A U.S. federal judge has ruled that a criminal case against two reportedly fraudulent initial coin offerings fall under securities laws.

District judge Raymond Dearie ruled Tuesday that the case against a pair of allegedly fraudulent ICOs conducted by Brooklyn resident Maksim Zaslavskiy would proceed, denying the defendant’s motion to dismiss. Bloomberg first reported the news.

As previously reported, Zaslavskiy has been accused of committing securities fraud for selling tokens which represented shares in a real estate venture and a separate diamond business.

However, prosecutors claim that neither of these ventures actually bought the assets customers were investing in.

In the motion, Zaslavskiy’s lawyers argued that “securities laws are unconstitutionally vague as applied” to the indictment against the defendant.

However, Dearie wrote, “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called,” citing a previous ruling.

He added:

“Stripped of the 21st-century jargon, including the defendant’s own characterization of the offered investment opportunities, the challenged indictment charges a straightforward scam, replete with the common characteristics of many financial frauds.”

As such, securities laws as they pertain to the indictment and charges against Zaslavskiy are not vague, Dearie ruled.

Notably, Dearie did not say whether ICOs are specifically securities, instead saying that this “can only fairly be a question of proof at trial, based on all of the evdience presented to a jury.”

He added that “Zaslavskiy’s primary contention – that the investment scheme at issue did not constitute a security, as that term is defined under Howey, is undoubtedly a factual one.”

Howey test

The judge provided more detail on the how the Howey test – the U.S. standard for determining whether something is a security – might apply in Zaslavskiy’s case, writing:

“The question is whether the ‘elements of a profit-seeking business venture’ are sufficiently alleged in the indictment, such that, if proven at trial, a reasonable jury could conclude that ‘investors provide[d] the capital and share[d] in the earnings and profits; [and] the promoters manage[d], control[ed] and operate[d] the enterprise.'”

“For present purposes, we conclude that they are,” he added.

That being said, an independent analysis of the Howey test as it may apply will be required for a final determination at trial.

Dearie echoed a previous decision he’d made in the case, when he first ruled that a jury would decide whether Zaslavskiy’s token sales qualified as securities offerings. This past May, Zaslavskiy appeared for a hearing on the merits of his case.

While his attorneys argued that the U.S. Securities and Exchange Commission cannot regulate token sales as securities, prosecutors said the point was moot as no tokens had ever been developed.

Read the full ruling below:

USA vs Zaslavskiy by CoinDesk on Scribd

Justice image via Shutterstock