An argument of whether cryptocurrencies should fall under securities laws has been decided in a first court case to the matter in New York. The judge ruled that security law can apply to cryptocurrency in a case of Maksim Zasklavskiy who defrauded investors in two apparent cryptocurrency related cases.

Zasklavskiy is accused of two Initial Coin Offerings, called REcoin and Diamond Reserve Club both of which happened last year in 2017. According to the ICO’s, REcoin was backed by real estate while Diamond Reserve Club was based on diamonds. However, the investors got to know the two ICO’s never really existed. Zaslavskiy gained a reported minimum of $300,000 from the two ICO’s.

In a motion to dismiss the case in May, the defence attorney argued that the ICO’s could not be prosecuted under securities law as the digital coins were offered as currencies and not securities. However, in the recent court case, Judge Raymond Dearie described the defence as an old-fashioned scam.

“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,” Judge Dearie stated.

However, Dearie’s statement did not relate any similar court decisions on applying the securities law to cryptocurrency related fraud. The relation Dearie made though was in connection to the Howey test which determines if it is a security. The Howey Test comes from a 1946 U.S Supreme Court case that classified a security as an investment of money in an enterprise resulting in the investor expecting profits solely from the efforts of a promoter or a third party.

The final court decision will rest on the hands of the jury, with a final defence by Zaslavskiy’s lawyers explaining why the ICO’s should be considered currencies and not securities.

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