Some more interesting excerpts (whenever possible I like to go to the original source):
SEC rational for seizing his assets (and it looks like they will be seeking additional seizures and records if/when necessary). Given they already know his exact trading losses I would assume MtGox has supplied detailed records. I would hope MtGox waited until served rather than just hand over information without due process. Maybe MtGox can comment?
Here, the Commission easily makes a prima facie showing that Defendants: (1) operated
a Ponzi scheme in violation of Securities Act Section 17(a), and Exchange Act Section 10(b) and
Rule 10b-5; and (2) sold unregistered securities in violation of Securities Act Sections 5(a) and
5(c). Moreover, Shavers diverted BTCST investors’ BTC to a BTC currency exchange
headquartered in Japan, misappropriating it for his personal use. Given the nature the conduct
and these violations, a preliminary order freezing Defendants’ assets, authorizing expedited
discovery as to the location and extent of their assets, directing them to repatriate ill-gotten gains,
directing them to provide verified accountings, and requiring them to preserve evidence is appropriate
and necessary to preserve assets for possible recovery for victims of this fraud. For
the same reason, an order temporarily freezing Defendants’ assets and requiring the preservation
of evidence is warranted to preserve the status quo pending a preliminary injunction hearing.
The big one. "Bitcoins based investments are investments". This should silence any dubious claims that BTC based investments aren't "really" investments because they are based on play money, etc.
The BTCST Investments Are Securities as Defined by the Federal
The definitions of “security” under Section 2(a)(1) of the Securities Act [15 U.S.C. §
77b(a)(1)] and Section 3(a)(10) of the Exchange Act [15 U.S.C. § 77c(a)(10)] include both
“investment contract” and “note.” Courts “are not bound by legal formalism, but instead take
account of the economics of the transaction” to determine whether a security exists. Reves v.
Ernst & Young, 494 U.S. 56, 61 (1990); see, e.g., SEC v. SG Ltd., 265 F.3d 42 (1st Cir. 2001)
(holding virtual shares in virtual company existing only online were securities). “Congress’
purpose in enacting the securities laws was to regulate investments, in whatever form they are
made and by whatever name they are called.” Reves, 494 U.S. at 61. (emphasis in original). The
BTCST investments qualify as both investment contracts and notes and, thus, are securities.
An investment contract is any contract, transaction, or scheme involving (1) an
investment of money, (2) in a common enterprise, (3) with the expectation that profits will be
derived from the efforts of the promoter or a third party. SEC v. W.J. Howey & Co., 328 U.S.
293, 298-99 (1946); see Long v. Shultz Cattle Co., Inc., 881 F.2d 129, 132-33 (5th Cir. 1989).
The “investment of money” element may be satisfied by consideration other than money. See
Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen and Helpers of Am., 439 U.S. 551, 560, n.12
(1979) (the “investment” may take the form of “goods and services”). Moreover, BTC is money.
BTC may be used to purchase goods or services, or exchanged for conventional currencies,
including the U.S. dollar, Euro, Yen, and Yuan. Recognizing as much, the Department of the
Treasury issued guidance concerning the applicability of the regulations implementing the Bank
Secrecy Act to virtual currencies such as BTC. See Treasury Guidance (FIN-2013-G001) –
Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual
Currencies (Mar. 18, 2013). In the Fifth Circuit, the second and third elements of an investment
contract are met where investors are dependent upon a promoter’s expertise, just as the BTCST
investors were dependent upon Shavers’ supposed expertise in BTC market arbitrage, to generate
the returns promised on their investments. See Long, 881 F.2d at 140-41.
Any note is presumed to be a security unless the presumption can be overcome because
the note bears a strong resemblance to one of several judicially-enumerated instruments that are
not securities. Reves, 494 U.S. 56. The types of notes that are not securities include a consumer
financing note, a note secured by a mortgage on a home, a short-term note secured by a lien on a
small business or its assets, and a note which simply formalizes an open-account debt incurred in
the ordinary course of business. Id. at 65. The factors used to determine whether a note
sufficiently resembles these “non-securities” and, thus, is not a security under the federal
securities laws are: (1) the motivations that would prompt a reasonable buyer and seller to enter
into the transaction; (2) the plan of distribution of the instrument; (3) the reasonable expectations
of the investing public; and (4) whether some factor, such as the existence of another regulatory
scheme, significantly reduces the risk of the instrument, thereby rendering application of the
securities laws unnecessary. Id. at 65-67. Here, the transaction between Defendants and the
BTCST investors had all the earmarks of an investment, suggesting a security, and no
commercial or consumer aspect, as with the judicially-enumerated instruments that are not
securities. The BTCST investments were offered and sold to a broad segment of the public as
Plaintiff’s Emergency Motion for Order to Show Cause, Asset Freeze and Other Ancillary Relief
investments. Moreover, no risk-reducing factors existed to militate against a finding that the
BTCST investments were securities. No other regulatory agency oversees the BTCST
investments, and BTC itself is a virtual currency, with no single administrator, or central
authority or repository
The portion about "Courts are not bound by legal formalism, but instead take account of the economics of the transaction to determine whether a security exists.
" is rather important as it shows the SEC intent when it comes to virtual currency transactions.
If a hypothetical "asset exchange" were hiding behind the paper thin defense that it's assets are just "play money" and don't represent real investment then it might be a good idea to get competent legal counsel to look at the cites the SEC provided. Simply calling something a pretend asset on a pretend exchange for fun doesn't make it so. What matters is the intent. If investors are expecting real world profits, and issuers attract investors advising real world profits then it isn't "play money".