Legality of IPOing securities on GLBSE
toffoo:
I'm curious if any legal experts here in the forum have an opinion on the legality of issuing Bitcoin securities on the GLBSE.
Activity is picking up over there since the GLBSE 2.0 release and some "real money" is starting to change hands, both in turnover and issuance, and the "deal calendar" seems to be heating up.
I'm in discussions with some others about hopping on the bandwagon and doing an issue of our own, but we're frankly a bit nervous about the legality and potential ramifications of doing an issue there, albeit virtual.
I am no securities lawyer, but I did work a number of years in the financial industry in both USA and UK as a registered representative, and I know that taking money from the public as an "investment" and offering "securities" in return is a highly regulated activity in pretty much every legal jurisdiction.
Now, I suppose that it can be argued that all these Bitcoins are just funny money, and these securities being issued in Bitcoins are just virtual and therefore don't count because they only exist in the cyberworld. Any way you slice it, it's a bit of a grey area at the time being. But whether or not this stuff violates the current letter of the law, it certainly appears to me to violate the spirit of the law. Whether or not you consider Bitcoin a currency, or legal tender, or whether it has real value or not, consider this: if I went around offering unregistered investment securities to people, I think I'd eventually get locked up, irrespective of whether people paid me in U.S. dollars, Zimbabwean dollars, gold, or popsicle sticks! The securities industry is right up there with the nuclear power industry in terms of sectors with the most government regulation, and I don't see how this stuff will avoid BigBrother's long arm for long.
I recently addressed these concerns with nefario (who runs the GLBSE) and he seemed to have a pretty relaxed attitude about it. He said that while they try to avoid listing anything involved in obviously illegal activity, it is the responsibility of the issuer to determine the legality their securities issue in their own jurisdiction. At this juncture, it's probably fair to say that none of the many existing GLBSE stock and bonds issues have been registered with the SEC, or sold with a prospectus (with the usual disclaimers), or paid the teams of investment bankers and securities lawyers the fancy coins necessary to get this done. Running a securities exchange is also usually a highly regulated activity in the real world, but of course government regulation is basically nonexistent thus far in our virtual one.
This wonderful new technology, the invention of the distributed crypto currency, has opened the door to a number of activities that clearly straddle a grey area in our current legal systems, but in my opinion this business of issuing unregulated investment securities seems like the type of thing they'll bring the hammer down on, hard, sooner rather than later, exposing the issuers, investors, and/or exchange operators to significant legal risk ... especially if things go wrong.
Thoughts?
gabbynot:
I couldn't agree more with all your concerns. Reading thru some SEC guidelines here:
http://www.sec.gov/info/smallbus/qasbsec.htm#eod6
it appears that all of GLBSE's issuers are probably breaking some laws regarding unregistered securities if sold to US investors. The specific securities may not technically have to be "registered", but they most certainly would need to provide offering statements.
I'm far from a securities lawyer, but I would agree that GLBSE will get some SEC attention at some point in the future.
kronosvl:
the biggest problem is that glbse has at least 1 server in US. This was one of the most important legal argument for megaupload shutdown.
You can't exactly restrict US users, at most US tickers. But the server in US is a problem IMO.
edit: and .com could be a problem
cbeast:
Quote from: kronosvl on May 08, 2012, 02:07:43 PM
edit: and .com could be a problem
If the USA dictates dotcoms, then it can be moved to a domain not controlled by the USA. QED.
Vladimir:
IANAL, but it seems that anyone who lost any money on GLBSE has a valid claim against someone, probably GLBSE (they potentially could be considered as UK agents of all the offshore issuers of "securities"). I take it if you are located in UK and lost anything on GLBSE you can ask FSA to make you whole (at expense of GLBSE, most likely). I would guess it is pretty much the same in most jurisdictions.
here is some fun reading:
https://www.google.co.uk/search?q=financial+promotion+act
http://www.legislation.gov.uk/uksi/2001/1335/contents/made
http://www.salans.com/en-GB/Locations/~/media/Assets/Salans/Publications/2006/20060407-Making-financial-promotions-in-the-UK.ashx (just random comment on the relevant legislation, no affiliation)
P.S. Argument that Bitcoin is not money or that it has no value and therefore you can promote unlawfully or illegally assets denominated in BTC is just silly.
P.P.S.
Quote
It is a criminal offence to fail to comply with the FSMA [Financial Services and Markets Act 2000], the enforcement of which is overseen by the Financial Services Authority
P.P.P.S.
Quote
any breach of the Financial Promotion Restriction can be punishable by an unlimited fine and up to two years’ imprisonment; and the same penalties can be applied to all officers who have consented to the breach.
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