Make Bitfloor solvent so it can resume operations then pay back losses

[BitcoinForLiberty]

For those of you that have Bitcoin or USD deposited at Bitfloor, I would remind you that if Bitfloor declares bankruptcy, you will only get pennies on the dollar back. Roman of Bitfloor said on September 4th:

“Once trading resumes, I hope to be able to start repaying BTC losses using the proceeds from fees. More information about this will be provided later. “

Probably the only way we who are creditors of Bitfloor will be made whole is if Bitfloor can continue earning revenue. But to continue operations, they must first become solvent. The best way for them to become solvent is for their largest creditors (those who had large balances in Bitcoin or USD at Bitfloor) to volunteer to redefine their account balances as a loan to Bitfloor.

Bitfloor is the best exchange out there in terms of its technical implementation, their fees are very low, they don't require personal information, they are easy and cheap to get money in and out of. Their trade volume has doubled from June to August (according to Bitcoincharts), showing that they are a rapidly rising star among Bitcoin exchanges. They are currently making $2100 per month, but what if they continue to double their market share every two months as they have the last two months?

If Bitfloor doubled it's trade volume twice more as it has done in the past two months and the price of Bitcoins rose to $30, then Bitfloor would have a revenue of $18,000 USD per month. If half of these funds were used to pay off loans to large creditors, the lost coins could be paid off in about two and a half years.

I realize there is a serious risk that Bitfloor trade volume may not grow dramatically or that the Bitcoin price may not rise significantly. But if the major creditors of Bitfloor do not band together and give it loans or raise funds some other way, we are sure to receive only pennies on the dollar in a bankruptcy settlement, at best. Given this poor alternative, I think the creditors of Bitfloor would be more likely to be made whole by volunteering to redefine their current balances as a loan.

I have a balance of 600 BTC and 6,000 USD at Bitfloor and I am willing to negotiate loaning these funds to Bitfloor. I would want some new security protocols committed to and some evidence presented  that Roman was not the thief (which I consider unlikely).

If you have a balance with Bitfloor and are willing to loan some of it to Bitfloor to make them solvent and allow them to continue operations, please reply to indicate what your balance is and what kind of terms you would be looking for.

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[muyuu]

This is what IPOs are for, it has been proposed a few times in its thread.

I have no funds in Bitfloor but I'd buy a few hundreds BTC in shares if he valued the company appropriately and his plans for security looking forward were reasonable. This would also mean even less revenue short term and he's running things quite tight at the moment so there's that as well. Life is expensive in NY. Say he IPOed 50% in GLBSE and only covered the losses with that, that would leave him with under 1K US$ a month revenue for himself at least for some months.

He needs financing now. I understand that means losing part of his own "child" and a lesser part of the cake but the fuck-up was massive and I guess he needs to take responsibility for that. He cannot continue running it as a one man's shop without external capital I'm afraid. He also risks losing the whole thing and having his reputation destroyed.

He might also strike a good deal from an angel investor but after past events this would seem rather unlikely to me. But in Bitcoin world everything's possible.

[blakdawg]

This is what IPOs are for, it has been proposed a few times in its thread.

Loans and equity investments are very different things from tax, finance, and legal perspectives.

And while people enjoy playing "grey area" with the status of BTC's, the legal status of a GLBSE "IPO" as promoted/offered by a person/entity within the US' jurisdiction is clear: it's a violation of the securities laws, and may even be a crime.

I realize it's fun to think that anything that touches the Internet is exotic and weird and completely beyond the vision or comprehension of a regulatory or law enforcement agency - but the 1980's called, and they want their Internet back. We're going to have to use our boring 2012 internet, and - news flash - it is not beyond the reach of regulators and governments.

[marcus_of_augustus]

Deposits for debt swap ... or deposits for shares swap ... (albeit now evaporated deposits mind you)

Convertible deposits 

[BitcoinForLiberty]

This is what IPOs are for, it has been proposed a few times in its thread.

Loans and equity investments are very different things from tax, finance, and legal perspectives.

And while people enjoy playing "grey area" with the status of BTC's, the legal status of a GLBSE "IPO" as promoted/offered by a person/entity within the US' jurisdiction is clear: it's a violation of the securities laws, and may even be a crime.

I realize it's fun to think that anything that touches the Internet is exotic and weird and completely beyond the vision or comprehension of a regulatory or law enforcement agency - but the 1980's called, and they want their Internet back. We're going to have to use our boring 2012 internet, and - news flash - it is not beyond the reach of regulators and governments.

So a Bitfloor IPO is not possible on GLBSE because that would be prohibited by the SEC or some such agency, I guess. But loans or even a bond would be legal, correct? I am wondering if the bond could be denominated in BTC.

[muyuu]

This is what IPOs are for, it has been proposed a few times in its thread.

Loans and equity investments are very different things from tax, finance, and legal perspectives.

And while people enjoy playing "grey area" with the status of BTC's, the legal status of a GLBSE "IPO" as promoted/offered by a person/entity within the US' jurisdiction is clear: it's a violation of the securities laws, and may even be a crime.

I realize it's fun to think that anything that touches the Internet is exotic and weird and completely beyond the vision or comprehension of a regulatory or law enforcement agency - but the 1980's called, and they want their Internet back. We're going to have to use our boring 2012 internet, and - news flash - it is not beyond the reach of regulators and governments.

I guess you have to make your bet, but mine is that he will be fine as long as no US$ are involved in the IPO or the dividends. As of now, it's not regulated and OP cannot be expected to predict if/when it will be.

In any case, the alternative which is owing 24K BTC valued at ~1/4 million US$ and being insolvent, is not much better.

Loans or bonds are also subject by regulation in fiat world.

[blakdawg]

I guess you have to make your bet, but mine is that he will be fine as long as no US$ are involved in the IPO or the dividends. As of now, it's not regulated and OP cannot be expected to predict if/when it will be.

My bet is that someone offering an "IPO" for a US corporation is looking at civil fines from the SEC and a complete shutdown of the business.

I don't know where you get the idea that "it's not regulated" - this stuff has been very explicitly regulated for something like 80 years now (for example, the Securities Act of 1933, and the Securities Exchange Act of 1934). The laws and regulations do not say "you can't use BTC" but they don't need to. 

Loans or bonds are also subject by regulation in fiat world.

I agree - but they are regulated in very different ways. I would be pretty wary of offering anything called a "bond" in a US jurisdiction or with a tie to the US (like, say, a US mailing address, and a corporate/LLC charter from a US state) without competent securities counsel.

Loans between private individuals/entities are not so closely regulated; and when they are regulated, it's often at a state level, and even at the federal level there are a lot of competing institutions who might or might not have jurisdiction.

I don't think anyone's going to have trouble if they make a private deal with Bitfloor to convert an existing deposit into a loan. I hope that Roman won't be stupid enough to start using words that imply securities (like shares or bonds) are being issued/offered to the public, because that's a slam-dunk securities law violation.

[muyuu]

Neither has happened yet even once. So, again, you have to make your bet.

It'd probably be wise to run it from outside of the US though.

What's your deadline? plenty of US chaps in GLBSE. We can fire a small bet

[blakdawg]

Neither has happened yet even once.

I'll just leave these here . . .

http://www.sec.gov/litigation/complaints/2012/comp-pr2012-146-2.pdf
http://www.sec.gov/litigation/complaints/2012/comp-pr2012-146-1.pdf
http://www.sec.gov/litigation/complaints/2012/comp22429.pdf
http://www.sec.gov/litigation/complaints/2012/comp22437.pdf
http://www.sec.gov/litigation/complaints/2012/comp22456.pdf

those are from just the first page at http://www.sec.gov/litigation/litreleases.shtml and they're all from Q3 2012. I'm not going to spend a ton of time digging up thousands of these for you, but if you have any doubt that the SEC can and will go after people who deal in unregistered securities, an afternoon spent browsing the SEC's webpage should put that to rest.

[Stephen Gornick]

The best way for them to become solvent is for their largest creditors (those who had large balances in Bitcoin or USD at Bitfloor) to volunteer to redefine their account balances as a loan to Bitfloor.

BitFloor is currently processing ALL withdrawal requests for ALL USD funds for ALL customers.

What this means is that the only creditors remaining will be those who had BTC balances, and those BTCs are gone.  BitFloor is insolvent.  

Shitty situation.  Someone could file an injunction to try to halt the USD withdrawals, but I doubt anyone has done that or is going to do that.  There still is a chance to clawback some of the funds that were withdrawn as some creditors were paid out and others weren't.  But that would require forcing BitFloor to file bankruptcy and a legal mess to follow to try to get blood out of a turnip.

Hindsight, ... be more careful with whom you trust your bitcoins.

[Fair disclosure, I had some bitcoins at BitFloor, and no USDs.]

[blakdawg]

BitFloor is currently processing ALL withdrawal requests for ALL USD funds for ALL customers.

What this means is that the only creditors remaining will be those who had BTC balances, and those BTCs are gone.  BitFloor is insolvent.  

Do you know this for a fact?

If I were Bitfloor's operator, the only way I would take that step is if I was very confident that I had funds available to make whole the people who had BTCs on deposit.

[BitcoinForLiberty]

BitFloor is currently processing ALL withdrawal requests for ALL USD funds for ALL customers.

What this means is that the only creditors remaining will be those who had BTC balances, and those BTCs are gone.  BitFloor is insolvent.  

Do you know this for a fact?

If I were Bitfloor's operator, the only way I would take that step is if I was very confident that I had funds available to make whole the people who had BTCs on deposit.

Yes, this is definitely correct. I have logged into my Bitfloor account and Shtylman says so himself at:
https://bitcointalk.org/index.php?topic=106251.0

[blakdawg]

BitFloor is currently processing ALL withdrawal requests for ALL USD funds for ALL customers.

What this means is that the only creditors remaining will be those who had BTC balances, and those BTCs are gone.  BitFloor is insolvent.  

Do you know this for a fact?

If I were Bitfloor's operator, the only way I would take that step is if I was very confident that I had funds available to make whole the people who had BTCs on deposit.

Yes, this is definitely correct. I have logged into my Bitfloor account and Shtylman says so himself at:
https://bitcointalk.org/index.php?topic=106251.0

I should have been more clear. I understand that Shtylman has announced he is turning USD withdrawls back on. What I'm unclear about is whether or not Bitfloor insolvent. As I said, the only way this makes sense is if he's not insolvent, meaning there's been or there will be a cash infusion from his personal funds or someone else's.

[BitcoinForLiberty]

What makes you think allowing USD withdrawal means Bitfloor is not insolvent? If Bitfloor was not insolvent, wouldn't Roman say so and schedule a resumption of trading?

[blakdawg]

What makes you think allowing USD withdrawal means Bitfloor is not insolvent? If Bitfloor was not insolvent, wouldn't Roman say so and schedule a resumption of trading?

If he was willing to screw people out of their deposits and risk lawsuits, etc., he'd just keep all of the money and make a bunch of vague promises about repayment in the future. Maybe he'd generously contribute a token amount of his own funds to compensate one or two of the victims. (cf. Bitcoinica/Intersango, Pirate . . .)

Giving back only the USD increases the likelihood of litigation, while leaving him without resources to defend the litigation. That would be stupid.

[iCEBREAKER]

What makes you think allowing USD withdrawal means Bitfloor is not insolvent? If Bitfloor was not insolvent, wouldn't Roman say so and schedule a resumption of trading?

If he was willing to screw people out of their deposits and risk lawsuits, etc., he'd just keep all of the money and make a bunch of vague promises about repayment in the future. Maybe he'd generously contribute a token amount of his own funds to compensate one or two of the victims. (cf. Bitcoinica/Intersango, Pirate . . .)

Giving back only the USD increases the likelihood of litigation, while leaving him without resources to defend the litigation. That would be stupid.

Bitcoins are not recognized as real money and thus have nothing to do with solvency in the formal sense.

Your "likelihood of litigation" hobgoblin is purely academic, and assumes the existence of entire bodies of law and precedent which do not yet exist.

Good luck convincing a real judge to care about your experimental imaginary internet nerd tokens. 



Why not file a report with the Bitcoin Police?  I'm sure they can be a Big Help!

[BC Systems]

Neither has happened yet even once.

I'll just leave these here . . .

http://www.sec.gov/litigation/complaints/2012/comp-pr2012-146-2.pdf
http://www.sec.gov/litigation/complaints/2012/comp-pr2012-146-1.pdf
http://www.sec.gov/litigation/complaints/2012/comp22429.pdf
http://www.sec.gov/litigation/complaints/2012/comp22437.pdf
http://www.sec.gov/litigation/complaints/2012/comp22456.pdf

those are from just the first page at http://www.sec.gov/litigation/litreleases.shtml and they're all from Q3 2012. I'm not going to spend a ton of time digging up thousands of these for you, but if you have any doubt that the SEC can and will go after people who deal in unregistered securities, an afternoon spent browsing the SEC's webpage should put that to rest.

Reports indicate that Chinese officials have sentenced the Company’s CEO to death for illegal fundraising activities, similar to a Ponzi scheme, involving Chinese citizens.

[blakdawg]

Bitcoins are not recognized as real money and thus have nothing to do with solvency in the formal sense.

Your "likelihood of litigation" hobgoblin is purely academic, and assumes the existence of entire bodies of law and precedent which do not yet exist.

Good luck convincing a real judge to care about your experimental imaginary internet nerd tokens. 

If you think BTC are worth nothing, then put your experimental imaginary internet nerd tokens where your mouth is, and send me some of yours:

13n2gfAVf6T3KpgXa2Xg85D9xBsjeGx3yw

That's a nice fresh new address.

Now we can all watch the blockchain and see if you actually believe BTC's have no value, or if you're just making noise to amuse yourself the same way little kids blow bubbles in their milk.

The "experimental imaginary internet nerd tokens" argument didn't save E-gold 10 years ago, so it's certainly not going to work now. You need to buy a calendar - the whole "the government doesn't know about the Internet" thing stopped working 15 years ago. Agreed, it was fun while it lasted. That's over.

[iCEBREAKER]

Bitcoins are not recognized as real money and thus have nothing to do with solvency in the formal sense.

Your "likelihood of litigation" hobgoblin is purely academic, and assumes the existence of entire bodies of law and precedent which do not yet exist.

Good luck convincing a real judge to care about your experimental imaginary internet nerd tokens. 

If you think BTC are worth nothing, then put your experimental imaginary internet nerd tokens where your mouth is, and send me some of yours

I never said Bitcoins are worth nothing *to me*! 

That's just your patently absurd strawman argument.  Good job knocking it down though!

Clearly, I was discussing the worth of Bitcoins in the legally binding sense, within the context of mocking your purely academic "likelihood of litigation" hobgoblin.

Your first clue was the key phrase "assumes the existence of entire bodies of law and precedent which do not yet exist."  Sorry you missed it!

Is there any "law and precedent" on which to base your silly "likelihood of litigation" speculation.  No, there is not.

Your second clue was the key phrase "a real judge."  How did you manage to miss that one too?  Too stubborn I guess.   

Am I "a real judge?"  No, not as far as you know. 

How's that injunction against Bitfloor ACH transfers coming?  You better hurry, because I've already put in for mine!   

In 2-3 days you'll be left with only the option of suing me and/or Bitfloor under clawback provisions, which no existing regulation, law, or precedent say are applicable to this situation.  How sad for you!   

Poor little dawggy!  You're all bark and no bite.   

[muyuu]

Neither has happened yet even once.

I'll just leave these here . . .

http://www.sec.gov/litigation/complaints/2012/comp-pr2012-146-2.pdf
http://www.sec.gov/litigation/complaints/2012/comp-pr2012-146-1.pdf
http://www.sec.gov/litigation/complaints/2012/comp22429.pdf
http://www.sec.gov/litigation/complaints/2012/comp22437.pdf
http://www.sec.gov/litigation/complaints/2012/comp22456.pdf

those are from just the first page at http://www.sec.gov/litigation/litreleases.shtml and they're all from Q3 2012. I'm not going to spend a ton of time digging up thousands of these for you, but if you have any doubt that the SEC can and will go after people who deal in unregistered securities, an afternoon spent browsing the SEC's webpage should put that to rest.

These are all unregistered securities in US$. Why do you waste my time like that? Post a single complaint where a government agency gives bitcoin currency status or even gives it asset value.

[BitcoinForLiberty]

Now that Bitfloor is returning USD balances, people with BTC balances have even less to lose by volunteering to make BTC balances a loan to Bitfloor. I gather Bitfloor has 6,000 BTC but owes 30,000 BTC. This would mean that in the event of Bitfloor bankruptcy, there would be 6,000 BTC minus attorney fees and other costs to distribute to the BTC holders. We can be pretty confident this equates to at most 10 cents on the dollar. It doesn't make financial sense to seek this outcome if Roman wants to take a shot at paying back BTC holders in full over time with exchange revenues.

I say if he wants to try to make BTC holders whole over an extended period of time, it is in the interest of Bitfloor BTC holders to call their balances a long term loan, thereby making Bitfloor solvent and allowing them to begin trading again.

To make this possible we need large BTC account holders to step forward and negotiate their balances into loans. I have ~600 BTC at Bitfloor. I am willing to convert this balance to a long term loan.

Any one else willing to do likewise?

[zakeroni]

I say if he wants to try to make BTC holders whole over an extended period of time, it is in the interest of Bitfloor BTC holders to call their balances a long term loan, thereby making Bitfloor solvent and allowing them to begin trading again.

To make this possible we need large BTC account holders to step forward and negotiate their balances into loans. I have ~600 BTC at Bitfloor. I am willing to convert this balance to a long term loan.

Any one else willing to do likewise?

I had 100 BTC in Bitfloor at the time of the hack. This is something that I would be interested in... but of course that's all dependent on a solid, secure plan for the exchange's future.

[Bastone]

Yeah a much improved security system seems like it would be necessary.

[bitfair]

Bitcoins are not recognized as real money and thus have nothing to do with solvency in the formal sense.

Your "likelihood of litigation" hobgoblin is purely academic, and assumes the existence of entire bodies of law and precedent which do not yet exist.

Good luck convincing a real judge to care about your experimental imaginary internet nerd tokens. 

Bitcoins may not be recognized as "real money", but I have no doubt at least some judges could be convinced that they classify as assets - i.e. exchangable for money. And assets are taken into consideration in both bankruptcy proceedings and litigation processes.

Although I didn't have any coin at BitFloor, I have to agree with BitcoinForLiberty: converting the BTC balances to equity or loans sounds better than forfeiting the balance and waiting for the bankruptcy proceedings to play out.

Converting the balances to equity or loans should be entirely legal too. I think perhaps doing an "IPO" on GLBSE might be a mistake - there are very strict regulations surrounding public offerings. But private equity, on the other hand, would be fine - and private equity can normally be traded quite easily OTC, or even might be registered at an exchange and traded on an exchange (which is still different than doing an Initial Public Offering).