Next up: Hashking aka Sam Theofanopoulos, 7262 W Benton Dr Frankfort, IL 60423
I really hope they go after all the PPTs and the Starfish too.
Topic: BREAKING: SEC Charges pirateat40 With Running Bitcoin-Denominated Ponzi Scheme - page 7. (Read 44403 times)
July 25, 2013, 11:31:28 AM
I really hope they go after all the PPTs and the Starfish too.
July 25, 2013, 11:20:09 AM
Also looks like Mr. Moustakis asked the Eastern Texas courts for the right to appear "Pro Hac Vice". Simple version Pro Hac Vice is a request for an attorney to practice in a specific case outside of their jurasdiction. Rather than have the plantiff (SEC) be represented by a TX based attorney they petition the courts to allow Mr. M (who has license to practice law in NY) the right to appear in the TX court. It would appear the request has been granted.
People in this forum living in Eastern Texas who did not "invest" with Pirate, go register for jury duty, you might get lucky and be assigned to this case, that's a courtroom session I'd pay to watch...
Shavers already cooperated and gave the SEC tons of info...
My guess: there will be no trial, he will settle.
And investors will get nothing.
This, they have too much info for him not to have cooperated.
Absolutely right. It looks as if he is the one that gave them btc amounts they used. They researched the $ bank amounts to verify those amounts. If he was bright enough to fool that many people out of their btc why wouldn't he have been bright enough to just short the amount he told the SEC by 20k btc? Even if he only sits on a wallet with 1000 btc for 5 years he could still be sitting on a fortune that will let him settle out of court and retire. The investors get nothing - he's still rich.
July 25, 2013, 11:09:28 AM
Based on the location info he's only 10m away from me but we're in different counties so I wouldn't be called regardless. Ironically I did get called to one from my county just last week!
It is federal court, the district is half* the size of Texas so you might get to "attend".
Ok so not half but maybe a quarter.
July 25, 2013, 10:26:52 AM
Also looks like Mr. Moustakis asked the Eastern Texas courts for the right to appear "Pro Hac Vice". Simple version Pro Hac Vice is a request for an attorney to practice in a specific case outside of their jurasdiction. Rather than have the plantiff (SEC) be represented by a TX based attorney they petition the courts to allow Mr. M (who has license to practice law in NY) the right to appear in the TX court. It would appear the request has been granted.
People in this forum living in Eastern Texas who did not "invest" with Pirate, go register for jury duty, you might get lucky and be assigned to this case, that's a courtroom session I'd pay to watch...
Uhm, you don't "register for jury duty." As a person aged 18 or older you're automatically enrolled without a choice in the matter.
Based on the location info he's only 10m away from me but we're in different counties so I wouldn't be called regardless. Ironically I did get called to one from my county just last week!
July 25, 2013, 10:23:05 AM
Also looks like Mr. Moustakis asked the Eastern Texas courts for the right to appear "Pro Hac Vice". Simple version Pro Hac Vice is a request for an attorney to practice in a specific case outside of their jurasdiction. Rather than have the plantiff (SEC) be represented by a TX based attorney they petition the courts to allow Mr. M (who has license to practice law in NY) the right to appear in the TX court. It would appear the request has been granted.
People in this forum living in Eastern Texas who did not "invest" with Pirate, go register for jury duty, you might get lucky and be assigned to this case, that's a courtroom session I'd pay to watch...
Shavers already cooperated and gave the SEC tons of info...
My guess: there will be no trial, he will settle.
And investors will get nothing.
July 25, 2013, 09:01:36 AM
And record it if you're chosen
July 25, 2013, 09:00:20 AM
Don't understand why you would start such a thing, neither did he have any experience whatsoever in hiding his true identity. Which is the funniest part.
It's karma, and it has been served, so far...
However though, I do have to give the guy some sort of credit for making it this 'far'. I guess this points out as well how easily the bitcoin community can be fooled.
It's karma, and it has been served, so far...
However though, I do have to give the guy some sort of credit for making it this 'far'. I guess this points out as well how easily the bitcoin community can be fooled.
The thing is with ponzi schemes or other scams it is more or less a crime of opportunity and probably not a long con, we have no idea if Mr.Shavers started the company with good intention and just decided half way through that it is more money to ponzi(which will always be true), its simply easier to steal than to actually work and its takes a person with serious discipline to not do the wrong thing especially with people throwing money at your face
Its pretty crazy how they work but its not like this is a brand new thing so many ponzis have been done and so many people have been left in financial wake
it all boils down to not investing more than what your willing to lose because more times than not simple minded investors or those who do not do it professionally are willing to bet the house on schemes like this
July 25, 2013, 09:00:04 AM
Also looks like Mr. Moustakis asked the Eastern Texas courts for the right to appear "Pro Hac Vice". Simple version Pro Hac Vice is a request for an attorney to practice in a specific case outside of their jurasdiction. Rather than have the plantiff (SEC) be represented by a TX based attorney they petition the courts to allow Mr. M (who has license to practice law in NY) the right to appear in the TX court. It would appear the request has been granted.
People in this forum living in Eastern Texas who did not "invest" with Pirate, go register for jury duty, you might get lucky and be assigned to this case, that's a courtroom session I'd pay to watch...
July 25, 2013, 07:22:13 AM
Don't understand why you would start such a thing, neither did he have any experience whatsoever in hiding his true identity. Which is the funniest part.
It's karma, and it has been served, so far...
However though, I do have to give the guy some sort of credit for making it this 'far'. I guess this points out as well how easily the bitcoin community can be fooled.
It's karma, and it has been served, so far...
However though, I do have to give the guy some sort of credit for making it this 'far'. I guess this points out as well how easily the bitcoin community can be fooled.
July 25, 2013, 06:36:38 AM
So now we know he stole >250K BTC and had 100k BTC left when he was interviews. We also know the SEC has proof there are people who were net winners (it's in the document he claims to be true).
I guess claw-backs will be hard however because there were so many pass through. It's tough to prove that any single individual really has net gains.
I guess claw-backs will be hard however because there were so many pass through. It's tough to prove that any single individual really has net gains.
Theymos posted on the forum he had a net gain but yes, it will be very hard to figure out. Also I doubt there were that many who did gain and even if there was claw back would it be USD at the time or BTC? If BTC and they sold, that would hurt.
Also, I guess they were allowed to use the information I gave them over the phone (even though I'm <18)! They posted my state on the complaint.
July 25, 2013, 06:07:28 AM
Was this a ponzi scheme aimed at luring in investors or lenders for a real or fake mining company, or something else? I don't know what his 'company' is.
July 25, 2013, 05:55:01 AM
If anyone wants more details then the press release additional docs are available (found via links from techdirt article).
http://ia800904.us.archive.org/35/items/gov.uscourts.txed.146063/gov.uscourts.txed.146063.docket.html
...
http://ia800904.us.archive.org/35/items/gov.uscourts.txed.146063/gov.uscourts.txed.146063.docket.html
...
And if you look directly in the directory, there's even a torrent. This should be seeded I think.
http://ia800904.us.archive.org/35/items/gov.uscourts.txed.146063/
Also, the blacked out info in the 5.1 file can be recovered with a good pdf editor.
July 25, 2013, 03:50:11 AM
Hey, D&T - you see what the SEC is using to base its claim on Pirate's offer being a regulated security - specifically, rather than a loan?
ETA: Don't bother typing up a response just yet. Looking at the block of text, again, and definitions on "common enterprise." (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." seems iffy to me, too...
ETA2: SEC apparently operates on the "horizontal approach."
"The horizontal approach to common enterprise focuses on the relationship among investors in an economic venture." Integral to this approach is the pooling of investors' money in a common venture. The Eleventh Circuit correctly noted that "[m]ost circuits that have considered the issue [of what is a common enterprise] find it satisfied where a movant shows 'horizontal commonality,' that is the 'pooling' of investors' funds as a result of which the individual investors share all the risks and benefits of the business enterprise." http://blj.ucdavis.edu/archives/vol-5-no-2/Why-the-Common-Enterprise-Test.html#_ftn30
-But, because BTS&T didn't really modify ongoing contracts (which were on a weekly basis), how was pooling related to returns seen by lenders/investors when there was a set rate of return? Pooling (rather, continued and increasing investment) was required to keep the ponzi going, but the SEC makes a pretty strong case that BTS&T was a sham, not a legitimate business venture, where pooling would be more sensible. The SEC's own evidence shows Pirate claiming 0 or "almost 0" risk, where lenders/investors' money wouldn't be playing an integral role to the success or continuance of the venture. Is a ponzi with set weekly rates actually a "common enterprise" under that definition? Would their case fall apart if Pirate were just Pirate instead of "BTS&T"?
"For the common enterprise prong to be satisfied, horizontal commonality requires that an investor's assets be joined with another investor's assets into a joint venture where each investor shares the risk of profit and loss according to their individual investment."
ETA3: From SEC:
... The factors used to determine whether a note
sufficiently resembles these “non-securities” and, thus, is not a security under the federal
securities laws are: (1) the motivations that would prompt a reasonable buyer and seller to enter
into the transaction; (2) the plan of distribution of the instrument; (3) the reasonable expectations
of the investing public; and (4) whether some factor, such as the existence of another regulatory
scheme, significantly reduces the risk of the instrument, thereby rendering application of the
securities laws unnecessary. Id. at 65-67. Here, the transaction between Defendants and the
BTCST investors had all the earmarks of an investment, suggesting a security, and no
commercial or consumer aspect, as with the judicially-enumerated instruments that are not
securities. The BTCST investments were offered and sold to a broad segment of the public as
Plaintiff’s Emergency Motion for Order to Show Cause, Asset Freeze and Other Ancillary Relief
investments. Moreover, no risk-reducing factors existed to militate against a finding that the
BTCST investments were securities. No other regulatory agency oversees the BTCST
investments, and BTC itself is a virtual currency, with no single administrator, or central
authority or repository ....
So 1) the buyer/lender expects interest (and that was the term used)... 2) evidence needs to be given that Pirate claimed BTS&T was a program/investment (exists - see ETA4, but he does also call it a loan, and the weekly payments interest) 3) I definitely thought of it as a loan contract, not a security.... 4) no-brainer in favor of SEC's claims
ETA4: From complaint...
1*SEC calls gains from BS&T interest. "4. Shavers falsely promised investors up to 7% interest weekly based on BTCST’s
purported BTC market arbitrage activity, including selling BTC to individuals who wished to
buy BTC “off the radar,” quickly, or in large quantities."
2*SEC notes Pirate's thread was titled “Looking for Lenders,” (SEC notes it was on a subforum where investments were, but so what?)
1$ Quoted from Pirate: "I just wanted to thank all of my investors as I’m able to fulfill them without the risk of them going elsewhere." (in the next sentence, though, he uses the word "lenders" again)
3* Quoted from Pirate: "I take the risk personally." That indicates a loan, not a security. Even though we know that wasn't true, I'm not sure Pirate was representing a security rather than a loan. (if it were a loan, though, would any bureaucracies even have jurisdiction?)
The SEC, throughout the complaint, calls it an investment, but I wonder if Pirate's attorney will contest that. "et al" is pretty interesting, too. I wonder if they'll be bringing on more people...
ETA5: Final edit. $1m might be some type of magic line where a loan necessarily turns into a regulated security, but I can't find good verification, and my brain's shutting off. Time for some wine and relaxation.
ETA: Don't bother typing up a response just yet. Looking at the block of text, again, and definitions on "common enterprise." (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." seems iffy to me, too...
ETA2: SEC apparently operates on the "horizontal approach."
"The horizontal approach to common enterprise focuses on the relationship among investors in an economic venture." Integral to this approach is the pooling of investors' money in a common venture. The Eleventh Circuit correctly noted that "[m]ost circuits that have considered the issue [of what is a common enterprise] find it satisfied where a movant shows 'horizontal commonality,' that is the 'pooling' of investors' funds as a result of which the individual investors share all the risks and benefits of the business enterprise." http://blj.ucdavis.edu/archives/vol-5-no-2/Why-the-Common-Enterprise-Test.html#_ftn30
-But, because BTS&T didn't really modify ongoing contracts (which were on a weekly basis), how was pooling related to returns seen by lenders/investors when there was a set rate of return? Pooling (rather, continued and increasing investment) was required to keep the ponzi going, but the SEC makes a pretty strong case that BTS&T was a sham, not a legitimate business venture, where pooling would be more sensible. The SEC's own evidence shows Pirate claiming 0 or "almost 0" risk, where lenders/investors' money wouldn't be playing an integral role to the success or continuance of the venture. Is a ponzi with set weekly rates actually a "common enterprise" under that definition? Would their case fall apart if Pirate were just Pirate instead of "BTS&T"?
"For the common enterprise prong to be satisfied, horizontal commonality requires that an investor's assets be joined with another investor's assets into a joint venture where each investor shares the risk of profit and loss according to their individual investment."
ETA3: From SEC:
... The factors used to determine whether a note
sufficiently resembles these “non-securities” and, thus, is not a security under the federal
securities laws are: (1) the motivations that would prompt a reasonable buyer and seller to enter
into the transaction; (2) the plan of distribution of the instrument; (3) the reasonable expectations
of the investing public; and (4) whether some factor, such as the existence of another regulatory
scheme, significantly reduces the risk of the instrument, thereby rendering application of the
securities laws unnecessary. Id. at 65-67. Here, the transaction between Defendants and the
BTCST investors had all the earmarks of an investment, suggesting a security, and no
commercial or consumer aspect, as with the judicially-enumerated instruments that are not
securities. The BTCST investments were offered and sold to a broad segment of the public as
Plaintiff’s Emergency Motion for Order to Show Cause, Asset Freeze and Other Ancillary Relief
investments. Moreover, no risk-reducing factors existed to militate against a finding that the
BTCST investments were securities. No other regulatory agency oversees the BTCST
investments, and BTC itself is a virtual currency, with no single administrator, or central
authority or repository ....
So 1) the buyer/lender expects interest (and that was the term used)... 2) evidence needs to be given that Pirate claimed BTS&T was a program/investment (exists - see ETA4, but he does also call it a loan, and the weekly payments interest) 3) I definitely thought of it as a loan contract, not a security.... 4) no-brainer in favor of SEC's claims
ETA4: From complaint...
1*SEC calls gains from BS&T interest. "4. Shavers falsely promised investors up to 7% interest weekly based on BTCST’s
purported BTC market arbitrage activity, including selling BTC to individuals who wished to
buy BTC “off the radar,” quickly, or in large quantities."
2*SEC notes Pirate's thread was titled “Looking for Lenders,” (SEC notes it was on a subforum where investments were, but so what?)
1$ Quoted from Pirate: "I just wanted to thank all of my investors as I’m able to fulfill them without the risk of them going elsewhere." (in the next sentence, though, he uses the word "lenders" again)
3* Quoted from Pirate: "I take the risk personally." That indicates a loan, not a security. Even though we know that wasn't true, I'm not sure Pirate was representing a security rather than a loan. (if it were a loan, though, would any bureaucracies even have jurisdiction?)
The SEC, throughout the complaint, calls it an investment, but I wonder if Pirate's attorney will contest that. "et al" is pretty interesting, too. I wonder if they'll be bringing on more people...
ETA5: Final edit. $1m might be some type of magic line where a loan necessarily turns into a regulated security, but I can't find good verification, and my brain's shutting off. Time for some wine and relaxation.
July 25, 2013, 03:09:09 AM
I read an article about this today where the headline was "Bitcoin ponzi" and it just made me wonder. Would they really be making the same headline if it was using USD? It seemed almost like they were implying that bitcoin is a ponzi too.
That is intentional and reporting bias. The reality is the SEC doesn't see Bitcoin as a ponzi they see ponzi involving Bitcoin to be equal to ponzi involving other "real" currencies (USD, EUR, etc).
I'd call that a good thing - personally, I care a lot more about the SEC's opinion of Bitcoin than the opinion of reporters.
July 25, 2013, 03:00:49 AM
I read an article about this today where the headline was "Bitcoin ponzi" and it just made me wonder. Would they really be making the same headline if it was using USD? It seemed almost like they were implying that bitcoin is a ponzi too.
That is intentional and reporting bias. The reality is the SEC doesn't see Bitcoin as a ponzi they see ponzi involving Bitcoin to be equal to ponzi involving other "real" currencies (USD, EUR, etc).
July 25, 2013, 02:59:49 AM
Oh and last thing looks like SEC is seeking $100,000 civil penalty on top of forfeiture of proceeds.
July 25, 2013, 02:57:09 AM
I read an article about this today where the headline was "Bitcoin ponzi" and it just made me wonder. Would they really be making the same headline if it was using USD? It seemed almost like they were implying that bitcoin is a ponzi too.
July 25, 2013, 02:45:29 AM
Some more interesting excerpts (whenever possible I like to go to the original source):
SEC rational for seizing his assets (and it looks like they will be seeking additional seizures and records if/when necessary). Given they already know his exact trading losses I would assume MtGox has supplied detailed records. I would hope MtGox waited until served rather than just hand over information without due process. Maybe MtGox can comment?
The big one. "Bitcoins based investments are investments". This should silence any dubious claims that BTC based investments aren't "really" investments because they are based on play money, etc.
The portion about "Courts are not bound by legal formalism, but instead take account of the economics of the transaction to determine whether a security exists." is rather important as it shows the SEC intent when it comes to virtual currency transactions.
If a hypothetical "asset exchange" were hiding behind the paper thin defense that it's assets are just "play money" and don't represent real investment then it might be a good idea to get competent legal counsel to look at the cites the SEC provided. Simply calling something a pretend asset on a pretend exchange for fun doesn't make it so. What matters is the intent. If investors are expecting real world profits, and issuers attract investors advising real world profits then it isn't "play money".
SEC rational for seizing his assets (and it looks like they will be seeking additional seizures and records if/when necessary). Given they already know his exact trading losses I would assume MtGox has supplied detailed records. I would hope MtGox waited until served rather than just hand over information without due process. Maybe MtGox can comment?
Quote
Here, the Commission easily makes a prima facie showing that Defendants: (1) operated
a Ponzi scheme in violation of Securities Act Section 17(a), and Exchange Act Section 10(b) and
Rule 10b-5; and (2) sold unregistered securities in violation of Securities Act Sections 5(a) and
5(c). Moreover, Shavers diverted BTCST investors’ BTC to a BTC currency exchange
headquartered in Japan, misappropriating it for his personal use. Given the nature the conduct
and these violations, a preliminary order freezing Defendants’ assets, authorizing expedited
discovery as to the location and extent of their assets, directing them to repatriate ill-gotten gains,
directing them to provide verified accountings, and requiring them to preserve evidence is appropriate
and necessary to preserve assets for possible recovery for victims of this fraud. For
the same reason, an order temporarily freezing Defendants’ assets and requiring the preservation
of evidence is warranted to preserve the status quo pending a preliminary injunction hearing.
a Ponzi scheme in violation of Securities Act Section 17(a), and Exchange Act Section 10(b) and
Rule 10b-5; and (2) sold unregistered securities in violation of Securities Act Sections 5(a) and
5(c). Moreover, Shavers diverted BTCST investors’ BTC to a BTC currency exchange
headquartered in Japan, misappropriating it for his personal use. Given the nature the conduct
and these violations, a preliminary order freezing Defendants’ assets, authorizing expedited
discovery as to the location and extent of their assets, directing them to repatriate ill-gotten gains,
directing them to provide verified accountings, and requiring them to preserve evidence is appropriate
and necessary to preserve assets for possible recovery for victims of this fraud. For
the same reason, an order temporarily freezing Defendants’ assets and requiring the preservation
of evidence is warranted to preserve the status quo pending a preliminary injunction hearing.
The big one. "Bitcoins based investments are investments". This should silence any dubious claims that BTC based investments aren't "really" investments because they are based on play money, etc.
Quote
The BTCST Investments Are Securities as Defined by the Federal
Securities Laws
The definitions of “security” under Section 2(a)(1) of the Securities Act [15 U.S.C. §
77b(a)(1)] and Section 3(a)(10) of the Exchange Act [15 U.S.C. § 77c(a)(10)] include both
“investment contract” and “note.” Courts “are not bound by legal formalism, but instead take
account of the economics of the transaction” to determine whether a security exists. Reves v.
Ernst & Young, 494 U.S. 56, 61 (1990); see, e.g., SEC v. SG Ltd., 265 F.3d 42 (1st Cir. 2001)
(holding virtual shares in virtual company existing only online were securities). “Congress’
purpose in enacting the securities laws was to regulate investments, in whatever form they are
made and by whatever name they are called.” Reves, 494 U.S. at 61. (emphasis in original). The
BTCST investments qualify as both investment contracts and notes and, thus, are securities.
An investment contract is any contract, transaction, or scheme involving (1) an
investment of money, (2) in a common enterprise, (3) with the expectation that profits will be
derived from the efforts of the promoter or a third party. SEC v. W.J. Howey & Co., 328 U.S.
293, 298-99 (1946); see Long v. Shultz Cattle Co., Inc., 881 F.2d 129, 132-33 (5th Cir. 1989).
The “investment of money” element may be satisfied by consideration other than money. See
Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen and Helpers of Am., 439 U.S. 551, 560, n.12
(1979) (the “investment” may take the form of “goods and services”). Moreover, BTC is money.
BTC may be used to purchase goods or services, or exchanged for conventional currencies,
including the U.S. dollar, Euro, Yen, and Yuan. Recognizing as much, the Department of the
Treasury issued guidance concerning the applicability of the regulations implementing the Bank
Secrecy Act to virtual currencies such as BTC. See Treasury Guidance (FIN-2013-G001) –
Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual
Currencies (Mar. 18, 2013). In the Fifth Circuit, the second and third elements of an investment
contract are met where investors are dependent upon a promoter’s expertise, just as the BTCST
investors were dependent upon Shavers’ supposed expertise in BTC market arbitrage, to generate
the returns promised on their investments. See Long, 881 F.2d at 140-41.
Any note is presumed to be a security unless the presumption can be overcome because
the note bears a strong resemblance to one of several judicially-enumerated instruments that are
not securities. Reves, 494 U.S. 56. The types of notes that are not securities include a consumer
financing note, a note secured by a mortgage on a home, a short-term note secured by a lien on a
small business or its assets, and a note which simply formalizes an open-account debt incurred in
the ordinary course of business. Id. at 65. The factors used to determine whether a note
sufficiently resembles these “non-securities” and, thus, is not a security under the federal
securities laws are: (1) the motivations that would prompt a reasonable buyer and seller to enter
into the transaction; (2) the plan of distribution of the instrument; (3) the reasonable expectations
of the investing public; and (4) whether some factor, such as the existence of another regulatory
scheme, significantly reduces the risk of the instrument, thereby rendering application of the
securities laws unnecessary. Id. at 65-67. Here, the transaction between Defendants and the
BTCST investors had all the earmarks of an investment, suggesting a security, and no
commercial or consumer aspect, as with the judicially-enumerated instruments that are not
securities. The BTCST investments were offered and sold to a broad segment of the public as
Plaintiff’s Emergency Motion for Order to Show Cause, Asset Freeze and Other Ancillary Relief
investments. Moreover, no risk-reducing factors existed to militate against a finding that the
BTCST investments were securities. No other regulatory agency oversees the BTCST
investments, and BTC itself is a virtual currency, with no single administrator, or central
authority or repository
Securities Laws
The definitions of “security” under Section 2(a)(1) of the Securities Act [15 U.S.C. §
77b(a)(1)] and Section 3(a)(10) of the Exchange Act [15 U.S.C. § 77c(a)(10)] include both
“investment contract” and “note.” Courts “are not bound by legal formalism, but instead take
account of the economics of the transaction” to determine whether a security exists. Reves v.
Ernst & Young, 494 U.S. 56, 61 (1990); see, e.g., SEC v. SG Ltd., 265 F.3d 42 (1st Cir. 2001)
(holding virtual shares in virtual company existing only online were securities). “Congress’
purpose in enacting the securities laws was to regulate investments, in whatever form they are
made and by whatever name they are called.” Reves, 494 U.S. at 61. (emphasis in original). The
BTCST investments qualify as both investment contracts and notes and, thus, are securities.
An investment contract is any contract, transaction, or scheme involving (1) an
investment of money, (2) in a common enterprise, (3) with the expectation that profits will be
derived from the efforts of the promoter or a third party. SEC v. W.J. Howey & Co., 328 U.S.
293, 298-99 (1946); see Long v. Shultz Cattle Co., Inc., 881 F.2d 129, 132-33 (5th Cir. 1989).
The “investment of money” element may be satisfied by consideration other than money. See
Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen and Helpers of Am., 439 U.S. 551, 560, n.12
(1979) (the “investment” may take the form of “goods and services”). Moreover, BTC is money.
BTC may be used to purchase goods or services, or exchanged for conventional currencies,
including the U.S. dollar, Euro, Yen, and Yuan. Recognizing as much, the Department of the
Treasury issued guidance concerning the applicability of the regulations implementing the Bank
Secrecy Act to virtual currencies such as BTC. See Treasury Guidance (FIN-2013-G001) –
Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual
Currencies (Mar. 18, 2013). In the Fifth Circuit, the second and third elements of an investment
contract are met where investors are dependent upon a promoter’s expertise, just as the BTCST
investors were dependent upon Shavers’ supposed expertise in BTC market arbitrage, to generate
the returns promised on their investments. See Long, 881 F.2d at 140-41.
Any note is presumed to be a security unless the presumption can be overcome because
the note bears a strong resemblance to one of several judicially-enumerated instruments that are
not securities. Reves, 494 U.S. 56. The types of notes that are not securities include a consumer
financing note, a note secured by a mortgage on a home, a short-term note secured by a lien on a
small business or its assets, and a note which simply formalizes an open-account debt incurred in
the ordinary course of business. Id. at 65. The factors used to determine whether a note
sufficiently resembles these “non-securities” and, thus, is not a security under the federal
securities laws are: (1) the motivations that would prompt a reasonable buyer and seller to enter
into the transaction; (2) the plan of distribution of the instrument; (3) the reasonable expectations
of the investing public; and (4) whether some factor, such as the existence of another regulatory
scheme, significantly reduces the risk of the instrument, thereby rendering application of the
securities laws unnecessary. Id. at 65-67. Here, the transaction between Defendants and the
BTCST investors had all the earmarks of an investment, suggesting a security, and no
commercial or consumer aspect, as with the judicially-enumerated instruments that are not
securities. The BTCST investments were offered and sold to a broad segment of the public as
Plaintiff’s Emergency Motion for Order to Show Cause, Asset Freeze and Other Ancillary Relief
investments. Moreover, no risk-reducing factors existed to militate against a finding that the
BTCST investments were securities. No other regulatory agency oversees the BTCST
investments, and BTC itself is a virtual currency, with no single administrator, or central
authority or repository
The portion about "Courts are not bound by legal formalism, but instead take account of the economics of the transaction to determine whether a security exists." is rather important as it shows the SEC intent when it comes to virtual currency transactions.
If a hypothetical "asset exchange" were hiding behind the paper thin defense that it's assets are just "play money" and don't represent real investment then it might be a good idea to get competent legal counsel to look at the cites the SEC provided. Simply calling something a pretend asset on a pretend exchange for fun doesn't make it so. What matters is the intent. If investors are expecting real world profits, and issuers attract investors advising real world profits then it isn't "play money".
July 25, 2013, 02:29:46 AM
f. He was still in possession, at the time of the interview, of approximately
100,000 BTC (Id.).
100,000 BTC (Id.).
Quote
Shavers claimed to generate additional returns for BTCST investors, up to 4% daily,
by lending BTC to an online service which provided users with leverage for purposes of trading
BTC on BTC currency exchanges. (Id.)
by lending BTC to an online service which provided users with leverage for purposes of trading
BTC on BTC currency exchanges. (Id.)
Bitcoinica?
July 25, 2013, 02:28:14 AM
Philip Moustakis ran the SEC investigation. He did send out the e-mails and collected evidence.
Well I guess the wheels of justice do indeed turn, too bad they turned soooooooo slowly that according to SEC docs Pirate already burned through or lost playing day trader 90%+ of what he defrauded.
Also looks like Mr. Moustakis asked the Eastern Texas courts for the right to appear "Pro Hac Vice". Simple version Pro Hac Vice is a request for an attorney to practice in a specific case outside of their jurasdiction. Rather than have the plantiff (SEC) be represented by a TX based attorney they petition the courts to allow Mr. M (who has license to practice law in NY) the right to appear in the TX court. It would appear the request has been granted.
http://ia600904.us.archive.org/35/items/gov.uscourts.txed.146063/gov.uscourts.txed.146063.12.0.pdf
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