It is cheaper!
$0 (after chargeback) is cheaper than $14, $12, even $10.

Possibly with that disclaimer, if also actively enforced by the exchange, and the assets operating on that exchange were bought and sold with that understanding.  A judge generally speaking looks at all the facts, it isn't some word game puzzle where the magic combinations of words gets you the super combo and you winz.   A prosecutor would likely pull the worst contracts, get statements from victims, dump forum posts, etc.   Based on all the evidence if it overwhelmingly seemed like a game then likely GLBSE would be fine.  If it seemed like some dubious wordplay to get around securities law then a judge is going to rule on it for what it is.  

Then again who would be willing to buy Gigamining bonds (as an example) if there was a caveat that Giga could simply 100% legally and lawfully walk away with all the coins in "entertainment".  It is part of the game right?  I mean would you buy assets if they had this disclaimer:
"Shares purchased on this stock exchange simulation game do not entitle you to any legal real-world rights to a listed virtual company. Please play accordingly!".  

The reality is GLBSE only has value if the contracts have real value.  If they don't have real value nobody is going to pay anything for them.   If they DO have real value the disclaimer will just be struck down in court.  Many people have tried the whole "it is just for entertainment value"* to run gambling operations with very predictable results.  

So which is it?

* I would point out the law is always evolving so even if hypothetically a judge bought the "entertainment value only" argument over time people as people got scammed "in good fun" and didn't take it as fun and sought legal recourse, filed police reports, sued GLBSE, etc those actions would be precedent for future cases.   Based on the new evidence some future judge would rule that, no in some cases it isn't entertainment value and even these "entertainment value securities" are real securities.

If you offer securities to US residents you fall under the jurisdiction of the SEC.  Also while everyone focuses on the SEC be aware that every other "first world" nation has similar laws and regulatory agencies.  So while as a foreigner offering securities to a Canadian the SEC wouldn't apply, the canadian equivelent of the SEC would.  Now you may say "who cares I don't live in the US" however that is a naive view to take.   When the DOJ began the "war on poker" it seized (with the help of host nations) assets, bank accounts, and individuals in 28 countries.   Many countries have treaty and working relationships with the US.

So really you have three options:
a) Silk Road model. Accept it is unlawful and break the law but do it in a way which make legal action difficult or impossible. 

b) Online Poker model. Setup shop in some offshore locations which doesn't care what the SEC thinks and offer securities from there. The risk here is that what is "safe" today may not be "safe" in the future.  You may need to exclude players investors from the most unfriendly countries to keep the risk acceptable.

c) MtGox model.  If you can't beat them, join them.  Work with the SEC (especially the upcoming Jobs Act "crowd funding" regulation).  Become regulated and licensed.  The largest risk here is the cost involved.  True compliance is likely significant and your offerings are going to be more limited than competitors going the a & b route.  You are risking a lot not only on Bitcoin but your ability to compete with "one hand tied behind your back".

Lastly (and I will repeat this because I think it helps to have a better high level view of the law) ....
The law isn't a video game you can beat with a combo-breaker or clever game rule exploit ("zerg rush").   A security is a security if a judge says it is.  Period.  I know it kinda a let down from all these lofty ideals but ultimately it comes down to what the guy in the robe thinks.  At best you and your legal counsel can sway his opinion but it is his opinion that matters. The law (both statute and case law) is simply a mechanism to make judicial decisions more expected.  You can hire legal counsel and their skill combined with knowledge from prior rulings can allow you to quantify the risk that a ruling will go against you.  Nothing is every 100% certain.  DC believed for 30 years their gun ban was constitutional and it was until one day it wasn't.  Ultimately it comes down to what a judge thinks.  You can't trick a judge through clever wordplay (all this "it isn't a security because .... bitcoin" nonsense).  If a judge feels the law applies then it applies (at least until you win an appeal).

LOLZ.  Even if that were true what about stolen credit cards?  Have fun.  Don't say you weren't warned.

Wow that is the argument.

Lets pretend dollars used, $, K$ ($1,000 USD), and M$ ($1,000,000).

You honestly think people will be confused when they see for example some new celebrity mansion is $M 3.2.  What?  That mansion is only 3 bucks.  Dude I am going to buy 100 of them.  Or they see a candybar marked $1.2.  "What a ripoff that candybar is more than a I make in a week".

Maybe she was drunk and thought you called her a "Bitch Con".

Way to miss the enitre point.  The discussion has NOTHING to do with scams and everything to do with the SEC (or your local equivelent) getting a court order, seizing everything you own and putting you in prison for the next 5 to 10 years for securities fraud.

The latter is correct the former isn't.

http://www.sec.gov/answers/pink.htm
http://www.sec.gov/answers/otcbb.htm

The OTC-BB requires listed companies to be registered with the SEC (as well as meet some minimum level of reporting standards).
The pinksheets have absolutely no listing requirements.

However there are exceptions.  The restrictive legend can be removed.  Still generally speaking this is likely beyond what the bitcoin economy could support at this time.  The cost and complexity doesn't warrant the size of the issuance.

OTC-BB isn't the same thing as the Pink Sheets.  OTC-BB stocks stocks must register with SEC, unlisted securities do not.  The pink sheets are simply a centralized third party which maintains a list of independent brokers and the unlisted securities they trade.  Note it isn't a requirement for an unlisted security to be on the pink sheets.  Think of pinksheets as like a digital phonebook of brokers.  Say you want shares of unlisted security xyz.  Your broker can use the pinksheets to find that broker abc has shares of xyz (it may be the only broker in the world that does).  Your broker can then buy shares from broker xyz and simply assign them in your account.  Remember only broker dealers can trade in unlisted securities.

Reg D BTW doesn't relate (directly) to what securities broker dealers can TRADE.  It deals with the issuance (i.e. selling new shares) of securities.   While GLBSE did multiple things normally these are separate actions.  Reg D deals with the legality of a company issuing new securities.  Broker dealers are required to trade unlisted securities.

Edited for clarity.

One option would be have the client allow users to set a trusted node.   For example if a user trusted his friend, blockchain.info, his mining pool, or MtGox he could set that as a trusted node and it would always attempt that connection first.  Currently that can be done from the config but an easy to use GUI would be a method to improve security.

A more robust solution would be an (optional) system where nodes were strongly authenticated using a public/private key type system.  This would also prevent MITM type attacks where attacker intercepts communication from "good nodes" and relays false data to victim.   Say you trust me and you have my public key.  When you bootstrap you could request the nodes that you connect to to search for my node and relay that.  An attacker couldn't impersonate my node without my private key.  An attacker could still prevent communication however you client could alert you (or even be programmed to not accept any data which doesn't come from at least one trusted node).

Taking it a step further a WOT type system could be put in place.  I trust come-from-behind so I mark his node as trusted (digitally signed w/ my private key).   A new node comes online and it doesn't trust cfb but it does trust me.  Even if my node if offline the indirect trust could be used for the node to connect to cfb in a semi-trusted manner.

That is a logical fallacy if I ever heard one.
So these must also be legal tender in the US right?  





In the US:
Euro =/= Gold.
Euro == Money.
Therefor Euro == Legal Tender.

Lets take it to the next level.

http://www.ithacahours.com/
A private currency in the US (New York).

Ithaca hours =/= Gold.
Ithaca hours == money.
therefore Ithaca hours == legal tender.  Who knew!

One of those three is correct.  
Where do you get this idea that money = legal tender?


Nope nothing about legal tender in there.  Hmm a "secure verifiable record that fulfills the function of a medium of exchange, a unit of account, and a store of value" what does that remind me of?


Nope not here either.

While the US Dollar is BOTH money AND legal tender in the United States (technically in the jurisdiction of the US courts) it is only money outside the US.  Try settling a debt in Spain arguing that because the dollar is money it is legal tender.

Legal tender status in the US derives from 31 USC 5103 which doesn't even mention the word money.

 

Nope.

But you did finally convince me to put your scamming ass on ignore.

I have seen products advertised as 99 cents, strangely there wasn't mass confusion.   If mBTC becomes common place it won't confuse users either.   Especially if/when BTC is worth >$1,000 USD:BTC.  It will simply make more sense for user to subconsciously think of 1 mBTC = $1.20 or $1.38 or $0.92 the it will to think of 1 BTC = $1,200, $1,380 or $920. 

A 100:1 split would require a hard fork.  You can do it today but without 90%+ support for miners, merchants, users, developers it isn't going anywhere.  It simply isn't going to happen.  I think the public isn't as stupid as you make it them out to be.

Would YOU be confused if someone wanted to sell you a game for 1,800 mBTC?  I find it annoying when people are smart enough to understand something yet assume "those other people" are too stupid to get it.

What is the difference between saying that will be 12,000 mBTC (where total # of mBTC is 21 billion) and saying that will be 12,000 BTC (where total # of BTC is 21 billion).

Right now things are priced in BTC because most items are full and fractional BTC (i.e. 200 BTC, 1.245 BTC).  If the value of BTC rose to a point where 1 BTC was worth say $832 most items would be priced in mBTC.

"How much for that new Steam game?"
"24 mBTC".

So your logic seems to come down to the fact that people could accept 24 BTC but can't accept 24 mBTC.  Do people also have a problem with the concept of pennies?   If someone tells you he has 500 pennies are you totally confused and say "dude how much is that in dollars, my brain is so primitive I can only handle one unit at a time".

People don't use mBTC right now because there really is no need to.  Most products and services are either in full or high fractional BTC.   If/when BTC rises to a point where that isn't the case it is trivial for websites and merchants to start displaying prices in mBTC instead. 

There is no need for a massively disruptive (and likely impossible to implement) protocol change.  Today you can start pricing things in mBTC if you feel it makes more sense.  If enough people agree mBTC will become the defacto method of pricing goods & services..   

Here is an example:
"If you admit your plan is stupid I will give you 50 mBTC.  Just send me a Bitcoin address".

IMHO going forward it looks like there are three avenues one could peruse as a GLBSE replacement.

1) The SilkRoad model.  
Accept it is a violation of law and take steps to ensure regulation and prohibition is difficult or impossible.  The largest issue with this model is trust.  Fees likely will be higher so trusting the operator is less risky although some type of Open Transaction type of system is likely advisable.  The issue becomes trusting issuers.  While GPG can be use many existing players have real world identities tied to their GPG identity.  To gain any protection from this type of model requires asset issuers to "start over".  

2) Offshore it.  
Find a location in a "financial privacy" location which has less restrictive securities laws.  It may not be possible to offer true equity but "revenue sharing contracts" potentially could be traded.  If indirect revenue sharing of US based entities was desired those entities could sell equity to an offshore corporation or trust which tend issues "shares" in a revenue sharing contract.   There is significantly higher startup and research costs involved.  Taxation for US based assets is non-optimal (US based companies would be required to withhold 30% taxes on any revenue paid to foreign owners).   With the proper licensing just about anything is possible offshore.  For example one could operate a bitcoin mutual fund or even hedge fund, open a Bitcoin funded Forex brokerage, etc.  The large risk is not knowing if you are "firewalled" enough from other nation states.  Sure if you are a citizen of the Cook Islands, your servers are on the Cook Islands, your bank accounts, offices, and other assets are on the Cook Islands and you comply with all laws in the Cook Islands you and your enterprise is likely "safe" even if the SEC disproves then again most people won't have that option.  Their "firewall" may have some holes in it.

3) Work for within the system.  
Get a broker dealer license, be regulated by SEC.  Comply with all regulation including KYC and AML.  Essentially the MtGox model except for securities.  A broker dealer can trade any security even "unlisted" securities (meaning not filed with SEC).   This is the so called pink sheets.   In theory a broker could accept Bitcoins (potentially only accepting Bitcoins) and allow trade in Bitcoin denominated securities for its private clients.   This option would require some significant legal research and has the highest cost.  It probably isn't viable at this point but if Bitcoin continues to grow it likely is inevitable.

 I am not a lawyer and not advocating any course of action.   Always seek legal counsel before starting, joining, or investing in any project where its legality is not settled law.

Well you just pointed out the solution (and no it isn't something as dubious as a 100:1 split).

mBTC. ("millibits")  & uBTC. ("microbits")

0.000152 BTC = 0.152 mBTC or 152 uBTC.  The reference client already supports this.

This is the TL/DR version.  Puppet expressed it in a paragraph what I rambled on about for pages.

See this is a misnomer

If buying drugs with dollars on the street corner is illegal, then buying drugs over the internet using bitcoins is just as illegal.  Bitcoin doesn't "magic" away laws simply because ... Bitcoin.
Likewise if selling unregistered securities for USD is in violation of US securities law then accepting Bitcoins didn't magically put it out of the jurisdiction of the SEC.    So a potential business owner has two options.  Make your business legal within the law (MtGox) or accept it is illegal and take steps to ensure the law can't reach you (Silk Road).  GLBSE did neither.  It was blatantly in violation of US securities law yet remained publicly known and operated from a state with close ties to the US.

First I am not advocating such policies nor do I think they are completely logical however the "long arm of the (US) law" is indeed long.  If you open your exchange in say Somalia you likely are safe (unless the DOD wants to test out some new reaper drone on a "financial enemy of the state") however if you are in a country which has "normal" relations with the US well your fraked.  Your own country will turn you, your assets, your servers, and everything else the DOJ asked for in a split second (and be happy about doing it).  Just ask the people who ran poker sites where it was "legal" and offered play to Americans (in violation of US law).  

As for:

Generally speaking (this applies for any law in any country) when something is deemed illegal it isn't the responsibility of the entity making it illegal to give you an "out".   It would be like saying "wait selling Marijuana is illegal how would I go about legally selling marijuana".    However you already expressed the "out" you just don't like it.  Collect KYC/AML information from all participants.  That combined with IP monitoring, and blacklisting known proxies gives you pretty good deniability.  If an American still bought securities on your site it would be pretty easy to prove you didn't have the INTENT to break the law.  Generally speaking (once again the real answer is consult legal counsel) is that violation of any law required INTENT.   While your activity may be technically unlawful (1 out of 200,000 participants is an American despite your best efforts) it doesn't rise to criminality.

One last point, I was just using US because it is the laws I am most familiar with.  I am 99% sure  that every other "first world" country had similar laws and an SEC equivalent used for regulation.  So it isn't just a matter of block Americans it becomes block Americans, French, Canadians .... .  That being said there likely are ways to get bend the law.  If one operated an exchange out of a financial privacy country ("aka offshore"), accepted connections only via tor, and made payments only via Bitcoin (think Silk Road equivalent for securities) while it likely would still be on the SEC radar there wouldn't be much they could do about it.

The way GLBSE went about it was just asinine.  It was just anonymous to bring in every scammer, huckster, and conman on the planet while just public enough to ensure that eventually it would bring the attention of an entity like the SEC.