UK Edition
Cryptocurrency initial coin offerings are securities, US judge rules
Digital coin sales that have raised billions of pounds from Bitcoin enthusiasts should be treated as securities and be subject to financial laws, a US judge has ruled.
The ruling in a criminal case, the first of its kind, opens up other failed cryptocurrencies to be tried for securities fraud.
Initial coin offerings, known as ICOs, have been used to raise tens of billions of pounds for technology projects, crowdfunding money from investors in online currencies like Bitcoin and Ethereum.
In exchange for Bitcoin or Ethereum, start-ups sell tokens similar to cryptocurrency, which are then supposed to be redeemed for services or early access to a project. The unregulated and "Wild West" investment schemes have raised around $18.7bn (£14.3bn) this year alone.
But among the hundreds of ICOs, many of which surged in popularity as Bitcoin's price ballooned to almost $20,000, dozens have failed and many have been accused of scams and fraud.
In a case involving a pair of fraudulent ICOs, New York judge Raymond Dearie ruled for the first time that ICO projects constitute securities. Securities are investment products that promise returns and are regulated under US financial laws.
Ruling ICOs are securities would potential opening them up to a string of future cases.
"Congress' purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called," Dearie said, according to Bloomberg.
Dearie added: “Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract - a security - into a currency.”
Multiple ICOs have disappeared from the internet, making off with investors money. Others have raised millions of pounds in digital tokens, promising gains, for projects that had not even been started.
The ruling came against New York resident Maksim Zaslavskiy, who is accused of running two fraudulent ICOs that he claimed represented shares in real estate and a diamond business.
Zaslavskiy's lawyers had tried to claim that securities law was too "vague" to apply to his schemes, according to Coinbase.
The US Securities and Exchange Commission chair Joe Clayton previously said that while Bitcoin is not a security, many initial coin offerings would be.
The UK's Financial Conduct Authority has advised that many ICOs could be regulated under securities laws.