You were somehow under the impression that you were buying into a Wall Street blue chip?
Getting a little off topic now. What I or anyone else "thought" we were buying into doesn't matter legally speaking. I specifically said he offered an illegal security.
Anyone with half a brain knows this went from unregulated/off-radar to grey area to SEC pwns all. At the outset, it was I believe actually impossible to register a security denominated in crypto funds, as it was impossible at the time to get a money transmitters license for exchanges.
First of all everything is regulated in the US in some way or another. If it's a grey area then that means it's illegal until clarified most likely and if you believe it's not illegal... well then you get to fight the good fight in court (Like Ken is doing) once they come after you to see if you were right.
It was never impossible to get a Money Transmission license in the US for Crypto Currency.. This statement is simply wrong. It was difficult due to teaching regulators what it was you were trying to do and how that falls into money transmission. To even further this point, they would even tell you if you needed one or not, if there wasn't enough information to go by.
How do I know this? I have a pending Money Transmission license currently and have spent the last 7 months doing research in this field.
Unfortunately while crypto-currency to fiat exchanges have been offered a clear path to compliance as regulations have crystallised or been clarified, securities have not.
Refusing to work within the systems rules does not constitute an unclear path. If you wanted to open a security you have to follow the rules just like everyone else does. If people want to buy shares using Bitcoin or any other cryptocurrency then you can as long as that's accepted. If you are not sure then you need to ask the regulators for guidance and get a statement from them. As stated above if you want to go into uncharted territory with the words "Grey Area" as your legal defence, good luck.
So, illegally offering a security, questionable, continuing to operate security and making available to US customers after about October 2013 guilty-ish... but then what was the "moral" thing to do? Forced refunds at that point would have pissed people off also, you can bet that someone would have sued then.
Moral thing to do? Why even bring up something so arbitrary.
What is the legal thing to do? Once you realize you are doing something potentially illegal because that "grey area" isn't so grey anymore then you should reach out to regulators/lawyers on how to restructure. You may still get sued but ultimately you were the one who chose to operate in a "grey area" and took that chance. You would likely get sued either way, by people or by the government.