On Tuesday, U.S. District Judge Raymond Dearie in Brooklyn, New York said that U.S. federal securities laws may cover initial coin offerings (ICOs), per Bloomberg report. This week's ruling enhances the regulatory framework that governs cryptocurrencies by leveraging existing rules that already regulate the U.S. stock market. The New York case involves a Brooklyn businessman, Maksim Zaslavskiy, who promoted digital currencies that he claimed were backed by investments in real estate and diamonds. Prosecutors said the hard assets didn't exist. Zaslavskiy "was charged with conspiracy and two counts of securities fraud for his role in allegedly defrauding investors in two initial coin offerings," per Bloomberg. The defendant argued that the coins were currencies, not securities. However, prosecutors countered that the ICOs were investment contracts that should be classified as securities and thus fall under federal securities laws. The ICOs' investors never received any digital asset. The Zaslavskiy case could have broader implications for a burgeoning cryptocurrency industry. It shows that government prosecutors will after shady individuals who defraud Main Street investors. "Per the indictment, no diamonds or real estate, or any coins, tokens, or currency of any imaginable sort, ever existed â despite promises made to investors to the contrary," Judge Dearie said in the ruling. "Simply labeling an investment opportunity as a 'virtual currency' or 'cryptocurrency' does not transform an investment contract â a security â into a currency." In other words, calling a coin "cruptocurrency" doesn't necessarily make it as such. Charges For HempCoin Broker U.S. regulators announced other actions this week. As cryptocurrency prices were exploding last year, you may have heard of HempCoin. It's proprietor is now in legal trouble. On Sept. 11, Financial Industry Regulatory Authority (FINRA) charged a broker from Massachusetts with fraud and unlawful distribution of unregistered cryptocurrency security â HempCoin. "This case represents FINRAâs first disciplinary action involving cryptocurrencies," the agency stated on its website. From January 2013 through October 2016, Timothy Tilton Ayre "attempted to lure public investment in his worthless public company, Rocky Mountain Ayre, Inc. (RMTN) by issuing and selling HempCoin â which he publicized as 'the first minable coin backed by marketable securities'" FINRA said in its complaint. Ayre made fraudulent, positive statements about RMTNâs business and finances. The firm was quoted on the Pink Market of OTC Markets Group and traded over the counter. Lesson: Don't Defraud People The U.S. regulator alleges that in 2015, Ayre bought the rights to HempCoin and repackaged it as a security backed by RMTN common stock. HempCoin was marketed as "the worldâs first currency to represent equity ownership" in a publicly traded company and promised investors that each coin was equivalent to 0.10 shares of RMTN common stock. "Investors mined more than 81 million HempCoin securities through late 2017 and bought and sold the security on two cryptocurrency exchanges." Ayre faces charges of unlawful distribution because he never registered HempCoin and no exemption to registration applied. FINRA alleges that the broker made "materially false statements and omissions regarding the nature of RMTNâs business, failing to disclose his creation and unlawful distribution of HempCoin, and making multiple false and misleading statements in RMTNâs financial statements." Financial regulators are going after cryptocurrency entrepreneurs who defraud the public, especially retail investors. The above actions show that crypto operators cannot behave with impunity. Articles by Marvin Dumont: 2 Nobel Prize Winners To Research Blockchain Economics Vitalik: Price Boom Is Over As ETH Drops Below $200 Gemini Dollar, Tied To US Dollar, Approved As Worldâs First Stablecoin High-Paying Blockchain Jobs Are Offering Security In Uncertain Times Disclaimer: The views expressed in this article belong solely to the author. Information contained herein should not be construed as investment advice.