In what is believed to be the first criminal case examining whether so-called “initial coin offerings” (ICOs) are securities under U.S. law, on September 11, 2018, Judge Raymond J. Dearie of the U.S. District Court for the Eastern District of New York refused to dismiss the indictment against Maksim Zaslavskiy for a deceptive virtual currency scheme and fraudulent ICOs by REcoin Group Foundation, LLC (REcoin) and DRC World, Inc., a.k.a. Diamond Reserve Club (DRC). United States v. Zaslavskiy, No. 17-CR-647 (EDNY). Both entities are owned by Zaslavskiy.

Zaslavskiy argued that the indictment was insufficient on its face because (1) the investments solicited by REcoin and DRC were not securities, and (2) the federal securities laws are unconstitutionally vague as applied to cryptocurrency. In allowing the criminal charges to proceed, Judge Dearie rejected those arguments. However, acknowledging the early procedural stage of the case, the Court made no ruling on whether the virtual currencies offered by REcoin and DRC were securities under the U.S. Supreme Court’s test in SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (Howey). The Court deemed that issue a “subsidiary” and highly fact-based question “best left to the finder of fact.”