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Author Topic: Conflicts of Interest at the Bitcoin Foundation (Securities related)  (Read 697 times)
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May 11, 2015, 03:42:01 AM

Conflicts of Interest at the Bitcoin Foundation

The Bitcoin Foundation has always had public relations issues. Its infamous alumni like former Mt. Gox CEO Mark Karpeles and Bitcoin wunderkind Charlie Shrem have provided an ample source of animosity toward the Bitcoin movement. However, and historically, these publicly disgraced Foundation members have resigned as an altruistic act of putting Bitcoin before themselves.

But what happens when a committee member refuses to step down, even when faced with a blatant conflict of interest?

Should we give that member three strikes, like in baseball? Ironically, the Bitcoin Foundation member in question lives in California, a pioneering jurisdiction of habitual offender laws, also known as “three-strikes laws.”

In July 2013, the Bitcoin Foundation announced the creation of a Legal Advocacy Committee. Brian Klein, an attorney, accepted the position as Committee Chair. As Chair, Klein is tasked with facilitating committee discussion on the Bitcoin Foundation forum. He is also supposed to manage and maintain a list of all committee members on the Bitcoin Foundation forum.

As of May 5, 2015, Mr. Klein has not authored a single post in the Legal Advocacy sub-forum. He has written only two posts for Bitcoin Foundation blog. And has generally neglected any duties as Committee Chair of the Legal Advocacy Committee.

Meanwhile, he has traveled nationally as a panelist for various cryptocurrency-related conferences and has defended clients who, arguably, have been harmful to the Bitcoin community. Even though at one time both clients in question were members of the Bitcoin Foundation, both have been toxic to the Bitcoin community. Mr. Klein has used his position in the Foundation to further his personal career at the cost of thousands of Bitcoin users worldwide.

Strike 1: Brian Klein and his firm, Baker Marquart LLP, were retained by Bitcoin entrepreneur Erik Voorhees. The Securities and Exchange Commission (SEC) investigated Voorhees for violating federal securities laws. In May 2012, Voorhees actively solicited investors to buy shares in FeedZeBirds, a Twitter application which promised to pay Bitcoin to Twitter users in exchange for forwarding sponsored text messages. The FeedZeBirds offering netted Voorhees 2,600 Bitcoin. Soon after the offering, FeedZeBirds ceased operations. When approached on, Voorhees was unable to provide any emails or receipts of how or where the 2,600 investors’ Bitcoin were allocated.

Voorhees eventually settled with the SEC. He was ordered to pay $50,843.98 in penalties and disgorgements. FeedZeBirds shareholders receive nothing.

At the time of settlement in June 2014, 2,600 Bitcoin was worth approximately $1,560,000. However, this is not to be taken in the context that Voorhees had access to the FZB IPO funds.

Strike 2: On November 26, 2014, it became public knowledge that Klein and Baker Marquart LLP were representing GAW Miners, LLC and its CEO, Josh Garza. In a widely circulated Cease and Desist order published by Bitcoin news site and signed by Klein, it became clear that Klein and his firm would take legal action to silence CoinFire with claims of libel. Reporter Mike Johnson responded saying that his words were not libelous and that multiple inquiries into GAW and its SEC investigation were never answered. Following public outcry, GAW website administrators removed the Cease and Desist order from their website.

Clearly, Brian Klein has put his own interests above that of the Bitcoin community. The threatening letter to CoinFire illustrates that respect for the journalistic process and free speech are put to one side when there is retainer and billable hours involved. I’ve tried to reach out to Mr. Klein to get his opinion on the matter but, unsurprisingly, never received a response.

Is this leadership what we want for the future of Bitcoin? Should we wait for strike three?

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May 11, 2015, 12:27:32 PM

I dont have time to investigate but Strike 1 doesnt mean that investors wont get anything back or cant sue him. The penalty was only for issuing an unregistered security, how it seems. So then investors could sue him because the funds are gone.

If im wrong can you tell me why that should not be possible?

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May 11, 2015, 12:32:30 PM

Honestly the Bitcoin Foundation should just be ignored in my opinion. I am glad that the devs are no longer paid by them, and I hope the foundation just fades away. Last time I read anything about it they were broke anyways? I do not think they are very relevant and something better should be formed by the community...


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