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Author Topic: Answering Legal Questions for Bitcoins!  (Read 3966 times)
ildubbioso
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September 16, 2012, 12:31:45 AM
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Leave your BTC address here Mr. Lawyer for some tips.

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September 16, 2012, 02:45:06 AM
 #22

Leave your BTC address here Mr. Lawyer for some tips.

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Thanks Smiley  Much obliged. 

Charlie Kelly: I'm pleading the 5th.  The Attorney: I would advise you do that.  Charlie Kelly: I'll take that advice under cooperation, alright? Now, let's say you and I go toe-to-toe on bird law and see who comes out the victor?  The Attorney: You know, I don't think I'm going to do anything close to that and I can clearly see you know nothing about the law.
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September 16, 2012, 03:49:03 AM
 #23

I think the entire forum is in need of some legal advise regarding the Pirate debacle. If you could share insights on that and post a donation address, I suspect you will make a lot more than 0.5BTC and establish your rep.


Since no one else seems to ask, I would like your legal opinion on the bitcoin ponzi's and pass through operations. Id like to know how legal or illegal that is, what the chances are for victims to recover their losses and to what extend pass through  operators could be held liable or be considered complicit. I imagine this is not something you will be able to answer in 5 minutes or without research, but if you quote a price, there should be enough victims willing to chip in I think.

I'm going to do some more research on the issue as I am not fully knowledgeable on the differences between a bitcoin ponzi and a "real" ponzi, but basically the downside to bitcoin ponzis are the same as "real" ponzi schemes.

Ponzi Schemes

What is a Ponzi Scheme?
While most states have laws against such schemes, it is primarily a federal issue, and the federal law is pretty clear on the matter.  

The Securities and Exchange Commission defines a ponzi scheme as: "an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors."
Red Flags of a Ponzi Scheme:  
  • High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
  • Overly consistent returns. Investments tend to go up and down over time, especially those seeking high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.
  • Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
  • Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
  • Secretive and/or complex strategies. Avoiding investments you don’t understand or for which you can’t get complete information is a good rule of thumb.
  • Issues with paperwork. Ignore excuses regarding why you can’t review information about an investment in writing, and always read an investment’s prospectus or disclosure statement carefully before you invest. Also, account statement errors may be a sign that funds are not being invested as promised.
  • Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out your investment. Keep in mind that Ponzi scheme promoters sometimes encourage participants to “roll over” promised payments by offering even higher investment returns.

I think I've been the victim of a ponzi scheme.  What can I do?
Now, normally if you suspect you have been a victim of a ponzi scheme, you would contact the SEC or the U.S. Attorney's office in your jurisdiction.  This would get the ball rolling as a possible criminal investigation.  But a criminal investigation doesn't help you get your money back.  You then have two options.  You could file suit in a federal court against the principals of the scheme, and ask for damages and injunctive relief (asking the court to shutdown the ponzi scheme).  This is terribly expensive.  Attorneys that handle these matters do not come cheap, and the cost of discovery and litigation for these types of cases runs into the hundreds of thousands of USD.  Your second option is you could allow the investigation to go forward by the government and wait for their findings.  If the government succeeds in convicting the principals of the charges brought against them, this significantly makes your job of bringing the lawsuit much easier and cheaper.  The downside to option #2 is that by this time there won't be any money left.  The principals will have skipped town with it, used it all in their defense, or by the time the ponzi scheme was discovered the money was gone already.  The investors that lose in these cases often would be more successful in putting toothpaste back in its tube than recovering their lost investment.

Those that operate a ponzi could be charged with various felonies racketeering felonies such as:
  • 18 USC 1341 (mail fraud)
  • 18 USC 1343 (wire fraud)
  • 18 USC 1956(a)(1) (laundering of monetary instruments)
  • 18 USC 1957 (engaging in monetary transactions)
  • 18 USC 1956(h) (conspiracy to launder monetary instruments and engage in monetary transactions)

Can "pass through" operators be criminally charged or civilly liable for their participation in facilitating the scheme?
The answer to this is almost assuredly yes.  Every state has a different conspiracy statute, but they generally say the same thing:

A person or business generally is guilty of conspiracy to commit a crime if that person or business does one of the following:
  • with the purpose of facilitating or promoting its commission, agrees with another person or business to engage in conduct that constitutes a crime or an attempt or solicitation of a crime; or
  • agrees to aid another person or business in planning, committing, or attempting to solicit a crime.

It is not a defense to the charge of conspiracy that the person did not know what they were doing was illegal.  
(See a few posts below for a more detailed discussion of pass-through operators)

What about the Bitcoin Savings & Trust debacle?
According to an article at theverge.com "[pirateat40] claimed that BS&T was sitting on 500,000 BTC on the day of the shutdown, worth more than $5.6 million USD at today's price of $11.38."  
http://www.theverge.com/2012/8/27/3271637/bitcoin-savings-trust-pyramid-scheme-shuts-down
At this point, the shutdown was several weeks ago.  In a USD ponzi scheme case, if I were a large investor (or the attorney of a large investor) my first goal would be to find out what assets he is in possession of and have them frozen.  The only way to do so is with a court injunction.  With minor research, it appears that pirateat40 is a Texas resident, and what is believed to be his real name is floating out there.  A Texas private investigator would likely be able to confirm this for me pretty quickly.  The suit could be filed either in Texas state court or preferably Texas federal court.  The suit would ask the court for an emergency injunction and a preliminary injunction.  At the same time as filing the complaint, I would also serve discovery.    Best case scenario the court would grant the emergency injunction, and the assets would be frozen as soon as I was then able to serve his bank with the order.  Otherwise, he would have 30 days to answer discovery and the complaint, and we would proceed as a normal lawsuit.

The problem here is this isn't a USD ponzi scheme.  It is a BTC ponzi scheme.  So while I could still file with the court, and still likely get my injunction, where do I serve it?  Where do I go to freeze his assets?  He isn't using a bank for his BTCs he is using an online wallet.  This complicates the matter significantly.  

Bottom Line
Ponzi schemes exist because some people get obnoxiously rich off of them.  While there are differences between a ponzi scheme and a pyramid scheme, in both, the principals and the early adopters are the ones that make the money.  At some point however, the money starts drying up, as new investors become harder to come by.  These newer investors are the ones that lose most if not their entire investment.  Unfortunately once this happens, there is no way they can fully be compensated.  Their investment has already been distributed, and no new money is coming in.  

If there is anything that you would like more detailed information on regarding ponzi schemes, please let me know.  If you believe there is anything I should know that is unique to a bitcoin ponzi scheme versus a "real" ponzi scheme, please let me know, and this might change my evaluation.  

If this summary of the law of ponzi schemes has been helpful for you, please feel free to contribute to: 1Hu8aScogCkcphFVcR376y1T2mMdqiSd1r
I do quite a bit of pro bono work, and any extra I can earn online providing legal advice, allows me to spend more time during the day assisting and providing high quality legal services to the indigent and those that simply can't afford high priced attorneys.

Charlie Kelly: I'm pleading the 5th.  The Attorney: I would advise you do that.  Charlie Kelly: I'll take that advice under cooperation, alright? Now, let's say you and I go toe-to-toe on bird law and see who comes out the victor?  The Attorney: You know, I don't think I'm going to do anything close to that and I can clearly see you know nothing about the law.
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September 16, 2012, 04:38:32 AM
 #24


If you feel you have been defamed and your reputation injured (even your online reputation) and you have suffered damages, contact an attorney.  (Or just PM me the details and I'll let you know in my opinion whether you have a good case.)  Most attorneys will give you an initial consultation for free, but be wary.   Most attorneys have little to no experience with international defamation, and most have never even heard of Bitcoins.  Bitcoins are an emerging market, and reputation is huge here.  A false statement about a bad transaction can have severe consequences.  

Are you saying that you have experience with litigation regarding international defamation? If so, perhaps you could give us an overview of the case(s) you've handled, whether you represented plaintiffs or defendants or both, and how and at what stage the dispute/litigation was resolved.

I do quite a bit of pro bono work, and any extra I can earn online providing legal advice, allows me to spend more time during the day assisting and providing high quality legal services to the indigent and those that simply can't afford high priced attorneys.

I would be more likely to give you BTC to encourage you to stop working for people who don't think their problems are bad enough to warrant spending money on. Most people have enough to pay for an attorney if they really want/need to, they just don't want it bad enough. And someone who really, really can't afford an attorney has bigger problems in their life, and it would probably make more sense for you to spend the time you spend on their legal matter working for a paying client, and giving your fee to the indigent person.

When someone says "I do quite a bit of pro bono work" I hear "unemployed" or "solo practitioner with no clients".
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September 16, 2012, 04:52:40 AM
 #25

When someone says "I do quite a bit of pro bono work" I hear "unemployed" or "solo practitioner with no clients".

So if someone says "I do quite a bit of open source programming", do you hear the same thing?  Bitcoin itself is a project based on pro bono programming, so don't be a prick.  Quite a few times we have had professionals come here and offer their services on the forums at a total bargain, and the most likely reason I would guess is they just want a couple of coins, and answering a 10 minute legal/medical/whatever question to them for a total stranger is just as good a way to get some play coins and experience with the system and the Bitcoin economy as spending 60 minutes bothering to learn how to go through BitInstant or MtGox or whatever and taking a drive to 7-11.

By the way, I didn't suffer from any loss from Pirate or his pass-throughs, but I read nolo's opinion with interest and thought it was worthy of a coin from me just for sharing.  So, that's where the 1 BTC sent to that address just came from!

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper or hardware wallets instead.
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September 16, 2012, 05:02:47 AM
 #26

Can "pass through" operators be criminally charged or civilly liable for their participation in facilitating the scheme?
The answer to this is almost assuredly yes.  Every state has a different conspiracy statute, but they generally say the same thing:

I wonder if this takes into account that many of the pass-through operators possibly did not know that they were participating in a ponzi scheme.  The way I understood it, what they were offering was insurance against an unknown, clearly disclosing that there was a risk of default that was ostensibly unknowable, and in the process of providing this quasi insurance with their own funds, were simply enjoying the opportunity to make a bet themselves (in the opposite direction against their customers) in a manner that magnified their potential losses/returns relative to the amount they risked, essentially equivalent to betting with leverage.  Must the pass-through operators be aware that the scheme was an actual fraud in order for them to be liable?  I am mostly just curious.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper or hardware wallets instead.
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September 16, 2012, 05:05:17 AM
 #27

When someone says "I do quite a bit of pro bono work" I hear "unemployed" or "solo practitioner with no clients".

So if someone says "I do quite a bit of open source programming", do you hear the same thing?  Bitcoin itself is a project based on pro bono programming, so don't be a prick.  Quite a few times we have had professionals come here and offer their services on the forums at a total bargain, and the most likely reason I would guess is they just want a couple of coins, and answering a 10 minute legal/medical/whatever question to them for a total stranger is just as good a way to get some play coins and experience with the system and the Bitcoin economy as spending 60 minutes bothering to learn how to go through BitInstant or MtGox or whatever and taking a drive to 7-11.

By the way, I didn't suffer from any loss from Pirate or his pass-throughs, but I read nolo's opinion with interest and thought it was worthy of a coin from me just for sharing.  So, that's where the 1 BTC sent to that address just came from!

I greatly appreciate it, thank you.

As far as the pro bono work goes, let me share the types of cases I have taken.  A battered wife who was scared to leave her husband because she couldn't afford to litigate over custody of her child.  I took that case for free, and she now has sole custody of her child.  I have helped protesters that have been wrongly arrested for just being at a demonstration.  I have worked on (wasn't the lead) on a case where the prosecution had information that a guy in prison was wrongly convicted, but the state refused to reopen the case.  The guy was eventually freed.  So you can see, in these cases there isn't any money to be made anyway.  I just do it because it is the right thing to do. 

I don't do contract breach or corporate litigation pro bono lol.  Most of the time I charge (gotta make a living after all).  But what I'm saying when I post that I do pro bono work is, that the more I can raise on extra activities like this board, the more time I can spending helping those that can't afford basic legal services.

Charlie Kelly: I'm pleading the 5th.  The Attorney: I would advise you do that.  Charlie Kelly: I'll take that advice under cooperation, alright? Now, let's say you and I go toe-to-toe on bird law and see who comes out the victor?  The Attorney: You know, I don't think I'm going to do anything close to that and I can clearly see you know nothing about the law.
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September 16, 2012, 05:24:07 AM
 #28

Nolo, just wanted to say thanks for your experienced input on the ponzi matter.  I look forward to seeing how this progresses.

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September 16, 2012, 05:31:17 AM
 #29

Can "pass through" operators be criminally charged or civilly liable for their participation in facilitating the scheme?
The answer to this is almost assuredly yes.  Every state has a different conspiracy statute, but they generally say the same thing:

I wonder if this takes into account that many of the pass-through operators possibly did not know that they were participating in a ponzi scheme.  The way I understood it, what they were offering was insurance against an unknown, clearly disclosing that there was a risk of default that was ostensibly unknowable, and in the process of providing this quasi insurance with their own funds, were simply enjoying the opportunity to make a bet themselves (in the opposite direction against their customers) in a manner that magnified their potential losses/returns relative to the amount they risked, essentially equivalent to betting with leverage.  Must the pass-through operators be aware that the scheme was an actual fraud in order for them to be liable?  I am mostly just curious.

Ok lets go into the law of conspiracy with a little more detail and we'll talk it out, with the additional information you have provided me.  The reason I am focusing on conspiracy is because it is a crime.  The tort of misrepresentation may be an appropriate civil remedy under the right set of facts.  It depends on whether the pass-through operator himself misrepresented to the investors what they were doing.  This would be so fact dependent on the individual pass-through that an answer without an example really isn't possible.  So an analysis of conspiracy is really all we can do at this point.

The elements of a conspiracy charge are:
1) an unlawful criminal combination;
2) between two or more persons;
3) who enter into an agreement;
4) with the specific-intent to commit an unlawful act; or
5) a lawful act by unlawful means.

The essence of the conspiracy is the agreement.  Feigned agreement (as in the case of an undercover police officer) is insufficient.  An actual agreement is required.  
To form a conspiracy, the parties must act together and agree to accomplish the same crime.  But an express agreement is not required.  An agreement may be evidenced by conduct where the conspirators demonstrate over time that they intended to achieve the same objective and agreed to work together toward that end.  

Each co-conspirator is liable ofr the crimes of all the other co-conspirators where the crimes were both:
  • a foreseeable outgrowth of the conspiracy; and
  • were committed in furtherance of hte conspiratorial goal.

The only accepted defense at common law is withdrawal.  Under the Model Penal Code, if a co-conspirator gives timely notice of his plans to all members of the conspiracy and performs an affirmative act to "thwart" the success of the conspiracy.  

So applying the above law to the additional information you have provided me about what a pass-through operator does, my conclusion is like everything in law, it depends on the facts of each case.  If the actual operation is a ponzi scheme, then element 1 is met.  Element 2 speaks for itself.  Elements 3 and 4 are where the prosecution would have the toughest time bringing a criminal charge.  Once again, they do not have to prove an express agreement, just that the parties acted together and agree to accomplish the same crime.  If the prosecution can prove that a reasonably prudent person would have known that what he was peddling to the public was a ponzi scheme, then I believe a jury could find that this element has been met.  This requirement goes hand in hand with element 4.  Specific intent can otherwise be rephrased as "knowing".  Did the pass through operator "know" that he was being used as a conduit for a ponzi scheme.

In your post you say
Quote
"...were simply enjoying the opportunity to make a bet themselves (in the opposite direction against their customers)".
 A prosecutor would latch on to that fact and run with it.  If the pass-through operator is betting against their customers, then the prosecutor could argue that the operator knew or at least hoped that he was involved in a scheme that the investors would lose in.  (Atleast that's what I would do Smiley )

Quote
Must the pass-through operators be aware that the scheme was an actual fraud in order for them to be liable?  
Criminally?  Maybe.  That's what we just discussed above.
Civilly? No.  They could civilly be liable in a tort theory of negligence or misrepresentation, simply for recommending an investment without proper due diligence.  (And if they did the proper due diligence, and it was a ponzi scheme, this could be used as evidence to prove that they did know it was an illegal operation.  So the knife cuts both ways on this one.)

  

Charlie Kelly: I'm pleading the 5th.  The Attorney: I would advise you do that.  Charlie Kelly: I'll take that advice under cooperation, alright? Now, let's say you and I go toe-to-toe on bird law and see who comes out the victor?  The Attorney: You know, I don't think I'm going to do anything close to that and I can clearly see you know nothing about the law.
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September 16, 2012, 05:31:42 AM
 #30

Nolo, just wanted to say thanks for your experienced input on the ponzi matter.  I look forward to seeing how this progresses.

+1 BTC Cheesy

Thank you!

Charlie Kelly: I'm pleading the 5th.  The Attorney: I would advise you do that.  Charlie Kelly: I'll take that advice under cooperation, alright? Now, let's say you and I go toe-to-toe on bird law and see who comes out the victor?  The Attorney: You know, I don't think I'm going to do anything close to that and I can clearly see you know nothing about the law.
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September 16, 2012, 05:39:10 AM
 #31

When someone says "I do quite a bit of pro bono work" I hear "unemployed" or "solo practitioner with no clients".

So if someone says "I do quite a bit of open source programming", do you hear the same thing?

Yes. Granted, there are some people who have jobs/businesses who choose to open source their software, but there's also a lot of crap that people write because they want attention, or something to put on their resume.

  Bitcoin itself is a project based on pro bono programming, so don't be a prick. 

I don't see that at all. I will cheerfully agree that some of the software in the BTC world is open source, but making the claim that "open source = pro bono" seems pretty far-fetched to me.

In particular, pro bono work typically is done for a specific, identifiable client (who is not the attorney), and open source software is usually written to solve one's own problem ("scratch[ing] your own itch", as Tim O'Reilly put it in "Open Sources: Voices from the Open Source Revolution") and then released to the world in hopes that it might benefit someone else, somewhere else.

So, I guess if one really wanted to have a "pro bono software project", a developer could find a person or an organization in need of bespoke software development, and then write software for them for free.

Are you saying that's what happened with Bitcoin development? If so, that part of the story is not well known.

I think most people assume that early BTC developers have, or had, an opportunity to make quite a bit of profit from selling BTC's that they mined or acquired when one pizza = 10,000 BTC, instead of today's one pizza = 1.5 BTC, give or take. There's nothing wrong with that, but I sure wouldn't call it "pro bono", either.

Working the other direction, almost everything that attorneys do that is filed in court is "open source", because as soon as it's filed it's fair game for other attorneys to read, learn from, and re-use just like source code. Every attorney who files things with a court creates this sort of work and releases it to the world, not because they're nice people or altruistic people, but because that's just how the (US, anyway) legal system works.

But the real question is whether or not typical "pro bono" work actually makes the world a better place. The full phrase is "pro bono publico", or "for the public good". Frankly, as someone who's done "pro bono" work, it is not at all clear to me that it really does improve things for either the specific client or society in general. My impression is that for the clients, it typically allows them to avoid or postpone solving a problem that really ought to be resolved once and for all - and that the best resolution will probably be provided by the free market, not by a bunch of litigation facilitated by giving some participants free legal help. That just prolongs the misery.

Legal services are like anything else - if you give something away for free, people will tend to believe it is of low value, they'll respect/appreciate it less (or not at all), and they'll feel free to waste it.

Someone who's actually paying, out of pocket, for litigation? You can be sure they're going to look for alternatives, compromises, and ways to solve the problem short of burning up tons of lawyer time.

When people really, really need an attorney -when they (or their kid) is facing decades in prison, or losing their house or their livelihood - money has a way of magically appearing out of mattresses and mortgages and loans/gifts from family and friends.

When people just want to dick around over some petty dispute, that's when they're happy to burn up some free lawyer's time and energy beating up on the other dude. If the other dude has pro bono counsel, too - that shit's never going to end. Who is motivated to stop it?
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September 16, 2012, 06:02:24 AM
 #32

Can "pass through" operators be criminally charged or civilly liable for their participation in facilitating the scheme?
The answer to this is almost assuredly yes.  Every state has a different conspiracy statute, but they generally say the same thing:

I wonder if this takes into account that many of the pass-through operators possibly did not know that they were participating in a ponzi scheme.  The way I understood it, what they were offering was insurance against an unknown, clearly disclosing that there was a risk of default that was ostensibly unknowable, and in the process of providing this quasi insurance with their own funds, were simply enjoying the opportunity to make a bet themselves (in the opposite direction against their customers) in a manner that magnified their potential losses/returns relative to the amount they risked, essentially equivalent to betting with leverage.  Must the pass-through operators be aware that the scheme was an actual fraud in order for them to be liable?  I am mostly just curious.

I think it would be more productive/educational to frame the question like this:

A operates a ponzi scheme and B, C, and D are willing participants. X offers to, and enters into, a transaction with "B" that he calls "insurance" which will purportedly protect B against losses if A defaults. Y offers to, and enters into, a transaction with "C" that he calls a "bet" which will purportedly pay C if A defaults. Z offers to, and enters into, a transaction with "D" that he calls a "put option" which will allow D to sell D's position in A's scheme to Z at some date in the distant future.

The ponzi collapses and A defaults. X fails to pay the claim on the "insurance policy". Y fails to honor his wager. Z refuses to allow D to exercise the option.

Are X, Y, and Z subject to civil liability (in favor of B, C, D, or state/federal regulatory agencies)? Are X, Y, and Z subject to prosecution in any jurisdictions? Which ones, and what statutes would they be charged with violating?

How do the answers differ depending on the nation(s) or states/provinces where B,C,D,X,Y, and Z reside or do business?
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September 16, 2012, 06:09:50 AM
 #33

Don't worry about two pro-bono attorneys fighting it out.  Only if they have to book n pro-bono hours per year for firm will they run it longer.  They will want to settle ASAP.

It is not that pro bono is bad (hah!), is that one must consider incentive.  If no retainer or contingency, want to make reasonable settlement with as little court as possible.

MS EECS MIT, PhD Math Stanford, L2 dropout American University Washington College of Law.
Forgive my English.  It is functional with good vocabulary but not so good grammar.  I give BNF for my English so not to offend you. Smiley
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September 16, 2012, 06:19:28 AM
 #34

I've read this thread and, while I don't see myself in need of legal advice anytime soon, I just thought I'd let you know I appreciate what you're doing here. I don't think most would have taken the time.

Comparison of Privacy-Centric Coins: https://moneroforcash.com/monero-vs-dash-vs-zcash-vs-bitcoinmixers.php also includes Verge and Pivx
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September 16, 2012, 06:19:41 AM
 #35

Can "pass through" operators be criminally charged or civilly liable for their participation in facilitating the scheme?
The answer to this is almost assuredly yes.  Every state has a different conspiracy statute, but they generally say the same thing:

I wonder if this takes into account that many of the pass-through operators possibly did not know that they were participating in a ponzi scheme.  The way I understood it, what they were offering was insurance against an unknown, clearly disclosing that there was a risk of default that was ostensibly unknowable, and in the process of providing this quasi insurance with their own funds, were simply enjoying the opportunity to make a bet themselves (in the opposite direction against their customers) in a manner that magnified their potential losses/returns relative to the amount they risked, essentially equivalent to betting with leverage.  Must the pass-through operators be aware that the scheme was an actual fraud in order for them to be liable?  I am mostly just curious.

I think it would be more productive/educational to frame the question like this:

A operates a ponzi scheme and B, C, and D are willing participants. X offers to, and enters into, a transaction with "B" that he calls "insurance" which will purportedly protect B against losses if A defaults. Y offers to, and enters into, a transaction with "C" that he calls a "bet" which will purportedly pay C if A defaults. Z offers to, and enters into, a transaction with "D" that he calls a "put option" which will allow D to sell D's position in A's scheme to Z at some date in the distant future.

The ponzi collapses and A defaults. X fails to pay the claim on the "insurance policy". Y fails to honor his wager. Z refuses to allow D to exercise the option.

Are X, Y, and Z subject to civil liability (in favor of B, C, D, or state/federal regulatory agencies)? Are X, Y, and Z subject to prosecution in any jurisdictions? Which ones, and what statutes would they be charged with violating?

How do the answers differ depending on the nation(s) or states/provinces where B,C,D,X,Y, and Z reside or do business?

I'm tired, and heading to bed.  But I just thought I'd give a quick (not well thoughtout) answer to your post.  In the morning I might feel differently about my answer.  But here it is for now:

X is liable for breach of contract to B.  
Y is liable for breach of contract to C.
Z is liable for breach of contract to D.  

Unless there is a defense such as illegality.  A court will not enforce an illegal contract.  Therefore, if for example, Y & C's contract of the "bet" is considered illegal gambling, then C has no remedy against Y, not even an equitable remedy.

X,Y, & Z could be subject to prosecution for criminal fraud in almost any jurisdiction in which they reside, do business, or in which they entered into the contract.  (This would require a lengthy discussion of conflict of laws and constitutional law, but that's the general rule.)


Charlie Kelly: I'm pleading the 5th.  The Attorney: I would advise you do that.  Charlie Kelly: I'll take that advice under cooperation, alright? Now, let's say you and I go toe-to-toe on bird law and see who comes out the victor?  The Attorney: You know, I don't think I'm going to do anything close to that and I can clearly see you know nothing about the law.
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September 16, 2012, 08:54:26 AM
 #36

This is cool, if only I had questions to ask  Sad
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September 16, 2012, 09:49:05 AM
 #37

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The problem here is this isn't a USD ponzi scheme.  It is a BTC ponzi scheme.

Actually it is. BTC is just a ticket, chip, token etc. to get in to the game. It was used to transfer USD to Trendon and nothing else.
I have wrote this multiple times before - BTC biggest PR screw up is that it gets presented as currency and not as fast, cheap and secure way to TRANSFER funds between point A to point B.
My point is, fraud was committed in USD.

While reading what I wrote, use the most friendliest and relaxing voice in your head.
BTW, Things in BTC bubble universes are getting ugly....
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September 16, 2012, 02:32:27 PM
 #38

Quote
The problem here is this isn't a USD ponzi scheme.  It is a BTC ponzi scheme.

Actually it is. BTC is just a ticket, chip, token etc. to get in to the game. It was used to transfer USD to Trendon and nothing else.
I have wrote this multiple times before - BTC biggest PR screw up is that it gets presented as currency and not as fast, cheap and secure way to TRANSFER funds between point A to point B.
My point is, fraud was committed in USD.


I think Nolo's point was that you can't follow the money and freeze it because it is BTC.  Not whether or not fraud was committed in USD vs BTC.  So unlike USD he can't ask a court to freeze funds and prevent him from spending or skipping town with them while the court does its thing, because as you know, courts can't freeze BTC.  In other words, even if there are funds to chase by going to court, by the time you win them they may not be there anymore.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper or hardware wallets instead.
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September 16, 2012, 02:49:34 PM
 #39

courts can't freeze BTC.  In other words, even if there are funds to chase by going to court, by the time you win them they may not be there anymore.

This is very good point and should be alone in post.  People mention "dead man switch" when talking about PirateAt40.  Dead man switch could move BTC around tumblers and deposit to brainwallet accounts while "dead man" is "man in jail".

Off topicking.  Nolo is no longer Newbie, can start topics in Legal thread?  Otherwise, forum problem of 100 page threads will happen.  Keep this for newbie posts with questions and bitcoins burning hole in pocket for Nolo?

MS EECS MIT, PhD Math Stanford, L2 dropout American University Washington College of Law.
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September 16, 2012, 11:23:20 PM
 #40

courts can't freeze BTC.  In other words, even if there are funds to chase by going to court, by the time you win them they may not be there anymore.

Nolo is no longer Newbie, can start topics in Legal thread?  Otherwise, forum problem of 100 page threads will happen.  Keep this for newbie posts with questions and bitcoins burning hole in pocket for Nolo?

I started a topic in the forum "Services". 

https://bitcointalk.org/index.php?topic=109385.0

If you can post in that forum, please post in the future in that thread.  Otherwise I will still be somewhat monitoring this thread for newbies. 

Charlie Kelly: I'm pleading the 5th.  The Attorney: I would advise you do that.  Charlie Kelly: I'll take that advice under cooperation, alright? Now, let's say you and I go toe-to-toe on bird law and see who comes out the victor?  The Attorney: You know, I don't think I'm going to do anything close to that and I can clearly see you know nothing about the law.
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