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

[adameb]

Reading through the complaint and details available, it doesn't sound like there's a pending bitcoin exchange witch hunt forthcoming.  There were obviously a lot of people going to the police or talking to attorneys following the collapse, and since the crime was of a ponzi-scheme manner, it needed to be addressed by the SEC.

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[burnside]

Reading through the complaint and details available, it doesn't sound like there's a pending bitcoin exchange witch hunt forthcoming.  There were obviously a lot of people going to the police or talking to attorneys following the collapse, and since the crime was of a ponzi-scheme manner, it needed to be addressed by the SEC.

Every one you take down another 3 are going to pop up internationally.  Much like they've been forced to change past practice for Bitcoin, I would not be surprised to find that they are going to have to change tactics for securities.  We already know that they are going to have to change somewhat because of the recent crowd funding legislation.  Though big surprise they've been dragging their feet on the implementation.

Nonetheless, I do intend to fully comply with US Law, so if they're going to recognize Bitcoin as a full-on currency we're going to have to implement some way to validate accredited investors from the US.

Even with that, I still think it's better to think of the exchange as a game.  Most of what is traded as bitcoin startups is extremely high risk and it still reduces liability should anyone decide it's the exchanges fault they lost money making unwise trades.

Cheers.

[adub]

Nonetheless, I do intend to fully comply with US Law, so if they're going to recognize Bitcoin as a full-on currency we're going to have to implement some way to validate accredited investors from the US.

+1

[NewLiberty]

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

In the US, WoW gold is money, but real gold isn't?
https://www.youtube.com/watch?v=OghDOApA-1k

[prophetx]

it is going to get interesting.  looking at the macro picture, this in reality is bad news for US growth.

from a commerce and growth perspective, the current US legal system is really holding back a lot on innovation in how business is done, so that the Federal govt can maintain relevance in a world where it will become less relevant.

luckily I am no longer living in the US. the EU countries for now seem to be much more accommodating to these businesses.

frankly the technology is there, any company can create their own "coin", premine it, and release it to the public in exchange for BTC or any other coin to raise funds.  someone needs to design an apparatus that joins this with something like a bitmessage clone which would then allow for voting on shareholder issues tying the bitmessage address with the coin address and a mechanism for rolling up all the votes to ownership addresses, etc. anyway I digress...

[Ozymandias]

Reading through the complaint and details available, it doesn't sound like there's a pending bitcoin exchange witch hunt forthcoming.  There were obviously a lot of people going to the police or talking to attorneys following the collapse, and since the crime was of a ponzi-scheme manner, it needed to be addressed by the SEC.

Every one you take down another 3 are going to pop up internationally.  Much like they've been forced to change past practice for Bitcoin, I would not be surprised to find that they are going to have to change tactics for securities.  We already know that they are going to have to change somewhat because of the recent crowd funding legislation.  Though big surprise they've been dragging their feet on the implementation.

Nonetheless, I do intend to fully comply with US Law, so if they're going to recognize Bitcoin as a full-on currency we're going to have to implement some way to validate accredited investors from the US.

Even with that, I still think it's better to think of the exchange as a game.  Most of what is traded as bitcoin startups is extremely high risk and it still reduces liability should anyone decide it's the exchanges fault they lost money making unwise trades.

Cheers.

Theoretically speaking, what if some naughty person from the US wishing to continue trading on btct used TOR to access the site? Would you block all of the TOR exit nodes as well as US-based traffic? Also, if you do ultimately decide to close down the exchange to US customers, what kind of warning time frame should we expect, a day? a week? a month?

[prophetx]

Reading through the complaint and details available, it doesn't sound like there's a pending bitcoin exchange witch hunt forthcoming.  There were obviously a lot of people going to the police or talking to attorneys following the collapse, and since the crime was of a ponzi-scheme manner, it needed to be addressed by the SEC.

Every one you take down another 3 are going to pop up internationally.  Much like they've been forced to change past practice for Bitcoin, I would not be surprised to find that they are going to have to change tactics for securities.  We already know that they are going to have to change somewhat because of the recent crowd funding legislation.  Though big surprise they've been dragging their feet on the implementation.

Nonetheless, I do intend to fully comply with US Law, so if they're going to recognize Bitcoin as a full-on currency we're going to have to implement some way to validate accredited investors from the US.

Even with that, I still think it's better to think of the exchange as a game.  Most of what is traded as bitcoin startups is extremely high risk and it still reduces liability should anyone decide it's the exchanges fault they lost money making unwise trades.

Cheers.

Theoretically speaking, what if some naughty person from the US wishing to continue trading on btct used TOR to access the site? Would you block all of the TOR exit nodes as well as US-based traffic? Also, if you do ultimately decide to close down the exchange to US customers, what kind of warning time frame should we expect, a day? a week? a month?

one need only apply the same standards as porn sites use

are you a US resident or citizen? click here ... redirect to google.com

[ffssixtynine]

Theoretically speaking, what if some naughty person from the US wishing to continue trading on btct used TOR to access the site? Would you block all of the TOR exit nodes as well as US-based traffic? Also, if you do ultimately decide to close down the exchange to US customers, what kind of warning time frame should we expect, a day? a week? a month?

No, it'll be like with gambling lock outs. If BTCT blocks US traffic then they have taken all reasonable precautions.

Big companies may sometimes block some of the better known proxies but I can't see that BTCT would have that issue. Same goes for TOR.

If I were Burnside, which thankfully I'm not today:

I'd lock US users from buying -immediately- but allow them to sell stock for 7 days.

No more registrations from the US.

Lock out all US log ins from 7 days time other than to empty their wallet. Burnside could allow users to request liquidation of their stock at market rate from this point, but no trading whatsoever.

That means that in a week's time he would not be exposed.

[twentyseventy]

No, it'll be like with gambling lock outs. If BTCT blocks US traffic then they have taken all reasonable precautions.

Big companies may sometimes block some of the better known proxies but I can't see that BTCT would have that issue. Same goes for TOR.

If I were Burnside, which thankfully I'm not today:

I'd lock US users from buying -immediately- but allow them to sell stock for 7 days.

No more registrations from the US.

Lock out all US log ins from 7 days time other than to empty their wallet. Burnside could allow users to request liquidation of their stock at market rate from this point, but no trading whatsoever.

That means that in a week's time he would not be exposed.

The word 'overreaction' doesn't even begin to describe your plan for burnside. Forcing US buyers to sell (your first point) would immediately significantly devalue many, if not all, of the securities on BTC-TC. Bids would be filled down to zero on everything.

In your third point, you somehow believe that Burnside can 'request liquidation of their stock at market rate' - from whom? The fund issuer?

I agree that exchange operators should be cognizant of future legal complications, but an immediate liquidation of all securities for US-based traders is laughable.

[burnside]

Theoretically speaking, what if some naughty person from the US wishing to continue trading on btct used TOR to access the site? Would you block all of the TOR exit nodes as well as US-based traffic? Also, if you do ultimately decide to close down the exchange to US customers, what kind of warning time frame should we expect, a day? a week? a month?

No, it'll be like with gambling lock outs. If BTCT blocks US traffic then they have taken all reasonable precautions.

Big companies may sometimes block some of the better known proxies but I can't see that BTCT would have that issue. Same goes for TOR.

If I were Burnside, which thankfully I'm not today:

I'd lock US users from buying -immediately- but allow them to sell stock for 7 days.

No more registrations from the US.

Lock out all US log ins from 7 days time other than to empty their wallet. Burnside could allow users to request liquidation of their stock at market rate from this point, but no trading whatsoever.

That means that in a week's time he would not be exposed.

Probably something similar to this, but with a couple of changes.

- I'd do it over 30 days.  (for 30 days you could buy and sell)
- US (non-issuer) accounts would always be able to sell after that.  The block would be on buying.  This way we don't screw anyone over.
- I'd have an override in the accounts section saying "I do solemnly swear that I am not a resident of the US" for people that get mistakenly detected as being US residents or who pass their traffic through US tor nodes or proxies.  (Why you'd do that is beyond me... just makes you an NSA target.)  You'd have to e-sign to get the block lifted from your account.

This is by no means set it stone, don't get too jumpy yet if you're in the US.    I've been discussing things with Ukyo, as he's been working on some legal approaches to liberating Bitcoin exchanges and I want to make sure we don't harm anyone unnecessarily as we bring things into compliance.

[Ozymandias]

Theoretically speaking, what if some naughty person from the US wishing to continue trading on btct used TOR to access the site? Would you block all of the TOR exit nodes as well as US-based traffic? Also, if you do ultimately decide to close down the exchange to US customers, what kind of warning time frame should we expect, a day? a week? a month?

No, it'll be like with gambling lock outs. If BTCT blocks US traffic then they have taken all reasonable precautions.

Big companies may sometimes block some of the better known proxies but I can't see that BTCT would have that issue. Same goes for TOR.

If I were Burnside, which thankfully I'm not today:

I'd lock US users from buying -immediately- but allow them to sell stock for 7 days.

No more registrations from the US.

Lock out all US log ins from 7 days time other than to empty their wallet. Burnside could allow users to request liquidation of their stock at market rate from this point, but no trading whatsoever.

That means that in a week's time he would not be exposed.

Probably something similar to this, but with a couple of changes.

- I'd do it over 30 days.  (for 30 days you could buy and sell)
- US (non-issuer) accounts would always be able to sell after that.  The block would be on buying.  This way we don't screw anyone over.
- I'd have an override in the accounts section saying "I do solemnly swear that I am not a resident of the US" for people that get mistakenly detected as being US residents or who pass their traffic through US tor nodes or proxies.  (Why you'd do that is beyond me... just makes you an NSA target.)  You'd have to e-sign to get the block lifted from your account.

This is by no means set it stone, don't get too jumpy yet if you're in the US.    I've been discussing things with Ukyo, as he's been working on some legal approaches to liberating Bitcoin exchanges and I want to make sure we don't harm anyone unnecessarily as we bring things into compliance.

That's a relief, I've still got about 3 weeks left on my pin reset so a month warning is more than enough. Thanks burnside!

[ffssixtynine]

The word 'overreaction' doesn't even begin to describe your plan for burnside. Forcing US buyers to sell (your first point) would immediately significantly devalue many, if not all, of the securities on BTC-TC. Bids would be filled down to zero on everything.

In your third point, you somehow believe that Burnside can 'request liquidation of their stock at market rate' - from whom? The fund issuer?

I agree that exchange operators should be cognizant of future legal complications, but an immediate liquidation of all securities for US-based traders is laughable.

I said what I'd do and I'm not burnside. Whatever I did would be based on legal advice, first and foremost.

It'd be easy to switch 7 for 28 days to avoid a really crappy market effect as long as that was sufficient to avoid being at risk.

Liquidation at market rate - various options for that, I don't mean they get a fixed rate, I mean a way for them to sell their stock without being in a position to actually trade. I should have been more clear, I apologise.

Burnside publishes who has what stock I believe (correct me if I'm wrong) so there would be other ways to deal with stock. There isn't a good answer here.

In reality, however, he is probably in a precarious position right now and complying with the law is more important than anything else. Your 'market' is not the most important thing and there would still be arbitrage between there and other places where appropriate.

If his servers get shut down, and he sounded concerned about that, then isn't it going to be like a certain previous event, but one which could be avoided if US users are removed from the system?

[ffssixtynine]

Probably something similar to this, but with a couple of changes.

- I'd do it over 30 days.  (for 30 days you could buy and sell)
- US (non-issuer) accounts would always be able to sell after that.  The block would be on buying.  This way we don't screw anyone over.
- I'd have an override in the accounts section saying "I do solemnly swear that I am not a resident of the US" for people that get mistakenly detected as being US residents or who pass their traffic through US tor nodes or proxies.  (Why you'd do that is beyond me... just makes you an NSA target.)  You'd have to e-sign to get the block lifted from your account.

This is by no means set it stone, don't get too jumpy yet if you're in the US.    I've been discussing things with Ukyo, as he's been working on some legal approaches to liberating Bitcoin exchanges and I want to make sure we don't harm anyone unnecessarily as we bring things into compliance.

+1

Glad to hear you've been talking to Ukyo. I suspect it may be that you need to make these changes temporarily

Please tell me you have a lawyer giving you advice directly though, for your own sake.

[creativex]

Hey thanks for your loyalty US guys...here's a gourmet sh1t sandwich for your troubles.

This conversation alone has cost me hundreds thousands of btc just in the last few hours. People are selling like lemmings and I'm not even sure they're the ones making the mistake.

Seems likely Trendon gets off easy. Sure he'll end up in jail where he belongs, but us responsible and reliable asset issuers are risking similar consequences and at this rate I'll be in the poor house by tomorrow.

[DeathAndTaxes]

Please understand that US securities law is very complex:
http://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml

simply being a foreign entity alone is insufficient to be excluded from US regulations.

Being a foreign entity owned exclusively by foreigners (non-US residents or citizens), which holds no assets in the US and has never had a trade occur in the United States, has no US directors/officers, and isn't listed on any US exchange would be put the entity totally outside US regulatory system.

For entities not meeting that criteria a lot depends on the details of the company, its owners, its assets, its structure, and its offering.  You are going to need good legal counsel to know if/when/where you cross the line.  The recommendation for seeking counsel is a good idea.  Given that no "Bitcoin stock exchange" has an provision to limit/exclude US residents/citizens any listed asset is at least within the US regulatory regime.  An exemption may apply but it is asininely stupid to say "I am not a US company therefore I am exempt".

[mrtchipr]

Hey thanks for your loyalty US guys...here's a gourmet sh1t sandwich for your troubles.

This conversation alone has cost me hundreds thousands of btc just in the last few hours. People are selling like lemmings and I'm not even sure they're the ones making the mistake.

Which stocks are being dropped exactly?

[burnside]

+1

Glad to hear you've been talking to Ukyo. I suspect it may be that you need to make these changes temporarily

Please tell me you have a lawyer giving you advice directly though, for your own sake.

We had a lawyer on tap when the site was setup a year or so ago.

More recently I've been in contact with potential representation but I have not retained them at the moment.

What is it that they say in the UK?  "Keep calm, carry on"?

[DeathAndTaxes]

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?

It depends on the entity.

For legal constructs (partnerships, corporations, LLCs) it is one which is incorporated in the United States (specifically in one of the States).
For individuals it is US residents (regardless of their citizenship) and US citizens living abroad*
For business entities owned by a single person (sole propreitorships) it depends on the owner's citizenship and residence.

For unincorporated businesses it gets a little more complex because they have no legal basis.  Simply put many of the "companies" listed on Bitcoin exchanges don't exist under the law.  Likely the SEC would use similar rules as those used to identify foreign private issuers:
http://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml

The US or foreign status of the entity would depend on material facts (ownership, location of assets, citizenship of directors/officers, listing on US exchanges, etc)



* (Yes I get the unfair treatment relative to other nations but it is what it is)

[ffssixtynine]

We had a lawyer on tap when the site was setup a year or so ago.

More recently I've been in contact with potential representation but I have not retained them at the moment.

What is it that they say in the UK?  "Keep calm, carry on"?

Well good luck fella. You've actually done a good job responding which is more than some. If BTCT could be more formalised/safer it'd be great.

[creativex]

Hey thanks for your loyalty US guys...here's a gourmet sh1t sandwich for your troubles.

This conversation alone has cost me hundreds thousands of btc just in the last few hours. People are selling like lemmings and I'm not even sure they're the ones making the mistake.

Which stocks are being dropped exactly?

The ones headed up by Americans with big red down arrows next to them and 9x.xx% sell traffic.

http://coinflow.co/chart/BASIC-MINING
http://coinflow.co/chart/COGNITIVE

These two for instance ^^. ...you know the two largest stocks that are native to btct.co.