A jury will decide whether tokens issued through two allegedly fraudulent initial coin offerings (ICOs) count as securities, a U.S. district court judge said Tuesday.

Businessman Maksim Zaslavskiy is accused of violating anti-fraud and registration provisions of federal securities laws after launching two token sales that officials say defrauded investors.

He pled not guilty in early December to the charges, before moving to dismiss the cases brought by the Securities and Exchange Commission (SEC) and Department of Justice, arguing that the token sales did not constitute securities offerings. He further argued that he did not know he was in violation of the law.

In response, the DOJ and SEC claimed that Zaslavskiy knew his actions were unlawful, if for no other reason than because the SEC contacted him prior to the DRCW token sale. Furthermore, the agencies claimed that both the REcoin and DRCW tokens passed the Howey Test, meaning they fit the legal definition of securities offerings.

Zaslavskiy’s trial is potentially precedent-setting, considering that it hinges on a key question: whether his issuance of tokens across two ICOs constituted illegal securities offerings.

But the answer to that question, Tuesday’s hearing made clear, could take months to develop. Judge Raymond Dearie didn’t rule directly on the question of whether the tokens involved are securities, kicking that question to the trial, which is tentatively set to begin as early as January 2019.

Jury members will decide “whether this is a currency or a security,” Dearie remarked.

Vagueness argument continued

Yet Zaslavskiy’s legal team is continuing to push the argument that the rules, as they exist today, are too vague.

In remarks during the hearing, Zaslavskiy’s legal team accused the U.S. government of sending mixed signals on how ICO tokens are to be classified, with one attorney stating that “the government has ruled that virtual currencies are commodities and now the government is saying they’re securities … the SEC wants to regulate something.”

“The fact that on the same floor, in the same court in Brooklyn, New York, the government is saying different things based on which agency is bringing the charge, that brings vagueness,” the attorney added.

For its part, the government put forward the idea that the two tokens in question can’t be considered currencies as they never actually existed. They were only promised to would-be investors.

“This wasn’t a currency at this point, in time maybe. Maybe at some point down the road, in 10 years, but at this time it is not a currency,” one prosecutor said. And as the argument was later framed: “Defense is trying to group all cryptocurrencies into one big ball of wax [but] you can’t group all cryptocurrencies together.”

While the SEC has not issued formal guidance on ICOs, chairman Jay Clayton has repeatedly stated in public appearances his belief that every ICO token he’s seen is a security.

In a now somewhat-famous statement during an event at Princeton University in April, Clayton used an analogy to explain how he viewed token sales.

“If I have a laundry token for washing my clothes, that’s not a security,” he remarked. “But if I have a set of 10 laundry tokens and the laundromats are to be developed and those are offered to me as something I can use for the future and I’m buying them because I can sell them to next year’s incoming class, that’s a security.”

Courtroom image via Shutterstock