I was doing the math on this reversal idea earlier, and I think there is an aspect being overlooked.

There were five tranches of shares issued, starting at 5k and eventually reaching 40k.  Just for demonstration, I'll focus on shares in the first tranche.

If I understand correctly, the contracts were sold for 1 BTC.  This generated approximately $5.12 for Giga to spend in the normal economy on hardware and other business costs for the operation.

Counting up until the last dividend that was actually paid on GLBSE, the share generated a total of about 0.48 BTC for the owner, leaving 0.52 BTC to pay to the owner in order to negate the original contract, according to what has been proposed here.

But due to the dramatic increase in BTC value, Giga would actually have to spend about $7.01 this week just to cover that 0.52 BTC, significantly more than the dollar capital that the whole share generated in the first place to actually buy equipment, space, and electricity!

One other perspective that you might or might not find to be relevant: it is easy to calculate the fair market value in dollars of each dividend at the time it was paid.  The cumulative FMV of all the dividends that were actually paid through GLBSE is $3.68 on that trache of shares, or 72% of the $5.12 FMV that went in. If you sum all the way through the Dec 10 dividend payment in the queue, the total rises to about $4.84 in dividends, or 95%.  

That's assuming that each dividend is immediately cashed out into dollars.  If a holder of a share in that tranche has kept the whole 0.48 BTC in dividends in their wallet, its FMV now is $6.49, still a return significantly over 100% of the dollars it took to acquire the share at the time. Naturally, that ignores opportunity cost, etc, but it's till something interesting to know.

I think you misread my statement.  I was referring to this being very cheap/free for US residents and potentially quite expensive for foreign residents.

I think you make a very valid point.  In terms of the cost burden, I wonder, though.  The cost of trying to do refunds, given the depreciation of the mining hardware, is probably quite substantial (it's not like Giga was just holding the money).  

For U.S. residents, an apostille is of course not necessary, and most people can get notarizing done for free or a very nominal fee.  For foreign residents, where I think the concerns are less about tax and more about OFAC issues, I wonder if a transaction designed as an attempt to undo the whole payment history of the contract can be done without itself having OFAC issues.  I don't know exactly how the sanctions regulations are set up, but of course we are all aware that plenty of sanctions regimes involve freezing assets that are owned by the other party, not settling all the accounts and then freezing them out.  So I'm not sure whether Giga is in a position where he could do a buyback for those people who are looking at a big expense for apostille, since those are the people for whom OFAC regulations become an issue.

A good way to make progress here might be for the lawyer to look at ways in which identity could potentially be verified without the expense of apostille -- maybe there is a solution involving a combination of verifying photo ID in conjunction with a withdrawal-address-signed message?  This could be brought up with Quentin if the apostille expense is the real issue.  It has been my impression that, for most people in the thread, the bigger issue wasn't the burden of apostille but indignation at having to comply with regulations at all.

I'm a bit torn on this one.  If Merrill Lynch screws up on information collection when they set up your brokerage account or when they issue you your 1099 that has a municipal bond on it, would you really consider the city that issued the bond to be on the hook?

This isn't something I was aware of.  The original post on this thread was on April 7th, and the second post is on the same day and is talking about GLBSE, so I was under the strong impression that all of these contracts were originally sold through GLBSE, with GLBSE set up to process the dividend payments.

If instead it is the case that these contracts were originally issued by Giga directly, with Giga as the actual payment processor of the dividends, and Giga failed (as GLBSE later did) to request the right information, then I am more sympathetic to what you are saying -- at least insofar as it affects those people who bought bonds before dividend the payment processing was moved to GLBSE.

Nefario apparently actually scammed people, is terrified of prosecution, and has crawled under a rock.  What you seem to be asking for here is the right to give your tax ID number and other identifying personal information to Nefario rather than Giga. 

Firstly, given Nefario's current attitude, it is extremely unlikely that anyone could convince him to re-open the GLBSE dividend system and open a repository of users' tax and ID information.  So someone would have to take protracted, expensive, uncertain legal action to try to force Nefario to do this, and in the meantime you would not get your dividends.

Secondly, from a personal security perspective, I find it hard to believe that there is anyone out there who would rather entrust their sensitive details to Nefario rather than to Giga's law firm.

There are actually two alternatives.  

One is that the contract was, unwittingly, not legal in the first place, and both parties bear responsibility for not doing enough due diligence to realize this.  Giga is now, having done the due diligence, executing his obligations in the nearest possible manner consistent with the law.  Since this thread right now is really about dividend payment rather than the fact that it was an exchange security, this alternative isn't super relevant to the current debate. But it still fits the situation as you describe it.

The other alternative, which is more relevant right now, is this.  GLBSE was not legal before in terms of its dividend payment processing system because it did not collect all the information it should have and did not issue the proper tax documentation.  Now, Giga is taking over this processing functionality, which used to be GLBSE's responsibility, and he is doing it differently than GLBSE did in order to be legal.  You are mad at Giga because you are now having to provide more information than you did before.  

But your anger is misplaced. The difference that you are experiencing does not stem from Giga changing his mind about what what he wants from you.  The difference stems from the fact that you are moving from one payment processor to another.  Your old payment processor, GLBSE, apparently didn't ask you for the right things.  Your new payment processor, who happens go be Giga himself but could just as easily be a different exchange or processing contractor, is now asking you for the right things.

If you want to be mad at somebody, be mad at GLBSE for making you think in the first place that you could receive these kinds of payments without supplying tax information. 

It's like you quoted what I wrote and didn't even read it.

Given the depreciation of the current hardware, especially given the anticipation of Bitcoin-specific ASICs, it seems unlikely that this course of action would really be very profitable for Giga.




This point of view seems like it could come from one of two places.  

(1) You don't think you should have to comply with the law as now explained by lawyers, and you are mad at Giga for bringing the law into this when you think everybody could have just gotten away with doing the payments as "gentlemen" without needing to involve the pesky notion of tax and sanction compliance steps.  In your mind, you agreed to do something whether it was legal or not, knowing that it might turn out not to be and not really caring about that. You were under the impression that Giga had the same mentality, and so now that he's telling you he will only do things in a way he thinks is strictly legal, you are angry.  

So you then (a) mock him for not being on board with your idea that Bitcoin contracts should exist in their own plane outside of secular law.  And/or (b) you declare that he must actually have the same mentality as you, and so his moves must have nothing to do with his desire to be legit but must just be convenient, cynical ways to cheat you out of your money.

You are wrong because (a) from the entire record, there seems to be no evidence that Giga ever had or expressed the perspective that he was committed to his scheme whether or not it was legal.  You are projecting your own view of Bitcoin onto him, and so long as you incorrectly do that, his moves will continue to baffle you.

And from my own personal perspective, you are further wrong because (b) tax and sanctions compliance are positive moral imperatives that you should embrace regardless of anything that Giga says or has said.


(2) You do care whether or not something is legal, and maybe you recognize that paying dividends without tax information turns out not to be legal.  But you blame Giga for this -- basically, he should never have agreed to this in the first place, and it's his duty to take a big hit in his liquidity -- or even destroy his business -- to buy back from you rather than demand that you do anything, even something that costs you nothing, like providing extra info.  On principle.

You are wrong because (a) both parties to these contracts are responsible for any failures in initial due diligence in this matter, and both parties share responsibility for acting reasonably and equitably to work things out once due diligence finally gets done by someone later.  It's irrelevant whether it was eventually his lawyer telling him he needed to issue 1099s, and then him putting demands to you, as opposed to your lawyer telling you you were owed a 1099, and you demanding action from him.  

You are further wrong because (b) the initial counterparty that would have needed to do the tax compliance due diligence was not even Giga at all -- it was GLBSE, because exchanges and brokers are normally the ones responsible for producing the tax documentation, not issuers.  Remember, Giga never even had your BTC withdrawal address or any other kind of payment information while GLBSE was operating: it was only GLBSE that would have been in a position of setting up the proper reporting procedures for documenting payments.  This burden only shifted to Giga once GLBSE shuttered and put him in the position of being the actual payer of counterparties.  

From what I can tell, Giga went to his lawyer and did his due diligence immediately once his obligations extended into this arena.  That is in contrast to you, who did not do your legal due diligence when it was GLBSE on the other side -- never ensuring that the exchange was provided with all of the information needed for tax compliance, and never bothering to learn from your own legal advice that that should have been the case.  

So if either party bears a greater burden in making things up to snuff at this point, it's might actually be you and not Giga, even leaving aside the fact that what he's asking you to do is free, and what you're asking him to do (buyback) is potentially very expensive.  Note, for example, this:

This doesn't make any sense to me.  A bond "instrument" is a contract: it is a contract of debt sale.  One party provides value up front, and the other party provides the contractual right to receive payments in the future in such amounts and under such conditions as the bond specifies.  From what you write, you seem to think that it's true and accurate for an affidavit to state:

"Giga is indebted to me for this many shares of the mining proceeds because there was an agreement that ties certain chunks of indebtedness to an original act of giving Giga money, and I have subsequently bought these rights."

...And yet you are trying to say that it's "fraudulent" for an affidavit to state, as Quentin's does:

"I am the owner of one party's rights and obligations in a number of contracts to which Giga is the other party, and so I hereby make a claim to the payments that Giga needs to make in order to fulfill his end." (The actual text being "I am the lawful beneficial asignee" of contracts).

I'm pretty sure these really, really are the same thing.  

The real debate and griping on this thread seems actually to center on the "lawful" part rather than the "contracts" part. People are noting that the parties originally thought it would work one way, and then by subsequent events (GLBSE closure) and revelations (legal advice) it turns that executing the contracts lawfully will require more from both sides.  They seem to be saying that that Giga should, for the sake of honor or something, execute the original vision rather than the revised "actually legal" vision, sacrificing compliance on the altar of the original contract's purity and integrity.  That strikes me as a bit silly -- but not nearly as silly as trying to claim that there are no "contracts" at all.

I strongly suspect this isn't the case.  There are lots of examples out there where organizations make payments to individuals or other entities in a noncash manner, but they aren't considered barter exchanges. While I can't name the proper form, I'm sure it can be reported more simply than what you're describing.


I think the situation in the past was something like this: when the exchange was handling the actual processing of dividends, the responsibility was on the exchange, not Giga.  Now the responsibility shifts.  What you say might be correct, but I think it's more or less moot now given that there really is no viable exchange alternative for him to move to at the moment.

It seems very clear at this point that Giga does not think that it is legally or economically safe to do what you are asking him to do.  Why is asking him harder going to help?

And thank you for replying promptly and substantively.  I just have a quick followup:

(1) Since the secure storage for the SSNs is still being built, and I don't really know anything about Quentin's security except that he doesn't have a public key, I'm not really comfortable e-mailing him my SSN right now.  Would you prefer it if I:

   (a) Send him a partial claim once the affidavit form is released, then send the SSN later?

   (b) Hold off on sending any claim information until the system is whole, then send a complete claim with SSN? or

   (c) Encrypt a full claim to you at 6ADE3A3F for you to pass to him on paper or USB?

also

(2) Since the photo ID requirement is just for a generic governmental-issued document, I assume you'll just need to verify that it looks like a real ID and matches my address, date of birth, etc. Would there be any issue with me obscuring my DL# and other unique card identifier in the image, since I think your lawyers don't really need it, and (at least in my state), it often gets used like an SSN or account access card for many things?  I have the impression there has been a rash of people forging DLs with working magnetic stripe and using them at places that have replaced vendor-specific ID cards with DL swipes.

Thanks,

Adam

Well, if you need my SSN in order to make a 1099, that makes sense, but I have to echo those above who are curious about how you would actually do that.  I assume that there is a form with a method to list noncash transactions.  This isn't automatically crazy just because it's Bitcoin, as some people in here seem to be assuming.  Remember that there are plenty of instances where people are paid in something other than cash, and that's all subject to the basically same rules as cash income.

However, I do think it is very important that you provide up front some detail on how you intend to establish fair market value. My intention has been (unless I find out this is wrong) to check the MtGox value at the time of each dividend and report that dollar value as income.  By recording the dollar value of the BTC I paid for a share at the time of share purchase, and the dollar value of the BTC I get back from a share at share sale, I can properly report my capital gain or loss.

It would be bad for everybody if mismatches started cropping up based on different ideas of BTC market value because of differences in averaging over time, or even looking at a different time on the same day, when the BTC price might have been volatile.  You don't want to have people disputing a 1099 in some kind of four-way cluster---- between a shareholder, you, your lawyer, and the IRS. This could very easily happen if your lawyers are not well-versed in complex securities issues.

We also, of course, need a lot more assurance than we have right now about the protection of our tax ID information.  This is a matter of routine for anyone asking for an SSN, as you know. But you also know as well as anybody that Bitcoin attracts very smart criminals and vandals who would just love the idea of dumping a gold mine of SSNs of shareholders from all over the community because they were held on an excel spreadsheet in the office of an issue-inexperienced lawyer who got in way over his head IT-security-wise.

The law firm you are working with is a generic criminal defense outfit that advertises no real competence whatsoever in matters of civil securities law. And the person we are actually sending this information to is not even mentioned on the firm's site, only coming up in Google searches as a company director of entities called Quentin Page LLC and X-Com LLC.

So I don't fundamentally have a problem with the basic idea of what you're doing.  But I think that there is space here to have legitimate concerns at this point about how it's being done and by whom.

I haven't heard anything from you since the GLBSE shutdown -- have you received your shareholder information?

That may be true, although one interesting way of looking at this is that Matthew was actually peddling an insurance product rather than a gambling wager as classically understood. I don't have all the transcripts of what exactly Matt himself said, but there was certainly a lot of discussion about this being a way to hedge a Pirate default.  Financial insurance products such as credit default swaps and even classic insurance are all "bets" in a way between those exposed to risk and those offering an offset.

So it may be that for many Matthew bets, there was no skin in the game, and it was just a wager on the sideline about whether Pirate will pay, just like whether Liverpool will win.  But for those holding Pirate debt and looking for a hedge, this contract worked more like insurance and, depending on what Matthew said about it, might be more solid in terms of a liability in legal proceedings.  Maybe.

This.

Pirate has now in IRC today denied knowing anything about Zeek or having any involvement with it.

He has not deviated from his standard course of showing up every once in a while and saying absolutely nothing substantive about payments or even anything meta about why information is restricted.

Scammer.

Even a very literal interpretation of his contract does not support what he is claiming it does.  Anyone trying an "I tricked you in the fine print" scam actually does have to word the fine print correctly, and he didn't.

Right, and entities do indeed buy back their own debt at steep discounts when they see the opportunity. See http://www.investopedia.com/stock-analysis/2009/Four-Companies-Buying-Its-Own-Debt-XLNX-CIT-AMKR-AN0218.aspx#axzz25eLn0FJ4 .

As you are well aware, there is still plenty of speculation that Pirate might pay, pay in part, or be successfully sued for part or all of his debts.  "Default" does not mean the story ends.