a few questions about GLBSE

[bracek]

How much it costs to create a stock packet of my website business ?

How is dividend paid in case of 1 million shares and 0.73 BTC total revenue ?
regarding the transfer fees

Can my shares be traded outside of GLBSE environment, like certificates, or just hashes of numbers ?

Can I own all shares and not list them for sale at all ?

Can I give 1 share to someone, not sell, but give ?

Can I back my shares with bitcoin and how ?

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[Nagle]

For US persons and companies, raising money on GLBSE is a felony under the Securities Act of 1934. To create a publicly traded investment, you have to register with the Securities and Exchange Commission first, and file forms like SEC Form 1-A.

This form starts with:

ITEM 1.
Significant Parties
List the full names and business and residential addresses, as applicable, for the following persons:
(a) the issuer’s directors;
(b) the issuer’s officers;
(c) the issuer’s general partners;
(d) record owners of 5 percent or more of any class of the issuer’s equity securities;
(e) beneficial owners of 5 percent or more of any class of the issuer’s equity securities;
(f) promoters of the issuer;
(g) affiliates of the issuer;
(h) counsel to the issuer with respect to the proposed offering;
(i) each underwriter with respect to the proposed offering;
(j) the underwriter’s directors;
(k) the underwriter’s officers;
(l) the underwriter’s general partners; and
(m) counsel to the underwriter.

You don't get to issue securities anonymously in the US. The usual penalty is 5 years in prison.

Here's a typical FBI report of a conviction for selling unregistered securities.. One of those people gets out of the Federal pen in 2015.

Operating entirely on line won't help. An online unregistered securities operator who ran AdSurfDaily is was arrested and is facing felony criminal charges. If you're wondering what the legal definition of a "security" is, see this court decision against the operator of AdSurfDaily. The terms for AdSurfDaily sound a lot like the ones for many GBLSE investments. Here's what AdSurfDaily advertised:

   Rebate Distribution: Ad purchase sales and banner ad sales on the Cash Generator and the sale of ebooks will be totaled at midnight each night and 50% of the gross sales will be rebated to add purchasers. Fifty percent of the commissions that the Cash Generator earns from their sister site, “Attract Marketing System,” will also be paid as rebates to ad purchasers on the Cash Generator.

Every night at midnight the number of eligible ad packages will be totaled and divided into the total ad package sales, banner ad sales and ebook sales to determine the amount of the rebate for each ad package. That amount will be multiplied by the number of ad packages in each advertiser’s account and the total will be credited to his/her cash balance account. Rebates will show up in your account after midnight EST.

Sounds like a lot of GBLSE offerings, doesn't it? That was held to be an "investment contract" requiring SEC registration in UNITED STATES OF AMERICA v.THOMAS ANDERSON BOWDOIN, JR., Defendant, Criminal Action No. 10-320 (RMC), United States District Court, District of Columbia, March 18, 2011. Mr. Bowdoin is looking at 125 years in prison, max.

[Nagle]

It's the offering of securities to Americans that triggers SEC jurisdiction. The offeror has to comply with US law to do that. Many of the GLBSE listed "companies" are in the United States.

GLBSE itself is hosted in Portugal, not China. Portugal is part of the European Union, and so the common European regulations on securities, enforced by the European Securities and Markets Authority, apply.

[Nagle]

They thought of that back in 1934:

A security is "any note, stock, treasury stock, security future, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, 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 instrument commonly known as a 'security'; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or bankers' acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited." - Section 3a item 10 of the 1934 Act.

There's no mention of "money" being required. Courts have since ruled that new financial gimmicks invented after 1934 should be considered securities if they look or work like anything in that list. Bowdoin, the AdSurfDaily guy, made the argument that a share in an web ad-rotator wasn't a security. The court didn't buy it.

[2112]

John is posing important questions. The relevant legislation was ammended so many times that it is hard to understand.

Two quick exceptions off the top of my head:

http://www.sec.gov/investor/pubs/invclub.htm

http://www.sec.gov/answers/accred.htm

There is quite a number of cases that were judged in favor of defendants. But the primary advice was, if I remember correctly, "Don't try to defend yourself pro-se, hire a lawyer".

[Nagle]

John is posing important questions. The relevant legislation was amended so many times that it is hard to understand.

Two quick exceptions off the top of my head:

http://www.sec.gov/investor/pubs/invclub.htm

http://www.sec.gov/answers/accred.htm

There is quite a number of cases that were judged in favor of defendants. But the primary advice was, if I remember correctly, "Don't try to defend yourself pro-se, hire a lawyer".

It's not hard to understand.

The investment-club exemption doesn't apply here; that requires a real voting membership organization set up as a formal partnership. Some people here may be accredited investors, with net worth over $1 million, but an offering made to anyone doesn't qualify for that exemption. There's also a short form SEC registration for small offerings, but that requires a filing with the SEC.

People have tried to come up with scams that don't fit the definition of "investment" and "security". In SEC vs. Howey, the Supreme Court basically said that if something not listed in the Act acts like an investment, it is.

It's worth looking into the AdSurfDaily case. The guy behind that acted like his scheme wasn't subject to regulation. He made noises about "sovereign citizens".  Didn't work.  $80 million in forfeitures pried the money out of the scam and DoJ has a claim program to give it back to the investors.  The people behind the scheme have been indicted and are going to trial soon.

GLBSE sets itself up like a stock exchange, and encourages people to buy and sell their stocks. Arguing that those aren't securities is not going to fly.  Sorry, guys.

[2112]

The guy behind that acted like his scheme wasn't subject to regulation. He made noises about "sovereign citizens".  Didn't work.  $80 million in forfeitures pried the money out of the scam and DoJ has a claim program to give it back to the investors.  The people behind the scheme have been indicted and are going to trial soon.

GLBSE sets itself up like a stock exchange, and encourages people to buy and sell their stocks. Arguing that those aren't securities is not going to fly.  Sorry, guys.

John, lets be realistic. Even in the wildest and wettest dreams nobody related to GLBSE can talk about $80 million USD. The current situation is that even if they deal cash they would have sneaked through under the provisions of Omnibus Paperwork Reduction Act. The sums are so low, so few people involved, the promotion activities so marginal, that they could successfully defend themselves as an entertainment venue dealing with game tokens.

I'm fully with you on the issue that many people here on this forum have an intent to deceive, defraud or otherwise disobey the law. GLBSE is one of the best examples. But the people who raised bitcoins (not legal tender money) in exchange for unregistered securities are not going to get prosecuted for felony. Their best defense will be just to return the bitcoin investments as promised.

So lets keep a clear distinction between the GLBSE stakeholders like Nefario on one side and small time gamblers that use GLBSE sevices on the other side. Mens rea still has an important legal meaning in the USA.

[2112]

I like the argument that they are just game tokens. See, it's just monopoly money.

Which are you saying that the operators of the GLBSE are trying to do: decieve, defraud, or otherwise disobey the law?

All of them, and probably something else. Its just not yet ripe for prosecution. The prosecution can start building the case and gathering the evidence once there's a first signature under the sacramental "I certify under the penalty of perjury that the foregoing financial statements are true and correct".

Until then the Gavin Anderson's way is still available: close the business before a first audit and return all solicited funds. This is a supreme defense.

By the way: the monopoly money is clearly marked as such in a big type. Some people may think that the tiny-type pale grey on white discalimer will protect them. I'm thinking it wont.

[Nagle]

I like the argument that they are just game tokens. See, it's just monopoly money.

The amounts involved on GLBSE are currently tiny. The SEC probably won't bother. However, many US states have their own "blue sky" securities laws, and some of them will prosecute little guys, especially if they rip off individuals for a substantial amount and someone complains.

(Mt. Gox, on the other hand, is now moving around enough money that they really need to get their act together, register as a money transfer service, and comply with Japan's financial regulations. If they did that, they'd probably be having less trouble with HSBC, Technocash, and Paxum.)

[Nagle]

It is a typically U.S.-centric stance that the SEC, etc. would have any say at all in these global markets.

The "glbse.com" domain is owned by

James McCarthy, White Rock Cottage, Hacketstown, Carlow, IE.
+353.13870661095

That's a real house in Ireland, owned by Frances Hackett, email "mccarthyfrances@gmail.com". Might be a relative. Ireland is in the European Union, so European securities laws apply.

Ireland has a tough legal code in some areas. Bankruptcy in Ireland is severe.. A creditor can force an individual into involuntary bankruptcy if they owe more than EUR2000 and can't pay. "All the debtor’s assets and property vest automatically in the Official Assignee. The Bankruptcy Act 1986 allows the  bankrupt to retain “such articles of clothing, household furniture, bedding, tools or equipment of his trade or occupation or other necessaries for himself, his wife, children and dependent relatives residing with him, as he may select, not exceeding in value [€3,175] or such further amount as the Court on an application by the bankrupt may allow."

For the next 12 years, an Irish bankrupt cannot "act as an officer of or directly or indirectly take part or be concerned in the promotion, formation or management of any Irish company or even of any foreign company which has an established place of business in Ireland. " The bankrupt's name and other information is published in newspapers. And they can't borrow more than EUR630.

I once had to collect a few hundred thousand dollars from an Irish company. They paid once I mentioned involuntary bankruptcy. Merely being far away does not insulate you from debt collection any more.

[BitcoinMint.US]

Very interesting posts on this thread.  Perhaps the GLBSE has quite a few risks involved that might cause issuers to demand a substantial premium over the assets they hold...

[2112]

Is there more risk for the issuer, or for the investor?

I think neither. The underwriter has the most risk of being prosecuted.

[Nagle]

Is there more risk for the issuer, or for the investor?

I think neither. The underwriter has the most risk of being prosecuted.

What underwriter? GLBSE doesn't have underwriters.

The issuer is the one responsible for the issue.

[2112]

What underwriter? GLBSE doesn't have underwriters.

GLBSE is kind of an agglomeration of underwriter, sales agent and exchange. In the normal finance those functions would be spread amongst separate entities. GLBSE provides some of each, with the additional mix-in of possible conflits of interest.

The issuer is the one responsible for the issue.

This is the typical situation. But sometimes a security that is issued and sold completely legally becomes a subject of litigation purely because of subsequent illegal sales practices over which they had no control. There's some case law about incorrectly issued ADRs for which the entire culpability was placed on the underwriter and sales agent in the USA, not on the original issuer. There were also cases related to reverse-buyout where the pre-buyout directors were found innocent and the entire culpability was placed on the post-buyout directors and executives.

For over 10-years now I'm involved in a privately-run enterprise and no longer have any contact with the lawyers that I worked with in the past in the publicly-traded company. I thus apologise for not providing a proper legal citations. Its a complex and very interesting subject, where the quick one-liners are raraly a full answer.

[BitterTea]

Have you considered the possibility that the law is complete and utter bullshit?

Not that they won't try and possibly succeed in enforcing it, but that it is still complete and utter bullshit?

If so, do you think they want to change it? I don't. I see attempting to circumvent it as a valid alternative.

[ripper234]

For US persons and companies, raising money on GLBSE is a felony under the Securities Act of 1934. To create a publicly traded investment, you have to register with the Securities and Exchange Commission first, and file forms like SEC Form 1-A.

I really hope this isn't true.

Asked on Stack Exchange and Quora.

[2112]

Have you considered the possibility that the law is complete and utter bullshit?

In general I think that US securities regulation is decently good. I particularly like the portions about fraudulent sale practices.

Edited to add: The other thing that I find neatest is that non-trading entities have by law free access to the full market information just for the cost of the pipe. Many universities take advantage of it. This is really outstanding feature of the American regulation.

In my opinion bitcoin by itself should be suitable for trading under the OTC BB rules in the USA.

But currently it is impossible to detangle "bitcoin by itself" from the mass of false information about it. It is really hard to separate honest mistakes from intentional fraud. The underlying source code is complex and very little is known about its behaviour under stress. Courts and lawyers will have interesting tasks ahead of them.

[BitterTea]

I particularly like the portions about fraudulent sale practices.

Implying that these portions are applicable to GLBSE? In what way?

In my opinion bitcoin by itself should be suitable for trading under the OTC BB rules in the USA.

Whoopty do, some of us don't care.

But currently it is impossible to detangle "bitcoin by itself" from the mass of false information about it.

False information, such as?

It is really hard to separate honest mistakes from intentional fraud. The underlying source code is complex and very little is known about its behaviour under stress.

I don't understand what this has to do with GLBSE.

Courts and lawyers will have interesting tasks ahead of them.

It's always interesting watching them try to criminalize more and more non violent behavior.

[Stephen Gornick]

close the business before a first audit and return all solicited funds. This is a supreme defense.

Well, looks like some variation of that is underway.  (Or, not ... )

Nefario has, without a shareholder motion and in violation of the bylaws and GLBSE ToS, decided to close down GLBSE.
[...]

He is also illegally using user deposits to pay for his lawyer.

[...]

Since Nefario refuses to give complete details about his legal concerns and he has been acting strangely, I feel that it is somewhat possible that Nefario is working under some sort of plea bargain and is gathering IDs for future prosecution.

[bigasic]

So, why not just comply  with the SEC and make GLBSE legal? I know  easier said than done, but doable, right?