Topic: A BTC stock exchange for high-risk, unverified securities? (Read 6155 times)

High-five to Nefario! Cool stuff, I'm interested to see how everything will play out.

Just regarding Korbman's comments on the SEC and GLBSE, we're defacto based in the UK now and once we complete registration we'll be a UK company proper, this brings us under the Financial Services Authority(FSA) domain of influence which is a lot more relaxed than the SEC.

We're going to do what we can to make GLBSE and listing on it as legitimate as possible but also keep the paperwork down.

+1

I'm not disagreeing with you, I'm just saying that there aren't any specific securities laws that deal solely in cryptocurrencies. There are definitely generic laws that can be manipulated to cover any form of currency exchange.


Exactly. Securities Law of 1933 is all about pushing transparency, and 1934 is all about giving the SEC broad power to regulate the sale of any security. I'm sure any lawyer worth their salt could use these laws as a basis of attack for taking down GLBSE because it acts as a Security Exchange. The SEC seeks to regulate all types of investment schemes. The question is, is GLBSE that big of a deal to make it worth the SECs time to go after it? By and large, bitcoin is still very much a niche market with 200,000 global active users on Mt Gox (used as my basis since it's the most popular exchange, https://mtgox.com/press_release_20120831.html) trading for normal currencies. Let's say there are 1 million active users throughout the world (which isn't too far fetched I think)...that's a sexy .015% of the total population.


I partially agree with this, mainly since the JOBS Act is all about helping businesses get funding, but a business started within GLBSE and solely based on Bitcoins wouldn't be subject to the same stipulations. This is because Bitcoins aren't a recognized form of currency under the government, it isn't backed by any entity or asset, and the value of the coin is solely determined by users of the coin. The business may have the equivalent of $10 million in funding one week, but $8 million the next..or $12 million the week after that. The regulations would probably come into play when the business exchanges Bitcoins for regulated currency, but I think the IRS would be quite a bit more interested in that than the SEC.

Anyway, Securities Law is INSANELY complex.


Agreed. I came to GLBSE because I had an idea and I wanted to see if I could make that idea come to fruition. Adding tons of requirements and restrictions that bars those of us without an established business defeats the point of GLBSE and Bitcoin.

Your Right But I think there is a posting on another thread from "Deathandtaxes" about using Profit Sharing agreements with a US Based LLC to allow you to get around this issue.

I already have a US Based bitcoin LLC that is becomng public information in the next few weeks, so I'm most likely going to "Dox" myself after that before I have nothing to hide.

I'm most likely going to Setup DBA's for all my Assets on GLBSE to point to my other non-bitcoin LLC, and reorganize the contracts to reflect that.

I already have a provision in my bylaws the forced me to file a motion for approval if I spend over 1 BTC. When I keep assets in BTC, I store them on public addresses so people can follow the coins.

I need more transparency to the BTC going into my asset and going Out VIA GLBSE, Currently I transfer all share sale profits to an IPO-Account Address. So the shareholder can see the money coming into the asset. I have a dividend account where I store the next dividend payment before sending it out. I have a growth account that has a percent of profit. And a weekly Mining Rig account so people can see the money going in.

If GLBSE would have the option of BTC Accounts that I could disclose to the shareholder Via GLBSE this would be great. So all sales of shares woould go Into my IPO-Account. and would be visible showing I have 10 BTC in GLBSE on my account.

I consider it a race with other asset owners to be able to get to the Top by becoming an A Listed Asset.
I consider myself "GREEN" to be the most Open asset because I'm so open about all finances of the company and try to post any detail no matter how small, most people don't see that because my market cap is very small and I don't have any problems being the small guy.

Saying "the medium of exchange is a gray area, so securities law doesn't apply" wont keep you out of court if you are the first one over the hill to test it.  The legal fees just to have your day in court would bankrupt most small companies.  Think of it this way: there is no law that says suffocating someone with a plunger is illegal, but I suspect any judge can apply existing laws to that situation. The fact that is a gray area means it has risk, not that its free from risk.  Which is why some companies would be hesitant as stated earlier.

In the US, the Securities and Exchange Acts of 1933/1934 are legally worded to cover securities that are offered "using the means and instrumentalities of interstate commerce".  Pretty vague.  Using it as the basis of a filing for the prosecution is probably going to get it on the docket.  If it does apply, then Rule 144 alone decimates Bitcoin stock exchanges since direct placement of those securities would have a holding period and resale restrictions (legal compliance opinions, transfer agents, street name registration, percentage sale limitations, etc).

On the other hand, the Jumpstart Our Jobs Act of 2012 makes it much easier to crowd source funding for small businesses without the strict registration requirements.  This is where I would start if I was the defense.  You can make the case that these businesses are exactly covered by the JOBS Act.  Just stay under $10 million in funding and keep less than 500 unaccredited investors (or 2000 accredited and unaccredited investors).  Also make sure you aren't taking more than 2% of someones yearly income or more than $10k from someone making $100k/year.  I'm sure other rules apply.

IANAL, but I do work for a public company that I helped start over a decade ago.  Which means I had to learn a bunch of securities law for the time when my only compensation was stock (during the dot-com crash).  I've also been an active part in a federal trial for the same company and had to learn way more about US legal system than I ever thought I'd have to.

As far as the GLBSE BlueMarket, I think its a great idea.  But the requirements should be simpler than a fully reporting company on the Nasdaq OTCBB or else the cost would be about the same to maintain both listings.  (i.e. expensive).

Let's hope this is true.

There is no such law.

Bitcoins fall in the legal gray area, so there are no laws surrounding it. Given Nefario's (and other's) ideas for what it takes to enter the Blue Market, many small businesses could qualify. They could start an IPO to get funding to help expand their business, or any number of other possibilities. From an accounting standpoint, it would be somewhere on the same plane as when a larger company issues stocks/bonds on the normal security exchanges. The difference is that there's VASTLY less red tape to get through with GLBSE than there is with the SEC and NYSE...and it's cheaper.

Do you have a specific law that prevents it?

I have a sneaking suspicion that companies who can list on blue wont go near glbse as they would be prevented by securities law from doing so.

I agree. The average return of the junk bond is much higher than the TB.

Am I totally missing something or basically this would just be a portal for : send me 1000btc and I will run away because I'm allowed to?

If they are under 18 it is even more important to provide the information by someone who is legally responsible for them.
This is all about accountability in case something goes bad. In many countries a minor cannot be held fully financially accountable.
So ID of parents or legal guardians and their utility bill additional to the ID of the kid should be required when under 18.

Re renting: Back when I was renting, the DMV (Department for Motor Vehicles) requested a signed statement from my landlord to show that I live there. I know that's a hassle and it would be great if there's a better way.

Sent.

Sorry, I should have clarified. 3 weeks ago was when everything was all submitted. My launch date was originally set for September 1st...but then given the work that's going on, I'm looking to move it to October 1st instead. But under the IPO tab where you see what's up and coming, I haven't been posted yet. Once I'm there, then I'll start updating the forum thread I've created with details. I don't want to put myself out there when no one can follow up and check on the IPO on GLBSE because it doesn't exist yet.


This has always been a problem for me as well. I rent an apartment with 2 other people. My first roommate moved in about a week before my friend and I, so her name is on the power and tv/internet bills. My cell phone is bought and paid for by my company...which is awesome since I don't have to worry about those bills, but crappy because it's not in my name.

I am verified on Mt. Gox though, thankfully since I was able to use my most recent tax returns to show proof of address. Maybe that might be something to pursue? I'm always on edge about that stuff though...utility bills are one thing, but tax docs are just a treasure trove of personal information that you definitely don't want leaked. Unfortunately at the time it was the only thing I could use...

There's a lot of things that do have my name on it though. I have bank statements (stemming back for 4 years when I last switched banks), credit cards, student loans, pay stubs from my current job, car loan, and car insurance all 100% in my name and all with my address. I get how you can fake a few of these items, but still...

And what about people looking to get a start on the exchange without any of these things? What if they live with their parents, or are under 18? Chances are, they don't have any docs that would prove their address under the traditional verification methods. Quite the tricky situation indeed!

My public key is on pgp.mit.edu for [email protected], encrypt a high quality scan/pic also showing a little note (on the whitespace) saying your GLBSE username.

Thanks for the response.

I thought about that particular part too.

If you pay the utility bill for a house you might not live there in case you rent it out. But that is just as good, as in that case you would usually be the owner.

I always hated that too, unfortunately I do not see a practical way to prove a physical identity without providing additional information.

With proper security measures, I would be ok with sending you a utility bill.

It normally is, and I've always hated that, for myself I mean, as I've never had a utility bill in my name, utilities were always included in my rent.

But you're right, no one is going to pay the bills for a house unless they live there.

Normally I have seen a fresh utility bill is used for that. (electricity, internet, phone...)

It's not intentional guys, I'm really sorry for the delays.

For new assets I want to wait until after the conference, for a number of mainly policy reasons.

For address verification this is actually a tricky issue. We've been doing it a particular way but I'm worried it could be gamed.

How do you prove you live where you do?

Sending a letter with a code doesn't prove anything, just that you can get post at that address. What can really prove you live at a particular address?

It's clear to me that there are those that had/have no problems at all, but that doesn't make it less of an issue to me.
Sorry.

So the expected launch date you have provided was supposed to be 3 weeks ago?

I didn't have any trouble getting verified. I submitted all my information and had my phone and address verified within 2 weeks...all while substantial changes took place on GLBSE and everyone was busy. Given the circumstances I'd say that's pretty good.

I am, however, still waiting for my IPO to launch (and show up in the market). I had my contract, financials, description, and other docs (as well as fee) submitted and paid by August 25th...so 3 weeks ago

You can start by streamlining the address verification.
Some members (myself included) have to chase you for weeks to get that part done.

Not exactly, getting into the white catagory would mean you need:
1) A revenue generating business
2) Provide accounts
3) Get verified (minimum photo and address verification)

The majority of GLBSE assets do not meet these standards.

Most on GLBSE are already that status imo. No offence to you.

Yeah, will be working with issuers to get them into white, and then eventually blue.

Looks like my suggestion wins!

Market on GLBSE now split into Pink, White, and Blue.

Well, "split", since everything is still in Pink, White and Blue are empty.

We should all move to a romanian exchange run by a porn website operator like you.

https://bitcointalksearch.org/topic/m.1121264

Theymos: Look at August new membership. Think how much money people lost on crap "assets". Add these two.

one look at the various levels of pink sheets OTC
OTCBB and GXG markets is full of pump and dump penny stocks

and theyers lots of hooops to jump through on a laot of those sections to be listed
these guys just manage to pay off enough people[massive listing fee, anointed brokers paid ot consult and given wholesale access to IPO etc etc] and are letter of the law legit [but not SEC]yet rip off millions $$$ from poor dumb "investors"

i welcome any effort a nice guy like you who wants ot protect investors BUT how hard will you have to work to be even more effective than the toothless SEC? i would say it's hard to watch but at the end of the day spend your time and money protecting GLBSE's ass not the investors.
i am beyond angry at the people who enabled pirate40 through their blind greed and idiocy and have the temerity to whine about it. not you.

I actually like this idea a lot, as it has a lot of roots in the actual stock exchanges. As it is right now, wading through the various sketchy securities on GLBSE is tiresome as I look toward actual investments and ideas.

Not to mention bad timing for me as I try to get my IPO off the ground!

And I as a server operator am free to turn off the ability of users to issue assets, which is what I have done on my server.

-MarkM-

People will provide transparency because the market demands it not because there are regulations forcing them to do it.

And I as a customer am free to totally avoid anything like that 

Governments have a lot of power and our only real protection is cryptography, so governments have created laws to try to remove this protection, threat of imprisonment if we don't give them the password or key.

I don't know the US legislation but in the UK it's RIPPA(or RIPA not sure).

So the only alternative is to split the data from the key, and keep them in different locations/jurisdictions. Sure you could get the other person but it's a lot more work.

I'll cut out my idealism then. I am now even more sold on the GLBSE.

How about GLBSEWhite?

Since you have to get some verificaton to get out of the bottom tier, it would be like whitelisting the assets?

We ran an anonymous market exchange for nearly a year, it was a total failure in the practical, ideological and economic sense. It made almost no money, no one "investing" made any profit or return because the vast majority of assets were scams, most of the rest were failures, with a few late arrivals being successful (when we added verification).

Also you're argument about being forced to release information is moot. We're implementing a separation of powers for verification data we hold. Similar to our disaster plan if I get killed.

One party holds the data encrypted while the other has the key, with only one party being publicly known (me) and the other in a very different jurisdiction.

People who don't want to go through verification can simply run their own issues on their own server, even from home behind i2p or Tor if they want to. The main thing preventing that so far has been lack of free open source software to do it. That is being remedied rapidly.

-MarkM-

EDIT: In fact, the default setting for Open Transactions servers is that anyone can issue an asset. So basically even if you don't want to run one yourself to issue your assets on, chances are you will be able to find one with that setting and issue as many assets as you wish as often as you wish...

-MarkM-

GLBSE will release information given enough legal force. You want us to trust the GLBSE and that is reasonable depending on the clientèle you want.

Strawman again, have never said issuers need to "expose" themselves. Getting verified means GLBSE knows who you are, no one else, NOT getting verified has a proven track record of disaster for shareholders (with very few exceptions).

I don't think that the identity of an issuer need be known all around the world for them to list on B or A markets, but GLBSE needs to know who they are. Failing to do this doesn't just result in scams, it ruins the market as a whole and it's reputation (as was our experience with GLBSE 1.0).

Promoting high risk, unverified securities is probably a high risk activity (though I am not sure how verified/verifiable that assertion itself actually is).

However, situating such an exchange behind Tor and/or i2p creates sufficient barrier to casual entry that it might also permit dispensing with the security worries associated with using webservers and webbrowsers; people who are willing to get Tor or i2p running can maybe also handle using an Open Transactions client instead of a web browser.

What exactly is the job of the exchange? Are they supposed to promote/market for you or is it fine that they remain as unknown as possible to everyone other than to your shareholders and your potential shareholders: the people to whom you the issuer of a security choose to reveal the means of contacting the exchange your issue trades on?

I have been thinking it might be better to simply have experienced traders equipped with Open Transactions clients bundle managed portfolios of things as GLBSE assets to cater to the browser-addicted crowd, or maybe even set up websites of their own for interacting with their customers.

Admittedly I might be overly influenced by an old, obsolete model: floor trading / seats at the exchange; does the New York Stock Exchange run a website now so anyone can trade directly on it, or are there still remenants of the old days when only brokers / brokerages actually dealt directly on the exchange, the public dealt with brokers?

-MarkM-

Additionally, in some countries entrepreneurship is pretty much illegal through burdensome regulations.

Requiring some people to expose themselves is a recipe for disaster for their businesses. Capping funding will only put salt in the wound for them, especially if its a completely virtual business.

What if the investors and the issuer have a price of privacy and low visibility? What if no party sees any benefit in reaching B status?

I think the laissez faire caveat emptor marketplace is the best way to go. But I also take the attitude that it is better to have more issues than less just like it is better to have more speech than less.

Perhaps you can segregate securities based on type, risk, profile, etc. I do find it annoying trying to sift through all the crap to find the diamonds. But this is a GUI issue and not a fundamental philosophy and business strategy issue.

Having a laissez faire caveat emptor marketplace opens up opportunities for creative entrepreneurs to solve problems, slice risk up and develop innovative financial products. A good example is Nyancat Financial's performance in the midst of this Pirate mess.


The idea that Pirate, Ponzis, etc. issues crowds out investment from 'more legitimate' issues is a complete red herring. Individual investors determine their risk tolerance and attempting to interfere with this creates friction and inefficiency.

The problem with Ponzi scams is that they are fraudulent. A big problem with publicly traded companies is all the disclosures. This can reveal competitive advantages which results in pressure on margins and profits.

Sure, people can lie, etc. but so likewise investors can do significant due diligence, craft and execute binding contracts in addition to the GLBSE contract and maintain an aura of privacy around business operations when there is a legitimate trade secret. Often these trade secrets can be exploited for years by small private companies that keep their mouth shut and do not alert potential competitors to their money tree.

Therefore, as a shareholder and in order to maximize shareholder value I want issues I invest in to have the ability to maintain privacy, protect competitive advantage and secretly dominiate their niches. If that means we have to remove the issue from GLBSE to avoid disclosure of trade secrets and take it private then that would be the reasonable business decision.

Thus the conflict becomes whether investor's perform due diligence or whether GLBSE performs due diligence.

If GLBSE takes a regulator position attempting to ferret out the 'scams' then it costs time, resources and puts shareholders in a position to rely on GLBSE to their detriment thus opening up potential legal liability for negligence, etc. in not ferreting out the scams, etc. because some will inevitably get through or get through legitimately and then turn into scams.

Thus, a laissez faire caveat emptor position would allow for more innovative financial instruments that can creatively and more efficiently allocate risk, maintain the privacy, secrecy, trade secrets and competitive advantages of businesses which would create shareholder value and remove any reasonable reliance investors may have on GLBSE.

On the other hand, I do not see the advantages of babysitting fools who are easily separated from their money.

We'll have this done in the next couple of days.

GLBSE is definitely getting cluttered and needs some organization and I think the best solution would be to separate shares by sectors (mining, funds, high risk and so on). A new website would be slightly more obnoxious but the splitting up/reorganizing of GLBSE would be really helpful.

I think Nefario shouldn't drop those "scams/high risk" investments out. Maybe create two markets in GLBSE would be better and manually move the good ones from the high risk market to the low risk one. And make the high risk market pages stand out as high risk. Something that will always remind potential investors that this could easily be a scam.

Banning them outright has more less cons (pun intended) than pros. 1. Less profit for Nefario. 2. To much intervention in the market which goes against the "bitcoin spirit". Letting the people decide and giving them the proper tools to do so would be better.

Of course in any case it's up to market own to decide what will be trades in the market. After all someone else will cover the demand for a high risk market if GLBSE backs out.

+1 for this.  NASDAQ is a 3 tiered market.
http://www.nasdaq.net/PublicPages/ListingStandards.aspx

Then there's OTC BB, and Pink Sheets for companies not meeting certain listing standards.

That's an acceptable explanation to me; lived and learnt. It's what makes us human.


I completely agree there is a balance, and I think all that matters is who's in charge, and what the scale is.

Perhaps I don't really understand what "free market" means; I read your definition but I have trouble with the paradox - you are allowed to decide the rules of your football game with your football (GLBSE) which I must submit to if I want to play in it, but the government is not allowed to define the rules of the football game (society) for it's football (the country) which we must submit to if we want to play in it. The only way I can imagine resolving this paradox is to consider the modern government as the sum of people's cumulative actions and experience. That is, the modern government was created by the cumulative effect of individual anarchy. This allows for the resolution of the paradox - they are fractal representations of each other. You are free to create rules which people may not follow in your game, just as the government is free to create rules you may not follow when playing their game.

You would say you have an incentive to manage GLBSE, perhaps in the pursuit of profit by recognizing the need for certain constraints. Is this any different to a government managing the rules of trade on the NYSE, so that they may too metaphorically profit via a positive happy to sad ratio of citizens? Their scale is much bigger than yours, sure, but they still believe they are creating a more interesting market where more people can have fun rather than less. I do believe that, albeit in larger scale, the government is fractally mirroring you by applying their own experience when creating regulation. It may be too much or badly done (as yours might be), but I would say that's a problem with the people in charge, not the concept of rules being created to benefit particular people.

I suppose I was being facetious in my original comment anyway...so sorry about that. I certainly back your ability to apply your intellect to run your business successfully.

I think it would take glbse to a whole new level.

Not for long.

Also there are several on GLBSE at the moment that would only need a little help in reaching that status.

Why now and not before? Experience. When GLBSE first started we had no rules or even any form of verification, after about 6 months of this total absolute freedom GLBSE was a ghetto of scams and failed assets. Then we started to tidy things up, we moved to GLBSE 2.0 and added verification. The quality of assets skyrocketed and trade flourished.

I think looking back we can see where GLBSE has gone wrong and where it needs improvement, a little more market segregation and a few reasonable rules will help a lot.

Regarding your libertarian comment, I don't think you understand what the term free market means. It doesn't mean no rules at all, that's a free for all.

It means the owner of the football gets to decide the rules of play instead of the government, that a free market is free of government regulation. We don't run GLBSE for the purpose of collecting tax, we run it with the intention of helping investors, projects, business and people. So it's in our interest to try to ensure the market runs as smoothly as possible to the benefit of everyone.

I don't want to see any more rules on GLBSE than are absolutely needed, and the ones that are in place are there for a good reason and are clearly not enough. I, we at GLBSE hate rules because every one means more work and expense for us, it's against our own profit interest to have any, but at the same time it's against our profit interest to have an exchange that is full of scams and nothing else, that is not a market with a future.  

We need to strike a balance.

I think you are confusing libertarians with anarchists  

The point is GLBSE is private property and can set any rules and regulations it wants to.

That sounds reasonably sensible. There is nothing that says the GLBSE has to follow practices set by stock exchanges and their regulators.

Why are you doing this, though? Have people been complaining to you about the pirate fiasco? How come it's a problem now and not 3 months ago? Although I suppose I can understand it being a "wait and see" situation.

This is one thing that I don't understand about the libertarian cause (not saying you're one)...they claim they want a free market (which is essentially what you had provided), but if they're the ones that are going to get screwed, they suddenly don't. Why aren't they all here berating this idea as blasphemy?

Why would the C market have a cap on funding?

I'll be adding tags in the next couple of days for things like bonds, mining etc. to shorten the assets page.

But what I actually had in mind was having 3 different markets (or 3 different market pages) with differing requirements to get into each of them.

The (C) market could be unverified, no accounting records etc. and considered very risky, it would also have the lowest starting fees and maybe a limit on the amount that can be raised.

(B) market would be where most of the good assets currently stand, verified to the current level, but I think providing monthly accounting statements, they'd need to have a running business as well (compared to funds to get a project started). So it would only be a little more effort (I think mostly for the accounting side) for some existing assets to get into this category.

(A) market would have even higher levels of verification than now(background and credit checks), would also require a treasurer to approve the use of funds, provide GAAP accounts and be audited by an external source.

This way an asset could start off in the C market and as they grow (if they're successful) they will be moved to B market and then eventually A market, each step up raising the levels of capital they have access to.

We still wouldn't allow assets that would make GLBSE a target for government regulators/police (i.e. drugs, prostitution).

Just host it in Russia and make a positive homage to Putin. Then you're good.

 Like the pink sheets market  

Might want to setup on a different domain or server though so its even more separate and doesnt put the more professional exchange at risk.

A completely unregulated market has a higher risk of the government shutting it down which would impact the main site. It might even need to be behind TOR.

+1

On the suggestion of someone else, we would consider setting up a B market, with lower requirements, lower startup fees, and obviously more risk.

opinions?

GLBSE tried that model and it didnt work.

Although it would be interesting to invest in someones pot farm or other things that are on the grey/black markets 

Yeah, this is necessary if GLBSE won't accept them anymore. MPEx's fees are insane.

I would be interested.

More competition for the existing exchanges is always good. Hopefully it would drive more rapid improvements in reliability, availability, functionality and value for money in them all.

Cryptographically verifiable scams.

+1

Is it scam if it's already clear it probably is a scam?

There's enough scams around here already.   

Would anyone be up for a stock exchange that accepts anyone and anything that isn't murder or CP?

Buyer Beware would be the main theme and securities would only cost 1 BTC or so to list. If somebody loses their money, they'll know the risk was there. Trading fees would be as low as possible. It would be hosted in Russia, China or in some other country that doesn't give a damn. I'll definitely include actual, verifiable receipts for securities purchased.

Ideas and opinions would be great.