general, the ICO funding model is currently being dragged out in two separate court cases which could help define overall policy.

The first is a criminal case against Maksim Zaslavskiy who was charged with promoting two digital currencies, REcoin and DRC World, backed by real estate and diamonds.

The federal judge is currently allowing lawyers for Zaslavskiy to challenge the SEC’s contention that ICOs can be considered a security under US law. If the judge subsequently finds that Zaslavskiy’s token is not a security, the case will need to be dismissed.

That, however, would also undermine pretty much every formal statement made by the SEC up to now with regard to ICOs and securities laws.

Plexcoin Raises Jurisdictional Questions

The second case, which made headlines late last year, concerns Canadian ICO, Plexcoin. The man behind the Plexcoin project, Dominic Lacroix – who had promised investors a return of 1000+ percent in less than a month – has already been imprisoned for two months and fined by Canadian authorities. He now faces separate charges in the US.

While both cases appear to be outright frauds, the focus is likely to be on the way initial coin offerings are treated under US securities laws. If they are found to be securities, the SEC may use that to create a formal framework for future ICO regulation.

On the other hand, if these particular tokens are not classified as securities, regulators and legislators will then need to determine their precise legal category – and if no such existing definition exists, one will need to be created, risking prolonged legal complications for ICOs seeking either to be based in the US or attract US investors.

In the case against Maksim Zaslavskiy, SEC lawyers have until 19th March to file their argument. In the case of Plexcoin, Lacroix’s lawyers have challenged the SEC’s right to exercise any jurisdiction over the matter, adding further complication to the proceedings.

It is understood that the SEC’s lawyers will be not be filing any kind of response before May, another indication of the length of time that will likely be involved before any kind of definitive answers emerge.