Sellling BTC in US prior to possession

[TheDutch]

I've been told that it is illegal in the US (and ONLY the US) to sell BTC in a transaction before you actually have possession of it.

If a client were to send fiat to a broker, and
the broker has no BTC in their wallet, and
the broker then purchases BTC with the funds, and
finally transmits the BTC to the client's wallet,
is the broker committing fraud or any other type of tort?

The question assumes that:
1) the broker is legally registered as a MTB in the US,
2) the broker has the appropriate KYC info about the client,
3) the transaction is finalized within 3 confirmations (i.e. 30 minutes).

Does this violate any known FinCEN regs or US code?
Are there any known precedent cases?

I'm skeptical of the claim, and I need to put this to bed. Thanks in advance!

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[BurtW]

If they are registered and collecting KYC then they should have a compliance officer who should be able to answer this question.

If they are registered then they should be able to contact FinCEN directly and get an answer.

[audaciousbeing]

I actually don't see anything wrong in such policy because its protecting the investor from any form of shortchanging and the greediness of the broker because you cannot give what you don't have. While it might not be pronounced that makes it sound like its an overbearing policy is because there is always a market btc in that at any point in time there is always a market.

Looking at it from this angle, as a broker who wants to maximize funds, when I client tells me to buy BTC for him at the price of $6,000 and gave me $6,300 to cover for my fee, it then means I can decide to start to wait for price to drop to buy low while I maximize my own commission. I will not be doing anything illegal even though it is immoral to do such because there is no policy or law that makes such action illegal.

Another angle is what if I approached a broker to sell to me and I was under the believe that he has it in abundance whereas nothing is available but I am time bound to make decision on that. The whole decision would then be hanging on the decision of the broker to start scouting the market for the best price with the intention on him too to maximize but if he had told me from the beginning, then I would look else where to meet my need. Its a policy to the advantage of the people imagine getting to a store to do pay on delivery only for you to get there and was told they don't have it until you pay. Thats bad publicity and bad business.

[TheDutch]

...compliance officer who should be able to answer this question.

CO asked me, I regurgitated "corporate policy blah blah blah", and then he asked me to identify the precedent. I have a background in law and have not been able to find anything that corroborates the established policy. So, I'm "fact-checking", and hoping to steer people away from dangerous practices.

...contact FinCEN directly...

Great idea. Obvious really! I just hesitate to rely on government agent's information - they aren't lawyers or prosecutors -and they are overworked & spread thin and unable to keep abreast of the latest "front" in their war.

Thanks for your input!

[TheDutch]

I actually don't see anything wrong in such policy...

I agree with an angle of the policy as well, but my opinion counts for nothing, I'm afraid. It's a technical question, and in one direction it seems perfectly justified, another direction it could lead to fraud. So I would understand if there *was* a law, but I can't find anything and hoped that perhaps someone, somewhere would have a horror story that would give the policy some basis in fact. I hate spouting lies! Sadly, spouting is my job, so I'm hoping to clean it up.

That's bad publicity and bad business.

Agreed. Perhaps, borrowing from the securities industry, if the transaction was called a "bid", it would eliminate any hint of fraud?

Thanks for helping with a new perspective!

[palle11]

I think that to me, it would come as fraud when a broker tries to play a fast one on the guiding transactional rule. If the broker has got no balance and the rule states thus while he receives or tries to buy, then that my point.

I see nothing abysmal with the rule. It is made for the protection of the citizen against fraudulent practice.

[squatter]

I've been told that it is illegal in the US (and ONLY the US) to sell BTC in a transaction before you actually have possession of it.

If a client were to send fiat to a broker, and
the broker has no BTC in their wallet, and
the broker then purchases BTC with the funds, and
finally transmits the BTC to the client's wallet,
is the broker committing fraud or any other type of tort?

The question assumes that:
1) the broker is legally registered as a MTB in the US,
2) the broker has the appropriate KYC info about the client,
3) the transaction is finalized within 3 confirmations (i.e. 30 minutes).

Does this violate any known FinCEN regs or US code?
Are there any known precedent cases?

I'm skeptical of the claim, and I need to put this to bed. Thanks in advance!

It sounds highly unlikely, but I'm not an expert on all the laws governing broker-dealers and money transmitters. Brokers don't traditionally hold all assets they deal on hand -- that would be impossible. They route orders from investors to markets. I don't believe there is any law that specifically subjects cryptocurrency to different standards.

I'm not sure how it could constitute fraud if there is an understanding between buyer and broker that the BTC aren't already in custody, or how a tort could occur if there is no financial loss -- e.g. where broker takes an order he can't fill and refunds the buyer's cash.

[fara_buduk]

I've been told that it is illegal in the US (and ONLY the US) to sell BTC in a transaction before you actually have possession of it.

If a client were to send fiat to a broker, and
the broker has no BTC in their wallet, and
the broker then purchases BTC with the funds, and
finally transmits the BTC to the client's wallet,
is the broker committing fraud or any other type of tort?

The question assumes that:
1) the broker is legally registered as a MTB in the US,
2) the broker has the appropriate KYC info about the client,
3) the transaction is finalized within 3 confirmations (i.e. 30 minutes).

Does this violate any known FinCEN regs or US code?
Are there any known precedent cases?

I'm skeptical of the claim, and I need to put this to bed. Thanks in advance!

It sounds highly unlikely, but I'm not an expert on all the laws governing broker-dealers and money transmitters. Brokers don't traditionally hold all assets they deal on hand -- that would be impossible. They route orders from investors to markets. I don't believe there is any law that specifically subjects cryptocurrency to different standards.

I'm not sure how it could constitute fraud if there is an understanding between buyer and broker that the BTC aren't already in custody, or how a tort could occur if there is no financial loss -- e.g. where broker takes an order he can't fill and refunds the buyer's cash.

I think it is very impossible to make transactions like this because it is less relevant to the procedure for trading P2P currency cryptocurrency, but this is ILLEGAL rule in the US and I think this is not fraud, it's just that our transactions are handled. by third parties, brokers may only synchronize with the market.