Hey, D&T - you see what the SEC is using to base its claim on Pirate's offer being a regulated security - specifically, rather than a loan?
ETA: Don't bother typing up a response just yet. Looking at the block of text, again, and definitions on "common enterprise." (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." seems iffy to me, too...
ETA2: SEC apparently operates on the "horizontal approach."
"The horizontal approach to common enterprise focuses on the relationship among investors in an economic venture." Integral to this approach is the pooling of investors' money in a common venture. The Eleventh Circuit correctly noted that "[m]ost circuits that have considered the issue [of what is a common enterprise] find it satisfied where a movant shows 'horizontal commonality,' that is the 'pooling' of investors' funds as a result of which the individual investors share all the risks and benefits of the business enterprise."
http://blj.ucdavis.edu/archives/vol-5-no-2/Why-the-Common-Enterprise-Test.html#_ftn30-But, because BTS&T didn't really modify ongoing contracts (which were on a weekly basis), how was pooling related to returns seen by lenders/investors when there was a set rate of return? Pooling (rather, continued and increasing investment) was required to keep the ponzi going, but the SEC makes a pretty strong case that BTS&T was a sham, not a legitimate business venture, where pooling would be more sensible. The SEC's own evidence shows Pirate claiming 0 or "almost 0" risk, where lenders/investors' money wouldn't be playing an integral role to the success or continuance of the venture. Is a ponzi with set weekly rates actually a "common enterprise" under that definition? Would their case fall apart if Pirate were just Pirate instead of "BTS&T"?
"For the common enterprise prong to be satisfied, horizontal commonality requires that an investor's assets be joined with another investor's assets into a joint venture where each investor shares the risk of profit and loss according to their individual investment."
ETA3: From SEC:
... 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 ....
So 1) the buyer/lender expects interest (and that was the term used)... 2) evidence needs to be given that Pirate claimed BTS&T was a program/investment (exists - see ETA4, but he does also call it a loan, and the weekly payments interest) 3) I definitely thought of it as a loan contract, not a security.... 4) no-brainer in favor of SEC's claims
ETA4: From complaint...
1*SEC calls gains from BS&T interest. "4. Shavers falsely promised investors up to 7%
interest weekly based on BTCST’s
purported BTC market arbitrage activity, including selling BTC to individuals who wished to
buy BTC “off the radar,” quickly, or in large quantities."
2*SEC notes Pirate's thread was titled “Looking for Lenders,” (SEC notes it was on a subforum where investments were, but so what?)
1$ Quoted from Pirate: "I just wanted to thank all of my
investors as I’m able to fulfill them without the risk of them going elsewhere." (in the next sentence, though, he uses the word "lenders" again)
3* Quoted from Pirate: "I take the risk personally." That indicates a loan, not a security. Even though we know that wasn't true, I'm not sure Pirate was representing a security rather than a loan. (if it were a loan, though, would any bureaucracies even have jurisdiction?)
The SEC, throughout the complaint, calls it an investment, but I wonder if Pirate's attorney will contest that. "et al" is pretty interesting, too. I wonder if they'll be bringing on more people...
ETA5: Final edit. $1m might be some type of magic line where a loan necessarily turns into a regulated security, but I can't find good verification, and my brain's shutting off. Time for some wine and relaxation.
