Discussion about 10,000BTC Bet (Official)

[jwzguy]

Thanks - that makes sense. I am but a simple software engineer.

I'm glad to hear you guys are doing well, though!

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[ArticMine]

I know someone who wanted to put up something worth investing in on GLBSE...I've never looked into it closely. (I believe they are still in the process of doing so.) Could you briefly touch on the obvious reasons?

Legal and taxation.

Any company (and no I don't mean someone calling a bunch of rigs a mining "company") only exists because the state says it does.  So Tangible Cryptography LLC is only a legal distinct entity from its owners because the Commonwealth of Virginia says that it is.  Doing things contrary to the Articles of Organization and the laws of Virginia governing Limited Liability Companies jeapordizes that standing.  There are rules on LLC and S-Corp which limit who can be an owner and the process that ownership is established.  For example in an LLC an owner (member) can't simply sell ownership to an outsider.  It requires a vote of existing members to include the new investors as a member and then a transfer of ownership between existing members.  An S-Corp in the US can't have foreigners as shareholders.  Neither entity can legally offer public securities or solicit investment (other than to qualified investors).

The taxation is even more of an issue.  The "entity" (LLC, corp, partnership, etc) is legally obligated to report the profits of its owners.  How do you do that when you don't even know who owns your company?

There are other legal issues but those two are a deal killer.  So either you don't form a corporation or other legal entity and simply put a bunch of assets in a "company" online or you willfully break the law and likely suffer massive consequences when the law catches up to you.

For many entities which deal in the "fiat world".  Non-compliance with the law and taxation is simply impossible.  Tangible Cryptography LLC cashflow (not profits but cashflow) is on the order of ~$10M for this year.  If we continue to grow it could be closer to ~$15M.  Do you think the IRS hasn't already been notified by our banks.  We are almost guaranteed to be audited the second our company files its tax return.  Our books have to be air tight.  Having quasi-illegal owners on some unregulated anonymous exchange is pretty much a guarantee the LLC would be dissolved as fraudulent and the known owners charged with tax evasion and other crimes.  

This is very true. The reality here is that it makes no real difference whether one is dealing in CAD, USD, EUR etc or in BTC!. The legal and tax obligations are still there. Another huge issue here for example when the issuer of a security does not only know who the holders of the security are but does not even know in which country the beneficial owner(s) reside. This opens all sorts of issues not only with withholding taxes but also with trade sanction laws. Pirateat40 is the perfect example. How much in interest payments did Pirateat40 for example send to Cuba from the United States? Does he even know?

[Domrada]

I know someone who wanted to put up something worth investing in on GLBSE...I've never looked into it closely. (I believe they are still in the process of doing so.) Could you briefly touch on the obvious reasons?

Legal and taxation.

Any company (and no I don't mean someone calling a bunch of rigs a mining "company") only exists because the state says it does.  So Tangible Cryptography LLC is only a legal distinct entity from its owners because the Commonwealth of Virginia says that it is.  Doing things contrary to the Articles of Organization and the laws of Virginia governing Limited Liability Companies jeapordizes that standing.  There are rules on LLC and S-Corp which limit who can be an owner and the process that ownership is established.  For example in an LLC an owner (member) can't simply sell ownership to an outsider.  It requires a vote of existing members to include the new investors as a member and then a transfer of ownership between existing members.  An S-Corp in the US can't have foreigners as shareholders.  Neither entity can legally offer public securities or solicit investment (other than to qualified investors).

The taxation is even more of an issue.  The "entity" (LLC, corp, partnership, etc) is legally obligated to report the profits of its owners.  How do you do that when you don't even know who owns your company?

There are other legal issues but those two are a deal killer.  So either you don't form a corporation or other legal entity and simply put a bunch of assets in a "company" online or you willfully break the law and likely suffer massive consequences when the law catches up to you.

For many entities which deal in the "fiat world".  Non-compliance with the law and taxation is simply impossible.  Tangible Cryptography LLC cashflow (not profits but cashflow) is on the order of ~$10M for this year.  If we continue to grow it could be closer to ~$15M.  Do you think the IRS hasn't already been notified by our banks.  We are almost guaranteed to be audited the second our company files its tax return.  Our books have to be air tight.  Having quasi-illegal owners on some unregulated anonymous exchange is pretty much a guarantee the LLC would be dissolved as fraudulent and the known owners charged with tax evasion and other crimes.  

There's a couple of things that may add to the discussion:

Small businesses can, and often do, choose not to formally organize. This is not illegal. There are plenty of mom and pop sole proprietorships/DBAs, and general partnerships out there still. The downside of choosing to do business this way is, of course, you don't have limited liability.  The upside is you avoid registration fees and franchise and excise taxes.  Since they're not making much money, often don't have much to lose, and operate the business themselves, they assume the risk. SPs and GPs don't require much paperwork.  If you're engaged in some sort of business, and you haven't registered it, you're a SP or a GP by default.  

Here's where it gets interesting:  The SEC has a number of exceptions for small businesses.  You can issue up to $1Million/year if you live in one of the covered states, and you only have to notify the SEC of your issue. My state has special rules for organizations that don't have limited liability. As long as you notify the regulatory bodies at both levels, with details of your issues and how much you raised, you're in compliance, or at least you have a good case.

Finally, I don't know as much about this because I haven't studied it too closely, but there was legislation passed just this year that made an exception for funds raised through crowd funding websites. Exactly when you can and can't use this exception is clear as mud, however, because it hasn't been tested in court yet. I have to admit, though, that I tried to discuss this with GLBSE to see if they had looked into compliance under this exception, and they had no clue what I was talking about.

I would hope that anyone planning to issue securities would have looked into the regulations that applied to their specific case.  You'd be surprised at the list of exceptions (it's a long as your arm).

[1l1l11ll1l]

You can't force someone to sell something they own (equity). Not unless it's done at gun point, anyway.

All they have to do is reinterpret the contract, simple!

[DeathAndTaxes]

There's a couple of things you may not realize:

(snip a bunch of "points" which didn't related to the topic discussed)

1) Sole proprietorship or partnership by it is very definition would rule out issuing share on GBLSE.  Not sure what bringing those equity structures up has to do with using GBLSE.

2) SEC exceptions for raising equity don't include raising equity from anonymous owners on unregulated exchanges.

3) The Jobs Act will (in 2013 if SEC ever finalizes rules) make is easier for smaller companies to raise equity from crowdfunded sources however the site offering the equity must A) be a registered broker-dealer and B) must NOT allow trading.  GBLSE fails on the second part and has no possible chance of becoming a registered broker dealer in the US. 

The post was about the non-viability of using GBLSE not a complete accounting of all small biz financing.  I am honestly not sure what the point of all that was.

[Domrada]

There's a couple of things you may not realize:

(snip a bunch of "points" which didn't related to the topic discussed)

1) Sole proprietorship or partnership by it is very definition would rule out issuing share on GBLSE.  Not sure what bringing those equity structures up has to do with using GBLSE.

2) SEC exceptions for raising equity don't include raising equity from anonymous owners on unregulated exchanges.

3) The Jobs Act will (in 2013 if SEC ever finalizes rules) make is easier for smaller companies to raise equity from crowdfunded sources however the site offering the equity must A) be a registered broker-dealer and B) must NOT allow trading.  GBLSE fails on the second part and has no possible chance of becoming a registered broker dealer in the US. 

The post was about the non-viability of using GBLSE not a complete accounting of all small biz financing.  I am honestly not sure what the point of all that was.

You're right of course.  If you sold part of your SP, it would automatically become a GP.  The proverbial silent partner. The "point of all that" was just friendly discussion about what type of legitimate business might be attracted to issuing on GLBSE without inviting a legal nightmare.  According to my use case, I don't think it is inconceivable. That's all.

[DeathAndTaxes]

You're right of course.  If you sold part of your SP, it would automatically become a GP.  The proverbial silent partner. The "point of all that" was just friendly discussion about what type of legitimate business might be attracted to issuing on GLBSE without inviting a legal nightmare.  According to my use case, I don't think it is inconceivable. That's all.

How?  A partnership can't lawfully issue equity to be traded among anonymous shareholders on an unregulated exchange.  Your conclusion isn't supported by your points.

[Domrada]

You're right of course.  If you sold part of your SP, it would automatically become a GP.  The proverbial silent partner. The "point of all that" was just friendly discussion about what type of legitimate business might be attracted to issuing on GLBSE without inviting a legal nightmare.  According to my use case, I don't think it is inconceivable. That's all.

How?  A partnership can't lawfully issue equity to be traded among anonymous shareholders on an unregulated exchange.  Your conclusion isn't supported by your points.

Perhaps I'm wrong, but my understanding is that the act of bringing a new partner into a general partnership can be classified as the issuance of a security, if and only if the new partner does not materially participate in the activities of the business. There is no law of physics preventing this from happening, so we're not talking about what you "can't" do, we're just talking about what you call it. I'm sure you'd agree that the regulations related to the issuing and those related to the trading of issues are separate. So as far as legal liability is concerned, the issuer cannot strictly be at fault for brokers/traders who fail to ensure they are in compliance.

If I provoked you in any way, that was not my intent.  I'm just trying to share my understanding of the law. I very well could be wrong.

[DeathAndTaxes]

Actually in a partnership the partnership IS responsible for tracking the ownership changes failure to do so can render the partnership invalid  (with all the legal and tax nightmare than will cause).  Simply saying yeah a partner broke up his share and sold them off to a couple thousand unknown persons who didn't pay taxes on their profits is completely insufficient.  A partner can't really sell his equity stake on GLBSE and thus remains liable for any taxes due.  Of course GLBSE "shares" also wouldn't give the shareholders any legal or ownership rights over the partnership. 

So as far as legal liability is concerned, the issuer cannot strictly be at fault for brokers/traders who fail to ensure they are in compliance.

Of course they are.   They have no legal authority to issue securities which can be traded by a third party.  Doing so and then blaming the quasi-illegal exchange isn't going to impress a judge or IRS auditor.  In VA for example a partnership must record any time a new partner is added or anytime equity is transferred between partners.  Something that is simply impossible if you are issuing share on GLBSE.

Anyways I am going to let this go.  You obviously seem to think one can operate sole proprietorship or partnership and issue shares traded by anonymous entities on GLBSE while still meeting all regulatory and taxation requirements.  I disagree.  

[LightRider]

[mp420]

He promised to give free bitcoins to everyone who showed him that they already have some. Of course this is suspect, and it's no surprise he did not keep his word. But really, I'm not even mad. Even if someone was trying to "hedge" against pirate's default, it would have been an "after-the-fact" hedge, they'd have lost their money already and were just trying to get them back through a free lottery ticket.

Matthew gained nothing financially, whereas Pirate actually stole other people's money.

[Come-from-Beyond]

Matthew gained nothing financially, whereas Pirate actually stole other people's money.

The fact that Pirate is a bad guy doesn't make Matthew a good one. Maybe he is better than Pirate but still...

Resume from my point of view:
1. Matthew got SCAMMER tag and this is the correct tag.
2. Image of Bitcoin Magazine was ruined and this is sad, rebranding could help them.
3. Any business which Matthew involved into will have its image ruined and this is how it should be.
4. Let's leave Matthew alone. He needs some time to mature a little bit.

[muyuu]

I am starting to understand the pattern of why some people's ignore link is highlighted...
;-)

I'm pretty amazed how fucking accurate that is. 9 out of 10 they really aren't worth wasting your time reading their posts.

[nazgulnarsil]

He promised to give free bitcoins to everyone who showed him that they already have some. Of course this is suspect, and it's no surprise he did not keep his word. But really, I'm not even mad. Even if someone was trying to "hedge" against pirate's default, it would have been an "after-the-fact" hedge, they'd have lost their money already and were just trying to get them back through a free lottery ticket.

Matthew gained nothing financially, whereas Pirate actually stole other people's money.

matthew gained the chance to fleece people on a bet that he never intended to pay.  Do you people live in a ****ing fantasy world where this kind of behavior won't get you in serious trouble IRL?

[sinner]

The small number of people I know who made bets were definitely planning to pay up if they lost the bet.

Matthew, go into a casino, put down $800,000 on black and after you lose, pick up the chips and say "just kidding."

Refusing escrow = red flag.  I had a bad feeling about Matthew long before the bet "settled."

[muyuu]

He promised to give free bitcoins to everyone who showed him that they already have some. Of course this is suspect, and it's no surprise he did not keep his word. But really, I'm not even mad. Even if someone was trying to "hedge" against pirate's default, it would have been an "after-the-fact" hedge, they'd have lost their money already and were just trying to get them back through a free lottery ticket.

Matthew gained nothing financially, whereas Pirate actually stole other people's money.

matthew gained the chance to fleece people on a bet that he never intended to pay.  Do you people live in a ****ing fantasy world where this kind of behavior won't get you in serious trouble IRL?

A lot of people here are incredibly departed from reality. It takes a while to realise to what extent they live in a fantasy world.

Cue one of my fav gifs:

[myrkul]

Matthew gained nothing financially, whereas Pirate actually stole other people's money.

matthew gained the chance to fleece people on a bet that he never intended to pay.  Do you people live in a ****ing fantasy world where this kind of behavior won't get you in serious trouble IRL?

I still don't see anywhere where making a bet you can't pay is a crime. It's stupid, I won't dispute that, and Matt deserves every bit of the backlash he's getting, but it's not criminal. I'd even go so far as to say it incurs a debt, since he agreed to pay, and didn't, but it's not like he stole from you, he just didn't pay.

The casino example is a good point. But here's the thing: They make you buy those chips. In other words, the casino is an escrow for that bet. This is more like walking up to a 3-card monte guy and being pissed off that he doesn't pay when you find the queen.

[muyuu]

I still don't see anywhere where making a bet you can't pay is a crime. It's stupid, I won't dispute that, and Matt deserves every bit of the backlash he's getting, but it's not criminal.

In real life promissory estoppel is criminal. You cannot promise something you can't provide and then appeal the contract to be void. I know many of us here including me advocate a lesser regulated justice but stuff like this is just naive.

[myrkul]

I still don't see anywhere where making a bet you can't pay is a crime. It's stupid, I won't dispute that, and Matt deserves every bit of the backlash he's getting, but it's not criminal.

In real life promissory estoppel is criminal. You cannot promise something you can't provide and then appeal the contract to be void. I know many of us here including me advocate a lesser regulated justice but stuff like this is just naive.

Ahh. That's what I was looking for. Thanks, I'll look into it.

promissory estoppel

A promisor—one who makes a promise—makes a gratuitous promise that he should reasonably have expected to induce action or forbearance of a definite and substantial character on the part of the promisee—one to whom a promise has been made. The promisee justifiably relies on the promise. A substantial detriment—that is, an economic loss—ensues to the promisee from action or forbearance. Injustice can be avoided only by enforcing the promise.

In other words, He's incurred a debt. Like I said.

[conspirosphere.tk]

I still don't see anywhere where making a bet you can't pay is a crime.

I would bet that he started this thing as a way to pump up the distressed Pirate's debt price while dumping his own share of it. That's maybe the only way his "joke" makes sense.