Finance

Federal judge rules cryptocurrencies can be considered securities

A federal judge ruled Tuesday that cryptocurrency offerings could be considered securities under U.S law, giving a boost to federal regulators who've pledged to crack down on fraud in the virtual coin market.

Judge Raymond Dearie of the Eastern District of New York on Tuesday ruled that U.S. securities regulations could apply to cryptocurrency investment products. His decision appears to be the first time a federal court weighed in on the heated debate on the nature of virtual coins and investment offerings.

Virtual coins and related investment products can blur the lines of traditional financial assets, with some serving as a currency (a store of value used for transaction), a security (akin to a stock or bond) and commodity (a scarce resource with inherent value.)

Dozens of companies and developers have also created "initial coin offerings," or ICOs, in which a firm offers investors the chance to buy a proprietary virtual coin to raise money for a new venture.

ICOs often mirror the method through which a private company pursues an initial public offering of stock, and the products have drawn scrutiny from the Securities and Exchange Commission (SEC).

Top SEC officials, including Chairman Jay Clayton, have warned firms offering ICOs that they could be subject to the same laws the agency uses to regulate stock offerings. The SEC, along with the Commodity Futures Trading Commission, have pursued several cases since 2017 against allegedly fraudulent or unregistered cryptocurrency investment offerings.

Dearie's decision clears the way for U.S. prosecutors to continue a criminal case against Maksim Zaslavskiy, who is accused of bilking at least $300,000 from investors through two fraudulent cryptocurrency offerings.

Dearie on Tuesday denied Zaslavskiy's motion to dismiss the case, filed in March, which claimed he couldn't be prosecuted for securities fraud because his investment offerings were currencies.

The judge said securities laws must be applied "flexibly," citing the SEC's current position and judicial precedent.

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