[BTC-TC] CIPHERMINE.B1 - a virtual corporate bond with a 22% fixed-fiat APR

[stripykitteh]

Who can tell me what date we can take the BTC back??

I can.

It was released on 10 September 2013 so it's redeemable on or after 10 September 2014 without notice (as per the contract).

[1715106933]

1715106933

[1715106933]

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[1715106933]

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[eltopo]

And before this date, you can redeem the bonds within a 3 months period. There are some people who redeemed it in March I guess, so we'll see if they get their coins back in June.

Second possibiliy is that the bond starts trading on Ciphertrade any time soon, but.... you know.

[stripykitteh]

And before this date, you can redeem the bonds within a 3 months period. There are some people who redeemed it in March I guess, so we'll see if they get their coins back in June.

Second possibiliy is that the bond starts trading on Ciphertrade any time soon, but.... you know.

Yes, I'm one of the people who gave 3 months' notice in early March. I guessed it would not be liquid before early June. I will certainly be telling the world (for better or worse) what my experience is with redemption.

[eltopo]

And before this date, you can redeem the bonds within a 3 months period. There are some people who redeemed it in March I guess, so we'll see if they get their coins back in June.

Second possibiliy is that the bond starts trading on Ciphertrade any time soon, but.... you know.

Yes, I'm one of the people who gave 3 months' notice in early March. I guessed it would not be liquid before early June. I will certainly be telling the world (for better or worse) what my experience is with redemption.

Any news on this?

[dozerz]

have both ciphertrade and ciphermine gone into hiding?

[vandinn]

It's surprisingly dead here considering some people must have lost quite a bit of money. I mean, it was always clear this bond could never be repaid in full and would have to default at some point since it was used as capital for something that is inherently unprofitable. But I really hoped I could see at least some part of this misfortunate investment back (investment I as well as other Deprived fund participants were forced into) . Technically, in nominal fiat terms, I thought it could even be more than what it was back in September last year as Bitcoin has raised so much since. Why is everyone so quiet?

[dozerz]

its time to make the scammer thread for kate and ciphermine including updating her trust.

[stripykitteh]

Hi everyone,

My name is Phillip Monk, and I hold about 1500 CIPHERMINE.B1 bonds. I live in Australia. I hold some legal qualifications, but I am not a lawyer.

In March this year I gave Kate 3 month's notice that I wanted my bonds redeemed. She acknowledged my notice.

In early June, the redemption date came and went. I received nothing, so I asked Kate what the problem was.

She told me that Ciphermine didn't have the funds to pay me back. She cited a number of reasons for not paying up, including exponential difficulty, delayed hardware and an increase in the price of BTC.

She said that she was working out what to do, and asked me to keep the information confidential. I waited for a while, but heard nothing. I noted that during this period Ciphermine paid at least one dividend to its shareholders on June 29, and apparently put new hardware into service. Presumably Ciphermine are still operating that hardware.

In July I engaged a lawyer based in the UK to request payment. Since then, there has been some back and forth between her lawyer and mine, but essentially she has not conceded liability to me, nor has she offered any payment.

My analysis of the situation (which Kate's lawyers have neither confirmed or denied), is that the founders of Ciphermine (Kate, Giles Russel, Ross Martin and Simon Weald) were not operating under a corporate structure at the time the bonds were available on btct.co in September and October last year. Therefore, I believe that the bondholders are in a contractual relationship with the founders, and the founders are personally liable to the bondholders for the value of the bonds.

The latest response from her lawyer to mine was fairly terse and claimed that Kate and the other founders were relying on an exclusion clause which was (I presume) listed on the asset details page for CIPHERMINE.B1 on the btct.co website:

Warning

CipherBond is a virtual security whose shares (bonds) and dividends are to be quoted and distributed in a virtual cryptocoin commodity (Bitcoin) which is not recognised as a legal security in any jurisdiction. It is Ciphermine's intention to uphold this shareholder agreement, but we, Kate Craig-Wood, Wood Technology LLP, Giles Russell, and all other individuals and legal entities associated directly or indirectly with this security, are in no way liable for any losses you may incur in connection with CipherBond or CipherMine.

Further, be aware that the BTC Trading Company is unregulated and legally considered an online game. Should something go wrong you have no recourse in law. CipherMine is a virtual company and the management team, staff and its associated (sic), are not bound by law, corporate or otherwise, nor are we qualified to provide financial advice.

DO NOT INVEST MORE THAN YOU CAN AFFORD TO LOSE!

So, does she get away with it? I don't think so. There's a bit of unqualified legal opinion coming here (i.e., it's mine).


Unfairness

The clause that Kate is relying on is void for unfairness. It basically permits Ciphermine to take the funds raised and not pay anything back.

Under the Unfair Contract Terms Act 1977 a party cannot rely on an unfair term to avoid liability (s3). From studying the Act I would appear to meet the definition of a 'consumer' (s12) and the clause would appear to fail the 'reasonableness' test in s11 (basically as it would deprive me of the right to enjoy the benefit of the contract if it was relied upon, and it was not reasonable for Kate and the other founders to expect me to think that they would be unable to pay me back). Indeed, Kate herself said:

There should be no losses associated with the bond. CipherMine will take all necessary measures to ensure that it is repaid, as any company would in such a situation. The ultimate back-stop would be to sell the assets themselves, though by then even in a dire scenario we should have been able to repay most if not all the face value from the mining yields. That they are secured by the assets purchased should only ever come into play if something went disastrously wrong (ie. CipherMine had completely exhausted its funds attempting to honor the loan).

Has she taken all necessary measures to ensure the bonds were repaid? No. She has apparently continued to operate Ciphermine after she refused to redeem my bonds (new hardware was received on 14 June apparently), and has even paid dividends to her shareholders (last one was paid around 29 June).

Onerous clauses and reasonable notice

I also had a quick look at common law. Cases like Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1989] 1 QB 433 have held that reasonable notice of onerous clauses must be given for them to be effective.

I based my decision to invest in CIPHERMINE.B1 on the basis of the terms given on bitcointalk (see https://bitcointalk.org/index.php?topic=286634.msg3071632#msg3071632). This posting did not mention the liability disclaimer, which I presume was only listed on the CIPHERMINE.B1 asset details page on btct.co (the crypto exchange the asset was listed on).

It did include a statement at the bottom linking to the home page of btct.co:

For further details please see CIPHERMINE.B1 on BTC TC.

However this link only takes you to the btct.co home page, not to the asset details page with the full terms. There was no requirement to acknowledge and accept the term in order to purchase the bonds. In my opinion, Kate and the other founders did not do enough to draw this onerous (and unreasonable) clause to the attention of prospective bondholders (though, as I said earlier, I believe the clause is void for unfairness anyway).


So, that's pretty much what I've been up to on this. I do not see any prospect of Kate honouring the contract, and I do not intend to reward her conduct, so it's time to move on to other measures. I have instructed my lawyer to refer this matter to the Financial Conduct Authority (FCA) in the UK, which he informs me can investigate what the Ciphermine founders have been up to, and if necessary enforce the contract. I have also instructed him to report this to other law enforcement authorities in the UK as he sees fit.

Whilst it's a good development that the authorities in the UK are about to become involved, I am also considering filing an action against her and possibly the other founders on my own behalf. The benefits of filing are (as explained to me by my lawyer):

• As the coins are not considered currency, the claim would be for breach of contract, not a money claim. Therefore costs may be awarded (basically I get most of my legal costs back).
  
• It may be quicker than relying on the FCA, who have to prioritize any investigation with other work that they are doing.

So far I have funded this out of my own pocket, but if it becomes necessary or desirable to file there will be more costs. I am asking people to come forward if they wish to consider a joint action, and potentially save some money.

If you wish to find out more, you can PM me here. It is entirely up to you but it might be helpful if you tell me which country you are in, an idea of how many bonds you own and whether you have tried to redeem them yourself yet. All of the bonds become redeemable on September 10, so we are not that far away from all bondholders being in the same boat I am in (unless for some reason you were able to charm Kate into repaying you).

Cheers.

[dozerz]

thanks stripykitteh, a very interesting update. i am also a bond holder but significantly less than you. i have linked this thread to the one on litecointalk as there are many more bond holders who would be interested in your story and becoming part of a joint action against kate and the other founders.

[bonksnp2]

Yea Thank you both for posting /linking. This pretty much confirms my worst fears as I was heavily involved in CipherMine and have not had dividends or communication in the last couple months.

Sounds like CipherMine shareholders need to go ahead and file a joint lawsuit as well.

[vandinn]

I don't understand what Kate is doing. If she can't honor her debt, she should announce CipherMine's bankruptcy. She should liquidate CipherMine's assets and the proceedings of this action should be paid to bondholders. If there is anything left (which there won't be), she should pay the rest to CipherMine's shareholders.
It is unreasonable to expect we could get our whole investment back. But Kate should act on her own words and move ahead as she promised she would in a situation like this.
Not only is Kate building up an untrustworthy reputation in the Bitcoin community which might affect her future career in technology. By being inactive, she is also incentivizing us to carry legal action against her, the costs of which she will have to cover. And she clearly IS breaching the terms of contract if she continues to operate CipherMine.

[tekke]

Another crypto scam. At least we know the face of this one.

[stripykitteh]

I don't understand what Kate is doing. If she can't honor her debt, she should announce CipherMine's bankruptcy. She should liquidate CipherMine's assets and the proceedings of this action should be paid to bondholders. If there is anything left (which there won't be), she should pay the rest to CipherMine's shareholders.
It is unreasonable to expect we could get our whole investment back. But Kate should act on her own words and move ahead as she promised she would in a situation like this.
Not only is Kate building up an untrustworthy reputation in the Bitcoin community which might affect her future career in technology. By being inactive, she is also incentivizing us to carry legal action against her, the costs of which she will have to cover. And she clearly IS breaching the terms of contract if she continues to operate CipherMine.

I believe the situation is a bit different to what you describe.

In common law systems, like the UK, US and Australia, in order to enforce your legal rights you need to identify the correct counter-party to sue. The counter-party will be a company, an individual or a group of individuals.

As far as I can tell, there was no company in existence at the time the bonds were for sale. Therefore the counter-parties are the individual founders, as they are the legal persons who were effectively making the offer, and controlled the use of the funds raised. In a legal sense, there is no 'Ciphermine', there's just Kate, Giles, Simon and Ross (being the people who held themselves out as the founders and operators of Ciphermine), and possibly anyone else who can be identified as being in that class of person. Ciphermine.B1 bondholders have a contract with those people. The terms of the contract require full payment of the bonds at face value upon redemption.

For reasons I've already gone into I think their liability waiver is void.

The only situation in which we should contemplate not getting our whole investment back is if all of the people who are counter-parties become bankrupt. It is my opinion they are all personally liable for the full amount, unless they show that the representations made about their involvment were incorrect. They also cannot avoid responsibility by simply claiming to have 'left the project'. The contracts are still in force.

[CHAO]

What a highly successful and well-known British entrepreneur she is!!!!!!!





Kate Craig-Wood (aka. woodrake on bitcointalk.org, woodtech on all other cryptocoin sites) is the principal founder of CipherMine. She is a highly successful and well-known British entrepreneur with deep expertise in cloud computing, hosting, data centre energy efficiency and cyber security. She is also in the final year of a part-time PhD with the local university’s computing department. Her principal responsibilities in CipherMine are business administration, finance, purchasing and software development.

[CHAO]

In Sep.10 2014,We will find if Kate is a fraud.

[dexX7]

After several months of complete silence, I received an email from WT which is probably relevant for this topic as well:

URGENT
STRICTLY CONFIDENTIAL
FOR ADDRESSEE ONLY

Dear CipherMine 'shareholder',

We write to you in your capacity as a 'shareholder' of CipherMine ('CM'). This is an important communication sent to you by Wood Technology LLP ('WT'). As CM's Business Plan indicated, Kate Craig-Wood has at all times acted through WT. WT is also the legal owner of the mining hardware referred to below (see section 4.2 of CM's Business Plan).

You may wish to take legal advice on this communication and its implications for you.


The purpose of this communication
---------------------------------

The purpose of this communication is: (1) to inform you that CM is unlikely to be in a position to meet its liabilities; and (2) to propose a way forward with a view to minimising any potential exposure of CM 'shareholders' such as yourself.

This communication therefore requires a response from you by midnight (GMT) on 15 September 2014.


CM's assets and liabilities
---------------------------

CM's assets consist of:

 1. The mining hardware purchased with the proceeds of the CM B1'bond' (the 'Bond') which was issued last year. Due to rising mining difficulty, that hardware is estimated to have a residual resale value of approximately EUR 10,000;

 2. A 'share' in the start-up crowdfunding platform CipherTrade ('CT Share') based on a contribution at the relevant time by CM of USD $20,000; and

 3. Any remaining cryptocurrency mined since the last payments to CM 'shareholders' and 'bondholders'. At the date of this communication, this is estimated to have value of approximately EUR 7,500.

CM's principal liability consists of the Bond, which has a total redemption value of approximately EUR 360,000. The maturity date of the 'Bond' is 9 September 2014.


Early redemption requests/ 'Bond' maturity
------------------------------------------

Some requests for early redemption have been received but it has not been possible to settle those requests. On 9 September 2014, CM is unlikely to be in a position to meet its liabilities. No further payments will therefore be made, either to CM 'shareholders' or 'bondholders'.


CM's failure
------------

>From the start, CM's failure was a possibility which was highlighted in various sections of CM's Business Plan.  CM's Business Plan contained a number of warnings to that effect.

CM's failure is the result of an exponential increase in mining difficultly. The situation was further aggravated by the fact that the value of BTC has increased six-fold over the last year or so, and by HashFast LLC, a major supplier of hardware to CM, going out of business (please see http://docs.ciphermine.com/HashFast%20bankruptcy%20notice.pdf).


Your potential liability
------------------------

CM was described as a "virtual company” by LTC-Global (and accordingly referred to as such in the CM Business Plan). However, as a matter of English law, CM may be considered a general partnership. If that is the case, then the 'shareholders' of CM - which includes yourself - would all be considered partners. As partners, they would all be jointly and severally liable for CM's debts, including the 'Bond'. It is therefore possible that 'bondholders' may seek to take legal action against CM's 'shareholders', including yourself, to seek to recover that debt. However, if 'bondholders' accept the restructure plan proposed below, that risk might be mitigated.


The restructure plan
--------------------

The following restructure plan is proposed:
1. Incorporate a new limited liability company ('New Company');
2. Transfer the CT Share to the New Company;
3. Make shares in the New Company available to 'bondholders' on a pro rata basis;
4. Sell CM's mining assets and make the proceeds of sale available to the 'bondholders' on a pro rata basis, along with any remaining cryptocurrency mined since the last payments to  CM 'shareholders' and 'bondholders'.


Next steps
----------

If a majority of the votes agree (one vote per share - see section 6.6 of CM's Business Plan), then this restructure plan can be proposed to 'bondholders'. Consent to this restructure plan will then be sought from a majority of 'bondholders'. However there is no guarantee that this restructure plan will be approved by them. The 'bondholders' may chose to reject the proposed re-structure and seek to enforce the debt against all CM's 'shareholders'.

Please note that if 'bondholders' seek instead to enforce their rights against WT (through which Kate Craig-Wood acted at all times), it is necessary for WT to reserve its right to seek an indemnity from CM's 'shareholders', which includes yourself.

Please confirm if you are for or against the proposed restructure plan by sending an email, by midnight (GMT) on 15 September 2014, to legal@ciphermine.com with your full name, the email address you used to register with LTC Global (litecoinglobal.com) quoting the original public withdrawal address given, or CipherTrade and your vote by indicating 'Yes' or 'No' in the subject line.


Yours faithfully,

Wood Technology LLP

[bonksnp2]

I don't understand what Kate is doing. If she can't honor her debt, she should announce CipherMine's bankruptcy. She should liquidate CipherMine's assets and the proceedings of this action should be paid to bondholders. If there is anything left (which there won't be), she should pay the rest to CipherMine's shareholders.
It is unreasonable to expect we could get our whole investment back. But Kate should act on her own words and move ahead as she promised she would in a situation like this.
Not only is Kate building up an untrustworthy reputation in the Bitcoin community which might affect her future career in technology. By being inactive, she is also incentivizing us to carry legal action against her, the costs of which she will have to cover. And she clearly IS breaching the terms of contract if she continues to operate CipherMine.

I believe the situation is a bit different to what you describe.

In common law systems, like the UK, US and Australia, in order to enforce your legal rights you need to identify the correct counter-party to sue. The counter-party will be a company, an individual or a group of individuals.

As far as I can tell, there was no company in existence at the time the bonds were for sale. Therefore the counter-parties are the individual founders, as they are the legal persons who were effectively making the offer, and controlled the use of the funds raised. In a legal sense, there is no 'Ciphermine', there's just Kate, Giles, Simon and Ross (being the people who held themselves out as the founders and operators of Ciphermine), and possibly anyone else who can be identified as being in that class of person. Ciphermine.B1 bondholders have a contract with those people. The terms of the contract require full payment of the bonds at face value upon redemption.

For reasons I've already gone into I think their liability waiver is void.

The only situation in which we should contemplate not getting our whole investment back is if all of the people who are counter-parties become bankrupt. It is my opinion they are all personally liable for the full amount, unless they show that the representations made about their involvment were incorrect. They also cannot avoid responsibility by simply claiming to have 'left the project'. The contracts are still in force.

So you're all in agreement that CipherMine shareholders should be held responsible for repaying the bonds?  So not only do CM shareholders lose everything, but they have to pay out of pocket as well?

[shadallion]

I'm not paying shit.  FuckKate, fuck CipherMine, fuck litecoin.

[stripykitteh]

I don't understand what Kate is doing. If she can't honor her debt, she should announce CipherMine's bankruptcy. She should liquidate CipherMine's assets and the proceedings of this action should be paid to bondholders. If there is anything left (which there won't be), she should pay the rest to CipherMine's shareholders.
It is unreasonable to expect we could get our whole investment back. But Kate should act on her own words and move ahead as she promised she would in a situation like this.
Not only is Kate building up an untrustworthy reputation in the Bitcoin community which might affect her future career in technology. By being inactive, she is also incentivizing us to carry legal action against her, the costs of which she will have to cover. And she clearly IS breaching the terms of contract if she continues to operate CipherMine.

I believe the situation is a bit different to what you describe.

In common law systems, like the UK, US and Australia, in order to enforce your legal rights you need to identify the correct counter-party to sue. The counter-party will be a company, an individual or a group of individuals.

As far as I can tell, there was no company in existence at the time the bonds were for sale. Therefore the counter-parties are the individual founders, as they are the legal persons who were effectively making the offer, and controlled the use of the funds raised. In a legal sense, there is no 'Ciphermine', there's just Kate, Giles, Simon and Ross (being the people who held themselves out as the founders and operators of Ciphermine), and possibly anyone else who can be identified as being in that class of person. Ciphermine.B1 bondholders have a contract with those people. The terms of the contract require full payment of the bonds at face value upon redemption.

For reasons I've already gone into I think their liability waiver is void.

The only situation in which we should contemplate not getting our whole investment back is if all of the people who are counter-parties become bankrupt. It is my opinion they are all personally liable for the full amount, unless they show that the representations made about their involvment were incorrect. They also cannot avoid responsibility by simply claiming to have 'left the project'. The contracts are still in force.

So you're all in agreement that CipherMine shareholders should be held responsible for repaying the bonds?  So not only do CM shareholders lose everything, but they have to pay out of pocket as well?

Read what I said, carefully. I didn't say that.

[eltopo]

What does your lawyer say about the mail from CM? Care to share?