SEC Charges Bitcoin Entrepreneur For Share Offering
marketwatch.com Voorhees agreed to settle the SEC’s charges by paying full
disgorgement of the $15,843.98 in profits plus a $35,000
penalty for a total of more than $50,000.
He did not own the majority of S.DICE and he lost 550 BTC (>10% of his holdings) when MtGox fell apart, he's certainly well off but he is far from 8 figure rich.
http://www.reddit.com/r/Bitcoin/comments/1yx2t5/erik_voorhee...
http://www.reddit.com/r/Bitcoin/comments/1yv6ph/some_words_f...
Maybe, but it certainly appears he's 7 figure rich which still ain't bad.
It's interesting, but not surprising. If you offer to sell securities to the U.S. public, and meet certain other requirements, you need to register with the SEC. It doesn't matter if you take payment for the stock in dollars or Bitcoin or cupcakes.
That's it. I'm selling securities via cupcakes.
Cupcakes represent a stable, decentralized currency with a proof-of-work (you had to bake a cupcake to get one!). No government can stop my cupcake transactions.
This is the future.
You're too late. We're past Peak Cupcake (http://marginalrevolution.com/marginalrevolution/2013/04/gou...), and well into the Cupcake Deflation (https://twitter.com/JustinWolfers/status/335017341295419394) era.
There is a lot of fraud going on in the cryptocoin "IPO" space. It's strange that the SEC went after one of the cases that wasn't fraud. Maybe it was because they knew who he was. Either way they really need to crack down on these unregistered securities. People are being fleeced left and right.
I suspect more people are losing money on state lotteries than cryptocoin IPOs. Shouldn't enforcers go after those, first?
I disagree with your point. IPO implies a hope for future return, whereas lotteries are gambling for entertainment.
But a "cryptocoin IPO" is more like a seed round; most such investments are losses. A few have (and likely will) succeed, and quite likely at a better rate than lotteries/casinos. Why can't people choose the "entertainment with small chance of net rewards" in cryptocoin investing?
Notice driverdan uses the term, fraud. Which I think means he is implying that there are instances where the business plan doesn't go much if any beyond selling shares in their fledgling startup and then calling it a day. That is a different thing entirely from buying shares in a legitimate business that subsequently fails.
And of course frauds should be prosecuted. But does all the up-front compliance and registration burden provide any actual protection against (a) dedicated fraudsters, and (b) credulous fools?
It looks to me that it just changes the expression slightly, and not for net social benefit. People gamble or day-trade-on-margin or over-leverage-in-real-estate or wire-their-money-toNigerian-419-scams, when some longshots (including occasional frauds) as cryptocoin/venture investments would be no worse. And, they'd be plausibly better, because the process of aiming for business success, but still failing through misestimation, misexecution, or even malfeasance serves as valuable training for future success.
If you lose at your lottery scratcher 10 times in a row, the 11th is still an awful bet for you and society. But if you lose your investment principal 10 times, even if most of those times were total or borderline fraud, you will make usefully better choices, for yourself and society, in the 11th try.
(Or you'll just stick to other areas where you're more competent, which is fine, too.)
Good god, typical coiner logic... An attempt at a fallacy of relative privation('whataboutery') that doesn't even make sense. Do you think state lotteries are being misrepresented for what they are? Putting aside people's innumeracy, do you think state lotteries fraudulently misrepresent the expected return of purchasing a ticket?
I too think lotteries are a little seedy, and it's a little weird how the state uses its vice regulating powers to create something of a vice monopoly to further its own ends, but surely you see how this comparison you're making is lacking in equivalence.
Yes, the marketing of state lotteries misrepresents their value and preys on the poor and misinformed. (Private casinos are just as bad.)
Because law and social-norm enforcement faces budgetary constraints in time/resources/attention, the (informal-not-really) "fallacy" of relative privation doesn't apply. We can only choose some activities to both demonize and punish; we should allocate that effort well.
State lotteries and state-sanctioned gambling monopolies are a lot more destructive than even dishonestly-marketed "cryptocoin IPOs" (where people know that caveat emptor applies and traditional legal recourse is difficult).
And, the enforcement action described here was against a fairly honest, successful cryptocoin venture, SatoshiDice, a far more moral operation than the California Lottery.
The SEC doesn't need to "do more", it needs to "do less". The government's limited attention, resources, and competence should be focused on crimes and fraud with real, actual victims. Not trivial violations-of-form.
I'm talking about outright fraud, not gambling. Quite a few cryptocurrencies have had larger premines than the devs claimed or other outright fraud issues that allow the devs to profit and costs everyone else money.
Wonder what the implications are for the other companies/altcoins that go the IPO route. There are a number of well-known companies in the space that IPO without registering with the SEC, most recently MaidSafe [1] from the SAFE network that got a lot of publicity but no questions asked about the IPO (except boasting in their press release that they raised $5 million in the first 5 hours [2]) [1]: http://www.businessinsider.com/these-guys-are-creating-a-new... [2]: http://www.ibtimes.co.uk/cryptocurrency-news-round-dogecoin-...
I'm not convinced a presale of a currency falls under the same regulations as equity in a company.
>I'm not convinced a presale of a currency falls under the same regulations as equity in a company.
BTC isn't a currency in US. I'm kind of curious where SEC draws the line, if any, when somebody sells some interest in some virtual artifact - say a website or a Farmville plot of land - in exchange for some other virtual artifact - say BTC or ISK.
Ok not legally a "currency" according to the IRS, but still a product, rather than a share in a company or a bond.
The SEC doesn't get involved in Farmville plots of land, any more than it gets involved in physical real estate. It's not involved if I sell you a gold coin or rare stamp, even if you hope to resell at a profit.
Cryptocurrencies seem more analogous to these things, rather than equities, debts, profit-sharing agreements, or anything else in the SEC's official definition of a security:
It definitely falls under money transmission - which could be worse as far as penalties go
Not entirely convinced of that either. You're doing less than exchanges, and only converting in one direction. I'd definitely check with a lawyer, of course.
But in any case, lots of Bitcoin companies successfully navigate money-transmission laws already.
They are registered in Scotland. Likely any American individual or company that doesn't register is liable to have the same thing happen to them.
If they are raising money from American individuals (not Qualified Institutional Buyers) they would need to be registered with the SEC irrespective of where they are headquartered.
They might, at most, qualify as foreign private issuer, so they can file with the SEC in private, but I strongly doubt they did it. http://www.sec.gov/info/smallbus/qasbsec.htm
Edit: For those asking why the American laws apply to this situation, it is because if you're raising money in America, American laws apply just like British laws would apply to Google if Google is doing business in Britain (or raising money there). If the company is registered in Scotland and raises money in Scotland, knock yourself out, the SEC doesn't care.
I do not like the implication that the SEC somehow owns potential American investors. At some point, you have to treat me like a big boy, point at the "caveat emptor" sign, and let me be on my way.
Any claims that the SEC is vital to protecting Americans from financial fraud, maintain fair and orderly markets, and facilitate new capital are all quite soundly countered with a variety of phrases, such as "credit default swaps", "AIG", "MERS", "collateralized debt obligations", "naked short", "Bernie Madoff", "matters under inquiry", etc.
'Any claims that the SEC is vital to protecting Americans from financial fraud, maintain fair and orderly markets, and facilitate new capital are all quite soundly countered with a variety of phrases, such as "credit default swaps", "AIG", "MERS", "collateralized debt obligations", "naked short", "Bernie Madoff", "matters under inquiry", etc.'
Your reasoning here is fallacious - the question is the current situation compared to the counter-factual without the SEC, not whether the SEC eliminates all malfeasance (whatever the regulatory climate and funding levels).
Of course, it's worth noting that the existence of a fallacious argument doesn't undermine the point it was trying to make; it just fails to support it.
Your question is fundamentally unanswerable. We cannot isolate the operation of the SEC in the market as a variable, any more than we can swim twice in exactly the same river.
With respect to the question, "can the SEC protect Americans from financial fraud?" the answer is no. Fraud occurs frequently, and of greatest recent notoriety and severity are the examples I alluded to. The SEC cannot protect; it can only punish. Just like Chief Wiggum.
As always, in free markets as well as regulated ones, you have to do your own research into your trade partners before deciding to trust them (caveat emptor). The SEC is just part of the institutional stagecraft that keeps the market from becoming paralyzed by mutual suspicion.
And since we cannot have two markets, one for control and one for experimentation, we cannot say with any reasonable certainty whether the malfeasance eliminated by the SEC is of greater or lesser magnitude than the malfeasance enabled by it. But we can say that the latter is most certainly not zero.
It's not "fundamentally unanswerable" any more than any other question about a complex system over which we have limited control. It's hard to answer - this is not the same thing. That the question is hard to answer is no reason to substitute irrelevant alternatives. The appropriate thing to do is 1) answer it as best we can, and 2) recognize that there remains substantial uncertainty.
The internet blurs the lines, though. If I was in Scotland raising money and Americans came to Scotland to invest, there would be no SEC issues (assuming I wasn't marketing to Americans; of course, this may imply qualified investors anyway). The problem is what it means to "come to Scotland" and to "market to Americans" has changed with the internet. So the question becomes how to differentiate actively courting US investors from local investors, and it's an important question to keep any government (especially the US, unfortunately) from overstepping it's sovereign rights and encroaching on another country's.
"(assuming I wasn't marketing to Americans; of course, this may imply qualified investors anyway)"
I can afford to fly to Scotland, and I am nowhere near a qualified investor...
And you may be a "qualified investor" and dumb as rocks. In which case, I have a flashy sales presentation for you!
Certainly the case. I wasn't, by any means, supporting investor qualification as sensible.
> it's an important question to keep any government (especially the US, unfortunately) from overstepping it's sovereign rights and encroaching on another country's.
The essential character of "sovereign rights" is that they are unbounded except by voluntary restraint of the sovereign.
Why would this matter to them if they are based in Scotland?
Where they're based is far less relevant than where they do business. If you do business in American with American customers you need to obey American laws.
So long as they aren't domiciled in the US, American laws don't (or shouldn't) apply outside the US any more than British laws apply in the US.
The US decided they could prosecute BNC because the transactions, completely legal where BNC was doing business, we're in US dollars. It took a $10 billion fine to finally get France to push back.
US law applies to products being sold to us citizens.
America's allies really need to sit Columbia down and have an intervention. It's been 238 years since she moved out of Britannia's house, and it's just been wild parties and wars of choice ever since. At some point, it really is time to settle down and start respecting the neighbors.
Your rant is misplaced. Every country in the world would claim jurisdiction over people trying to sell things in their country.
This was bound to happen eventually, especially given the indication of insider trading the day before SD was bought out.[0]
Very interesting that the shares he issued were purchased in bitcoin, and still the SEC decided to step in. How is this different than if you issue shares and sell them for an in game currency?
The SEC doesn't really care how the payment is carried out, if that's the only difference. The actual medium of exchange could be dollar bills, gold coins, euros, baseball cards, rare watches, gemstones, bitcoin, used books, etc. (Though some of those are treated differently for capital-gains purposes.)