In the fall of 2017, the United States Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) each filed actions against Maksim Zaslavskiy for securities fraud in connection with two token offerings, through which he promised token purchasers profits from his companies’ investments in real estate and diamonds.  Zaslavskiy’s motion to dismiss the criminal indictment is currently pending before Judge Dearie in the Eastern District of New York.  The briefing submitted in connection with this motion reflects the DOJ and SEC’s coordinated approach in applying the securities laws to token sales, emphasizing a focus on “substance over form” and the importance of assessing the present state of a company’s technology in determining whether a token constitutes a security.  The briefing also underscores both the DOJ’s and the SEC’s focus on holding companies accountable for fraudulent statements to investors, in whatever form such statements may come.

This case offers a prime example of the kinds of conduct that the regulators deem most troubling in the context of token sales:  the complaints allege that Zaslavskiy made explicit promises to token purchasers that they would enjoy large profits from their investment, without undertaking any efforts to build a legitimate business or deliver on those promises.  But even for blockchain companies that have been vigilant in adhering to the emerging regulatory guidance, the Zaslavskiy case still warrants attention and careful consideration.  Not only does it shed light on how the DOJ and the SEC will apply the securities laws to token sales, but this case will also inform how the federal courts consider these issues in both the criminal and civil contexts going forward.

In advance of the oral argument scheduled for tomorrow, April