Financial Reporting for Securities

[cusdog]

Hi guys,

Longtime lurker. I’ve become more actively engaged in the community more recently, specifically the securities side of things and noticed something: A dearth of transparency, even for the large issuances. Current and prospective investors have very little to go on, which allows scammers/poor investments to suck-up capital and makes the cost of capital for profitable and strong enterprises more expensive. This is a drain on the entire community. I think a lot of good can be done for the market stability and perception of bitcoin securities if people would move towards transparency. Incidentally it would be more profitable for people running solid, honest businesses because they would be able to raise capital more cheaply.

I don’t want to be mean and single out any entity/person, but stuff like this:

https://docs.google.com/spreadsheet/pub?key=0AoYY1V1t8ncndFBwV04zZzBKRWFqbFFua2JsT3Jaemc&single=true&gid=2&output=html

makes little sense and has only limited usefulness for a potential investor.

I want to explore the possibility of having widespread adoption legitimate accrual accounting and useful disclosure/reporting. And when I say “useful” I mean for a miner disclosure about each piece of equipment you have, the shape it is in, projected performance, allocated expenses for the period broken down (and not on a cash basis), etc. I mean for an investment fund, the FMV of your holdings @ the reporting date, the dividends from your holdings accrued and included in NAV,  clear disclosure about the management fee, etc.

Here is what I propose, and tell me if I am being too optimistic; One of the large exchanged-traded entities (maybe run by someone on this board, BTCinvest? ASICMINER?) takes the first step with this.I am a Canadian CA who can spare a few hours a week and am willing to help out for free to get this done. Input is appreciated.


BTC

[dance4x]

If this was Reddit, I would give you an upvote.

[Deprived]

The interesting thing with those accounts are they appear to show that they made about a 400 BTC loss from selling BTC.  i.e. if they hadn't bothered doing any business at all they'd be 400 BTC better off.

That's because they sold BTC for USD then the price of BTC rose sharply whilst their funds were stuck in USD - meaning by the time they converted back into BTC it was at a much higher rate.

That little gem of information (that they'd been making a loss from slow conversion) wasn't revealed until AFTER they'd sold shares of course.  Whilst the information disclosed by companies after they've sold shares is bad it's nothing compared to the total lack of any information whatsoever provided at IPO time.

The problem companies like that one face is that if they revealed information up front properly then noone would invest - as it would be obvious that it wasn't really a BTC-denominated investment and that the operators apparently don't even understand the degree to which their business model is exposed to exchange-rate risk.  And that (full disclosure in advance leading to slow/no sales) is not in their interest OR the interest of the exchange - so they get to list without any advance notice, any chance to ask questions or any financial records provided.

My guess is that it'll take a handful going bust (as is happening with Ziggap) before Bitfunder decide to tighten up on listing requirements and demand proper accounting BEFORE IPO.  BTC.CO/LTC-Global are taking steps in that direction already (very tight restrictions on new listings now) after a bunch of crappy ones recently - but all that does is force the ones who can't/won't provide proper information to list elsewhere.  Unfortunately when there's multiple exchanges the temptation is to lower standards to attract customers when raising standards is what's really needed.

The fundamental problem is that most people who try to run Bitcoin businesses are not competent to do so.  And, by extension, most Bitcoin investments will make a loss for investors compared to just holding Bitcoins.  The real threat to investors' funds isn't (so much) scams - it's well-intentioned but utterly incompetent business owners.  Running a business requires skills and competence in running businesses - somehow a whole load of people miss that and assume competence is technical areas relevant to the business is a sufficient replacement.  It's not.  And unfortunately it seems the investing public want a second lesson in that - the many failures on GLBSE not being adequate proof that being able to make a website and a few hundred $ profit is NOT sufficient qualification to run a business several orders of magnitude larger.

Solve the core competence issue and the financial disclosure will sort itself out - any competent business manager will already have all key data tracked and accounted for.  Until then just sit back and watch the parade of failures - with associated claims of everything being great right up until the company busts (typically because what's being declared as profit isn't actually profit at all).

[usagi]

Here is what I propose, and tell me if I am being too optimistic; One of the large exchanged-traded entities (maybe run by someone on this board, BTCinvest? ASICMINER?) takes the first step with this. I am a Canadian CA who can spare a few hours a week and am willing to help out for free to get this done. Input is appreciated.

Hello. I was the first asset issuer on GLBSE to publish their books online, and to bring outside people in to help work on the company. Now, I run TU.SILVER, and we are the only fund in the community which hires someone to go over our books and help us prepare monthly statements. Many other funds, such as Deprived's LTC-ATF actually refuse to release their books, despite suspicion of fraud. So you are absolutely right, the situation re: transparency is terrible.

I'd absolutely love the opportunity to hire a Canadian CA to help us with our books. The reason why most other funds/businesses don't hire a CA is, I suspect, a matter of cost. It's very expensive considering the amount of money that is made. Unfortunately the markets are still "new" and illiquid and there's not much profit to be made. If a business can turn 3% a month without a CA, then they're a good investment, but it also means hiring a CA would probably kill their business.

So the idea to get a large company like ASICMINER or SatoshiDice to go that route is your best shot. But I doubt that they would do it simply because they're "large" companies and probably a little elitist. Deprived hit the nail on the head -- but what he didn't tell you is that his own fund has serious problems as well. He's been put on the spot more than once and he has promised to provide proof for his financial statements, but he never does. Whether it's that he forgot or that he's committing fraud is unknown. That's why it's so important that businesses hire independent auditing.

I've sent you a PM. I think it would be interesting to see what a CA can do for my silver business. Thanks for posting here!

[cusdog]

Thanks for the analysis deprived. I agree almost totally with everything you said. This is exactly why I think the first step is for competent businesses to begin/improve their reporting processes this acts as a signaling mechanism. Solid businesses with transparent records will ensure that the vast majority of the capital is allocated their way and away from poorly run/scam alternatives. Right now bad businesses get money because there is little differentiation between them and good businesses unless the investor is willing to spend time digging through threads on here and historical events and good businesses are left paying more for capital.

The one part I disagree with you on is your assertion that the exchanges will be the ones who will get the ball rolling. While possible, I think that the incentive is far greater for good businesses to signal to the market their strength than exchanges to have fewer listing failures, and therefore I think the first step will come from one of the major securities (ASICMINER, BITinvest, etc) and not Bitfunder or btct.co. I'm just trying to nudge them in that direction faster an offering any assistance I can given my background and expertise to accelerate the process.

I want to have some discussion percolate in this thread, hopefully someone of the big players will have some input.

[cusdog]

usagi,

Thank you for your support and kind words. I noticed in the description of TU.SILVER that you have some assurance by a third party, that is a great example. With respect to cost, this is why I offered my services for free. My effective wage (salary converted) is way to high for most of these companies so I doubt this will become a revenue stream for me. My goal is first and foremost to improve the bitcoin marketplace, if I can build an operation out of it in the long term, so much the better, but I won't be quitting my job anytime soon.

[Deprived]

The one part I disagree with you on is your assertion that the exchanges will be the ones who will get the ball rolling.

I agree exchanges aren't the solution - in many respects they're actually part of the problem.  Exchanges allow incompetents to attract investment without having to engage in a dialogue with investors themselves.

[cusdog]

The one part I disagree with you on is your assertion that the exchanges will be the ones who will get the ball rolling.

I agree exchanges aren't the solution - in many respects they're actually part of the problem.  Exchanges allow incompetents to attract investment without having to engage in a dialogue with investors themselves.

I don't think people on the exchanges are incompetent per se. They are just operating under very information-scarce circumstances. If, lets say, you had ASICMINER publishing full statements with granular details, the only people who would put money in any of the opaque miners are the 5% of guys who are total gamblers. You would effectively starve most of the bad businesses out.

[Deprived]

Many other funds, such as Deprived's LTC-ATF actually refuse to release their books, despite suspicion of fraud.

Deprived hit the nail on the head -- but what he didn't tell you is that his own fund has serious problems as well. He's been put on the spot more than once and he has promised to provide proof for his financial statements, but he never does. Whether it's that he forgot or that he's committing fraud is unknown. That's why it's so important that businesses hire independent auditing.

If you have accusations against me make them in one of my threads or in a new thread here (or in scam accusations if you prefer).

To OP: be aware that usagi is a delusional fuck-wit with a string of failed businesses behind him (or her - as he can't even get his gender straight and has been known to outright lie about it).  The accusations he refers to are all by him - mainly based on basic misunderstandings he has plus the inability/unwillingness to even look at simple facts/figures in the public domain.

I have to respond this once - as if I don't issue a denial then some may assume that to be an admission.  I won't, however, respond further to any of his junk in this thread.

[Deprived]

The one part I disagree with you on is your assertion that the exchanges will be the ones who will get the ball rolling.

I agree exchanges aren't the solution - in many respects they're actually part of the problem.  Exchanges allow incompetents to attract investment without having to engage in a dialogue with investors themselves.

I don't think people on the exchanges are incompetent per se. They are just operating under very information-scarce circumstances. If, lets say, you had ASICMINER publishing full statements with granular details, the only people who would put money in any of the opaque miners are the 5% of guys who are total gamblers. You would effectively starve most of the bad businesses out.

My reference to incompetents referred to those running businesses - not the investors who, as you point out, are largely operating in an information vacuum.  Many of the people running business ARE incompetent - incompetent at running businesses that is.

[cusdog]

I appreciate both Usagi's and Deprived's input in this thread, but is it possible to not squabble here? Sorry for being a bit rude.

[cusdog]

I appreciate both Usagi's and Deprived's input in this thread, but is it possible to not squabble here? Sorry for being a bit rude.

I am sorry cusdog, I was shocked when Deprived started swearing again, I'll remove my response to his messages and I will delete this message in 24 hours. Hopefully we can at least keep good threads like this civil :/

Thanks, did you get my pm response? I can't tell and think it may have been disallowed because of my newbie status.

[cusdog]

Bumping incase people missed this.

[ianspain]

Bumping incase people missed this.

Good post, people could do with some GAP lessons ;-)

[Andrew Vorobyov]

All these problems can be solved if people will be able to short someones bonds...

[wisard]

I want to explore the possibility of having widespread adoption legitimate accrual accounting and useful disclosure/reporting. And when I say “useful” I mean for a miner disclosure about each piece of equipment you have, the shape it is in, projected performance, allocated expenses for the period broken down (and not on a cash basis), etc. I mean for an investment fund, the FMV of your holdings @ the reporting date, the dividends from your holdings accrued and included in NAV,  clear disclosure about the management fee, etc.

There are a couple of securities who reveal their profit and loss statements. But I have a feeling that the books have been cooked.

I don't think securities adopting good accounting practices will help - if the accounting statements are unverifiable.

I would rather propose creating of minimum viable guidelines. Something all securities can do without hiring accountants.

i. Use fixed bitcoin addresses. So people can see exactly how much money the business has received and when. And what the expenses have been.

ii. Tabulate the bitcoin transaction entries in a simple profit and loss statement. A simple template like this works: http://toolkit.smallbiz.nsw.gov.au/part/6/26/126

iii. Provide transparency. If its a mining security, show exactly where you are mining and under what name. If its an ecommerce security, reveal your analytics logs. If its an exchange, reveal entire order book.

[ianspain]

An external auditing service, would create confidence in the market

[ianspain]

I want to explore the possibility of having widespread adoption legitimate accrual accounting and useful disclosure/reporting. And when I say “useful” I mean for a miner disclosure about each piece of equipment you have, the shape it is in, projected performance, allocated expenses for the period broken down (and not on a cash basis), etc. I mean for an investment fund, the FMV of your holdings @ the reporting date, the dividends from your holdings accrued and included in NAV,  clear disclosure about the management fee, etc.

There are a couple of securities who reveal their profit and loss statements. But I have a feeling that the books have been cooked.

I don't think securities adopting good accounting practices will help - if the accounting statements are unverifiable.

I would rather propose creating of minimum viable guidelines. Something all securities can do without hiring accountants.

i. Use fixed bitcoin addresses. So people can see exactly how much money the business has received and when. And what the expenses have been.

ii. Tabulate the bitcoin transaction entries in a simple profit and loss statement. A simple template like this works: http://toolkit.smallbiz.nsw.gov.au/part/6/26/126

iii. Provide transparency. If its a mining security, show exactly where you are mining and under what name. If its an ecommerce security, reveal your analytics logs. If its an exchange, reveal entire order book.

It would be wise to use US General Acounting Principles (GAP).

[EskimoBob]

If they started to use a double entry book-keeping software that can handle small business accounting, those reports will start to look better and make more sense.
How many of those listed can actually publish a simple balance sheet, sales report and a simple profit/loss statement? ART can
Anyone else?

[MPOE-PR]

Hi guys,

Longtime lurker. I’ve become more actively engaged in the community more recently, specifically the securities side of things and noticed something: A dearth of transparency, even for the large issuances. Current and prospective investors have very little to go on, which allows scammers/poor investments to suck-up capital and makes the cost of capital for profitable and strong enterprises more expensive. This is a drain on the entire community. I think a lot of good can be done for the market stability and perception of bitcoin securities if people would move towards transparency. Incidentally it would be more profitable for people running solid, honest businesses because they would be able to raise capital more cheaply.

I don’t want to be mean and single out any entity/person, but stuff like this:

https://docs.google.com/spreadsheet/pub?key=0AoYY1V1t8ncndFBwV04zZzBKRWFqbFFua2JsT3Jaemc&single=true&gid=2&output=html

makes little sense and has only limited usefulness for a potential investor.

I want to explore the possibility of having widespread adoption legitimate accrual accounting and useful disclosure/reporting. And when I say “useful” I mean for a miner disclosure about each piece of equipment you have, the shape it is in, projected performance, allocated expenses for the period broken down (and not on a cash basis), etc. I mean for an investment fund, the FMV of your holdings @ the reporting date, the dividends from your holdings accrued and included in NAV,  clear disclosure about the management fee, etc.

Here is what I propose, and tell me if I am being too optimistic; One of the large exchanged-traded entities (maybe run by someone on this board, BTCinvest? ASICMINER?) takes the first step with this. I am a Canadian CA who can spare a few hours a week and am willing to help out for free to get this done. Input is appreciated.

S.MPOE: April, March, February, January, [2012] December, November, October, September, August, July, June, May etc (yes it goes back further than that).

S.BBET: April, March, February, January.

Cummulatives: MPEx dividends 1 year history, MPBOR 1 year retrospective.

MPEx is the standard of Bitcoin finance, and has been since inception. Familiarize yourself with it.

(Also, the legitimate venue for this sort of discussion is #bitcoin-assets on Freenode, that's where the heavyweights hang out. The forum is mostly for supernoding.)