SEC Charges Bitcoin Savings and Trust (BTCST) as Ponzi Scheme

[ffssixtynine]

A bit of advice for non-U.S. entities that have offered and dealt with the U.S. citizens:

Whatever you do make sure that you return to the investor at least the original nominal value of the investment. Or that you can return the original nominal value to all the investors.

As far as I know, in the history of S.E.C. there wasn't a case pursued or prosecuted that didn't involve at least a nominal loss of value (denominated in whatever units).

Please check out the recent case of SatoshiDice and its recent "sale to the undisclosed investors". It is a kind of "ultimate defense". Faced with limited resources S.E.C. (and others) will not spend the energy to pursue a case where there isn't a clear loss or wrongdoing to be shown.

If you are capable of returning the funds received from the U.S.-based investors you have nothing to worry besides a stern cease-and-desist letter from S.E.C. or your local government agency that cooperates with the S.E.C.

IANAL, but I ate many lunches with them.

So if there is a solid plan, not a ponzi plan, that's a good start.

However, all investments carry risks...?

Perhaps the safest option is to register with the SEC before doing an IPO, even if you are a foreign entity. If nothing else, you'll look much more professional and trustworthy.

I presume you can't really do much after the event.

[TraderTimm]

So I guess Erik Voorhees "IPO" and subsequent dump-o-matic plan put him in the eyes of the SEC eh?

Hope he doesn't have any plans for being in the USA anytime soon.

[stslimited]

Myself and my company "State Trading Society" do a lot of research on securities laws, and you guys are running around like headless chickens


the SEC does not even consider what currency is used, read the Securities act of 1933. It doesn't need to consider or not consider the merit of bitcoin, it considers the offer and sale of securities. This has nothing to do with acceptance or recognition of bitcoin by the federal government.

I've already brought this up with some of the US companies listed on the exchanges, its the US COMPANIES AND PERSONS issuing securities IN THE UNITED STATES that have a problem. Some literally have their address listed on the forums and the about pages of the exchanges. They can get their assets frozen any day. THOSE are the ones that need to register with the SEC or file for an exemption. Sitting idle is bad. The only saving grace is that the numbers are too small and hopefully the SEC will turn a blind out.

For the investors, the only thing you need to worry about is your shares going to zero once the SEC freezes and seizes all the assets one day.

[ffssixtynine]

the SEC does not even consider what currency is used, read the Securities act of 1933. It doesn't need to consider or not consider the merit of bitcoin, it considers the offer and sale of securities. This has nothing to do with acceptance or recognition of bitcoin by the federal government.

There are, ahem, some people who claim they aren't dealing in securities. Or real money.

I've already brought this up with some of the US companies listed on the exchanges, its the US COMPANIES AND PERSONS issuing securities IN THE UNITED STATES that have a problem. Some literally have their address listed on the forums and the about pages of the exchanges. They can get their assets frozen any day. THOSE are the ones that need to register with the SEC or file for an exemption. Sitting idle is bad. The only saving grace is that the numbers are too small and hopefully the SEC will turn a blind out.

Questions since you've researched this.

The SEC's rules are there to protect US investors. If a company is registered outside of the US and the securities are traded on foreign exchanges, what can they do?

What would happen if the people behind the foreign company were in the US? What would make the SEC come looking?

What would they do if that company was actively soliciting investments from the public in the US?

For the investors, the only thing you need to worry about is your shares going to zero once the SEC freezes and seizes all the assets one day.

Only thing! I wouldn't touch a US registered investment now.

[ffssixtynine]

Securities act of 1933

http://www.sec.gov/about/laws/sa33.pdf

(1) The term ‘‘security’’ means any note, stock, treasury
stock, security future, security-based swap, bond, debenture,
evidence of indebtedness, certificate of interest or participation
in any profit-sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option, or privilege
on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value
thereof), or any put, call, straddle, option, or privilege entered
into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly
known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any
of the foregoing.

Edit: I don't see how BTCT's claim holds any water whatsoever, but it's not in the US. Those with stock on there, however...

[stslimited]

the SEC does not even consider what currency is used, read the Securities act of 1933. It doesn't need to consider or not consider the merit of bitcoin, it considers the offer and sale of securities. This has nothing to do with acceptance or recognition of bitcoin by the federal government.

There are, ahem, some people who claim they aren't dealing in securities. Or real money.

that never mattered.

http://www.sec.gov/about/laws/sa33.pdf

SEC. 2. (a) DEFINITIONS.—When used in this title, unless the
context otherwise requires—
(1) The term ‘‘security’’ means any note, stock, treasury
stock, security future, security-based swap, bond, debenture,
evidence of indebtedness, certificate of interest or participation
in any profit-sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option, or privilege
on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value
thereof), or any put, call, straddle, option, or privilege entered
into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly
known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any
of the foregoing.

I've already brought this up with some of the US companies listed on the exchanges, its the US COMPANIES AND PERSONS issuing securities IN THE UNITED STATES that have a problem. Some literally have their address listed on the forums and the about pages of the exchanges. They can get their assets frozen any day. THOSE are the ones that need to register with the SEC or file for an exemption. Sitting idle is bad. The only saving grace is that the numbers are too small and hopefully the SEC will turn a blind out.

Questions since you've researched this.

The SEC's rules are there to protect US investors. If a company is registered outside of the US and the securities are traded on foreign exchanges, what can they do?

What would happen if the people behind the foreign company were in the US? What would make the SEC come looking?

What would they do if that company was actively soliciting investments from the public in the US?

For the investors, the only thing you need to worry about is your shares going to zero once the SEC freezes and seizes all the assets one day.

Only thing! I wouldn't touch a US registered investment now.

If a company is registered in the US (or a person in the US) has issued shares, it needs to find an exemption with the SEC. Its not just the SEC, its the state they are in too.

You don't have to take this one a case-by-base basis, the US Constitution gives the federal government power to "regulate interstate commerce", anything that *actually happens* on US soil and anything in the US that merely *affects* interstate commerce is enough for any federal agency or federal actor to apply its laws no matter where in the globe things are nominally existing.

The SEC generally establishes jurisdiction by pinpointing at least one state where an unregistered exchange took place. So look at BASIC-MINING for instance:

- address in some midwestern state
- lists on an exchange in Belize
- DIRECTLY EXCHANGED SHARES (most likely in America) TO SOMEONE FOR A BFL MINIRIG

you don't even need to do anything that obvious

[ffssixtynine]

the SEC does not even consider what currency is used, read the Securities act of 1933. It doesn't need to consider or not consider the merit of bitcoin, it considers the offer and sale of securities. This has nothing to do with acceptance or recognition of bitcoin by the federal government.

There are, ahem, some people who claim they aren't dealing in securities. Or real money.

that never mattered.

Which was my point, and snap You missed the sarcasm.

[ffssixtynine]

The SEC generally establishes jurisdiction by pinpointing at least one state where an unregistered exchange took place. So look at BASIC-MINING for instance:

- address in some midwestern state
- lists on an exchange in Belize
- DIRECTLY EXCHANGED SHARES (most likely in America) TO SOMEONE FOR A BFL MINIRIG

The problem here is what I alluded to though. They performed an exchange that could reasonably be assumed to be in the US because of their address, and that the exchange was direct.

If all their shares had been sold as e.g. assets on Bitfunder, it would be different.

Please correct me if I'm wrong. I'm totally prepared to be.

[2112]

So if there is a solid plan, not a ponzi plan, that's a good start.

However, all investments carry risks...?

Perhaps the safest option is to register with the SEC before doing an IPO, even if you are a foreign entity. If nothing else, you'll look much more professional and trustworthy.

I presume you can't really do much after the event.

For the first sentence, a definite yes.

For the third paragraph, a definite no. Registering with SEC is complex and expensive. Register properly with your local authorities and continue to fulfill your local obligations as contracted. Then you are in a "technical" violation not a "willful" violation and you are very unlikely to be prosecuted anywhere.

There are folks who offered securities according to the German law denominated in DEM, but accepting also CHF,ATS,GBP & USD. Apparently most sold for USD at spot price from the U.S. citizens. This was some insurance/annuity contract: lump-sum investment for the stream-of-payments in the future. SEC investigated together with German authorities but the investigation ended in "cease offering to the US citizens or register properly with the US authorities". They've choosen the first option, contine paying EUR converted to USD according to the original agreement, visited US & Hawaii for vacations multiple times and continue to own rental properties and bank accounts in the USA, no warrants or indicments for them are outstanding anywhere. The US citizens are no longer the profit centre, but the entire cost of the affair with the SEC was a couple of postal stamps.

For the second sentence, the risks are gray area. It all depends on the sales tactics used. There were various mining securities sold to the U.S. citizens (dig-the-earth mining, not Bitcoin mining). If sold with the accordance of the local law it all ended in a C&D letter. If sold on a sly as a tax-advantaged-shelter investments explicitly marketed to the US taxpayers that was a problematic situation (don't recall the details).

[2112]

So I guess Erik Voorhees "IPO" and subsequent dump-o-matic plan put him in the eyes of the SEC eh?

Hope he doesn't have any plans for being in the USA anytime soon.

Last I've heard Eric was staying in Manhattan, somewhere close to the BitInstant offices. He may have even purchased some real estate in the USA.

But his repurchase of the SatoshiDice shares with the "goodness of the heart" premium to match and slightly exceed the IPO price could definitely be his "get-out-of-jail" card, at least as far as the past actions are concerned.

I really didn't pay much attention to the SatoshiDice sage, but outwardly it does agree with the very professional legal advice that I've heard at lunches.

[ffssixtynine]

There are folks who offered securities according to the German law denominated in DEM, but accepting also CHF,ATS,GBP & USD. Apparently most sold for USD at spot price from the U.S. citizens. This was some insurance/annuity contract: lump-sum investment for the stream-of-payments in the future. SEC investigated together with German authorities but the investigation ended in "cease offering to the US citizens or register properly with the US authorities". They've choosen the first option, contine paying EUR converted to USD according to the original agreement, visited US & Hawaii for vacations multiple times and continue to own rental properties and bank accounts in the USA, no warrants or indicments for them are outstanding anywhere. The US citizens are no longer the profit centre, but the entire cost of the affair with the SEC was a couple of postal stamps.

When you say 'cease offering', what does that actually mean?

Block US IPs? Do KYC to establish person's address?

Or simply stop marketing at US citizens such as by offering USD as a payment option.

[Entropy-uc]

So I guess Erik Voorhees "IPO" and subsequent dump-o-matic plan put him in the eyes of the SEC eh?

Hope he doesn't have any plans for being in the USA anytime soon.

Last I've heard Eric was staying in Manhattan, somewhere close to the BitInstant offices. He may have even purchased some real estate in the USA.

But his repurchase of the SatoshiDice shares with the "goodness of the heart" premium to match and slightly exceed the IPO price could definitely be his "get-out-of-jail" card, at least as far as the past actions are concerned.

I really didn't pay much attention to the SatoshiDice sage, but outwardly it does agree with the very professional legal advice that I've heard at lunches.

It's interesting that you assume he sold the company back to himself.  I assume the same.  Is there actually any evidence of this?

Erik carries much more risk in operating a gambling site from New York state.  The folks that have carved out legal exceptions for gambling in the US are very jealous of their franchise, well connected politically, and they don't play nice.

[Cyberdyne]

https://www.sec.gov/litigation/complaints/2013/comp-pr2013-132.pdf

Is there a citation for this part?

24. In August 2012, as the scheme collapsed, Shavers made preferential redemptions to friends and longtime BTCST investors

I thought he didn't pay out anything at all.

[Logik]

So, where are the servers and founders of BitFunder and BTC-TC located?

GL evading the SEC by claiming registration in some random country. All that really matters are the physical location of the humans and servers involved, isn't it?

[burnside]

So, where are the servers and founders of BitFunder and BTC-TC located?

GL evading the SEC by claiming registration in some random country. All that really matters are the physical location of the humans and servers involved, isn't it?

There have been quite a few references and questions regarding BTC-TC, so I'll address things as best I can.

- One of the fun things that I'd like to know regarding the 1933 securities act is what their definition of profit is.  Since I've never cross-connected BTC and Fiat, I'm not sure where the connection gets made.  For all I know, a hole in sha256 will be discovered tomorrow and BTC will be shown to have zero value in terms of Fiat.  It seems like by the strict letter of the law, playing a game such as Monopoly is illegal, as the little paper moneys have SOME fiat value, no matter how finite.

- Location of the servers is an issue.  This is partly why we do the several times a day emails to issuers of the share lists.  Addressing the server location issue has been discussed and will be tackled as soon as I can garner some trustworthy help from someone that can bootstrap an installation from bare metal.  Biggest issue is that I simply cannot trust a random ISP's platform install.  I may even end up having to make the trip myself.

- Humans involved could be nabbed.  Three things about this:
    1) They'll nab anyone they want for anything they want.  We've all done something wrong.  (google "three felonies a day.")  There's so much vague crap on the books in the US that they can find something on anyone.
    2) Things changed very recently with the "Bitcoin is money" approach the feds have taken.  Prior to that our legal approach was that Bitcoin is WOW Gold or Linden Dollars and we were a game.  (Someone want to explain to me the difference?  Why is WOW Gold or Linden Dollars not on the SEC website?  Both have exchanges (eg: ebay) and investments going on.)  To what extent law breaking occurred depends on a whole lot of things.  Probably the easiest way around this is for BTC-TC to stop accepting traffic from US users.
    3) I've been looking for overseas investors to take over the majority stake.  My personal goal is to get to where I'm the "programmer for hire" and really nothing more.  This is why so much of the site is setup to be self sustaining. The site really won't miss me much with the exception of the issues I have been running.  Which brings me to:

- Exposure on LTC-MINING and LTC-MINING.LTC... Please sell me back your shares.    Both of these are in closure mode.

- Exposure on ASICMINER-PT... this one I'm not sure there's much exposure on... it'd be hard to pin any losses for example on the PT rather than the underlying issue.  Probably I'll have to close it to US participation though as well.

- It'd be interesting to try to pin down -exactly- what distinguishes a game from an investment.  To me it's always been about learning the trading ropes in an environment that didn't involve losing "real money".  That was why we started on Litecoin.  It was a convenient in-game currency.  To me it's as cut and dry as it is for WoW.  I have no problem telling the difference between the game world and the real world.  One I walk around in for real.  The other I have to sit at the computer and log in and interact through a computer.  Take this same argument to BTC-TC and I have to ask myself, can I interact with BTC-TC in the real world?  Or do I HAVE to sit down at a computer and log in to play?  The answer so far as I can tell is that no, I cannot use my bitcoin in the real world.  I cannot hold them, I cannot buy starbucks with them, I cannot trade them at any shop in town that I am aware of.  I cannot call my broker and buy them or buy anything tangible using them.  For me and 99.9% of americans they're still an imaginary experiment.

I get back to wondering why all of a sudden the SEC/FinCEN decided out of the blue to recognize them.  The only thing I can come up with is so that they can prevent them from ever becoming "real".  To prevent people from using them they have to make examples out of people and to make examples out of people they have to first recognize them.  A bit of a catch-22 for sure.

I'm also still wrapping my brain around why all of a sudden Bitcoin is money to the US when so many prior incarnations of similar things are not money.  The Feds have argued for a century that the only real money is the money they (or another government) print.  Time and again rather than allowing commodities that act like money to exist, they have shut them down and denied that they ever were "money" or "currency".  It's definitely caught me somewhat by surprise and the site needs to make some changes to co-exist in this new world order.

In any case, there are definitely things that need to be improved for the site.  I hate to say this, but barring some kind of loophole, it may come down to excluding US citizens from playing the game.   

[TaxReturn]

I'm also still wrapping my brain around why all of a sudden Bitcoin is money to the US when so many prior incarnations of similar things are not money.  The Feds have argued for a century that the only real money is the money they (or another government) print.  Time and again rather than allowing commodities that act like money to exist, they have shut them down and denied that they ever were "money" or "currency".  It's definitely caught me somewhat by surprise and the site needs to make some changes to co-exist in this new world order.

Because bitcoin is highly disruptive where all former incarnations of money-like tools were merely evolutionary at best. And unlike its predecessors, which they could kill without even acknowledging their value, bitcoin can't be shut down, they know that all too well. The only way to enforce their regulations on bitcoin is to acknowledge it as real and thus a real threat to their system. That way they can attack the bridges between fiat and bitcoin and make it as hard as possible to use. I think, for the first time ever, they are truly afraid of a competing system and they will do their utmost to keep it down.

[🏰 TradeFortress 🏰]

Actually FinCen have mentioned virtual currencies with central administrators (eg WoW) gold in their guidances.

[ffssixtynine]

If you run a trading platform or issue securities from any location, right now you should be getting good legal advice and acting on it ASAP.

Relying on any forum posts is daft, relying on your own intuition or knowledge is similarly so.

I'm glad I'm not in your position right now.

[ffssixtynine]

I've softened my post a bit with some stealth-editing.  The message remains the same, though: Unregistered exchanges servicing US customers are not flying under anybody's radar.  US entities issuing "securities" aren't either.  None of this is "virtual" from the SEC's perspective. An investment is an investment.  Denomination in BTC does not exempt it from such.

What defines a US entity?

[edd]

The Bitcoin Foundation's blog post in response to the charges: https://bitcoinfoundation.org/blog/?p=236