Asset backed cryptocurrencies covered by securities law

pmbug

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The cryptocurrency fad has spawned a cottage industry of folks offering cryptocurrencies purportedly backed by one asset or another. There has been some fraud occurring with these offerings. A US District judge has ruled that the fraud cases can be prosecuted for violating the federal Securities Exchange Act:

U.S. securities law can be used to prosecute fraud cases over cryptocurrency offerings, a New York federal judge ruled on Tuesday in what appeared to be the first court decision to address the issue.

The ruling from U.S. District Judge Raymond Dearie in Brooklyn allows federal prosecutors to pursue their case against Maksim Zaslavskiy. The Brooklyn resident was arrested in November on charges that he defrauded investors in two cryptocurrencies, violating the federal Securities Exchange Act.
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Prosecutors have said that Zaslavskiy last year raised at least $300,000 from investors in a cryptocurrency called REcoin, which he claimed was backed by real estate, and another cryptocurrency called Diamond, which he said was backed by diamonds.

In fact, prosecutors said, no real estate or diamonds backed the virtual currencies.

In March, Zaslavskiy’s lawyers asked Dearie to dismiss the charges, arguing that REcoin and Diamond were currencies, not securities, and therefore not covered by the Securities Exchange Act.

Dearie rejected that argument, writing on Tuesday that the federal securities law must be interpreted “flexibly.” The judge noted that the U.S. Securities and Exchange Commission, which brings civil securities fraud actions, has said that it considers some cryptocurrencies to be securities.

Dearie’s opinion and other filings in the case did not cite any previous court decisions addressing whether the federal securities law can be used in a fraud prosecution involving cryptocurrencies.

Regulation of virtual currencies is still in its early stages, and Congress has not passed any laws addressing it directly.

In March, another federal judge in Brooklyn ruled that cryptocurrencies could be regulated as commodities by the U.S. Commodity Futures Trading Commission
https://www.reuters.com/article/us-...er-cryptocurrencies-judge-rules-idUSKCN1LR26Z
 

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A federal judge said on Wednesday that virtual currencies meet the definition of a commodity and fall within the jurisdiction of the U.S. derivatives regulator, allowing the agency to pursue fraud allegations against My Big Coin Pay Inc.

The closely watched decision by a U.S. District Court should allow the Commodity Futures Trading Commission (CFTC) to continue to police virtual currency frauds, regulation of which has fallen among several different agencies.

Amid a crackdown on virtual currency scams, the U.S. regulator in January sued technology entrepreneur Randall Crater and a company he founded, alleging they perpetrated a $6 million fraud on people who wanted to buy My Big Coin, an obscure virtual currency.

In its lawsuit against Crater and Nevada-based My Big Coin Pay Inc, the CFTC said the defendants misappropriated $6 million from 28 customers they lured by naming their virtual currency to sound like bitcoin and further claiming it was backed by gold.

Crater’s lawyers moved to dismiss the case, arguing that the CFTC had no authority over the virtual currency because it is neither a tangible good nor a service on which future contracts are being traded - the agency’s typical enforcement purview.

U.S. District Judge Rya Zobel in Boston said on Wednesday that My Big Coin did meet the Commodity Exchange Act’s definition of a commodity, because the law defines commodities in broad categories rather than specific types or brands.

Since both My Big Coin and bitcoin can both be broadly categorized as virtual currencies, and bitcoin futures currently trade on U.S. exchanges, by extension the CFTC has oversight of other virtual currencies including My Big Coin, Zobel found.
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https://www.reuters.com/article/us-...c-on-virtual-currency-oversight-idUSKCN1M62Z0
 

11C1P

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I have a novel idea, instead of buying some cyber-funds or any other pseudo currency that is supposedly backed up by something that actually has value, why not buy the actual thing that has the value? I guess I'm just crazy. :shrug:
 
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