Topic: Gox Exit/Entrance Speculation (Read 3108 times)

Good; it looks like the FBI may be getting involved. And the Bitcoin Foundation is helping with a criminal probe. That phone call between Matonis and Karpeles must have been quite severe.

http://www.bloomberg.com/news/2014-02-26/bitcoin-exchange-mt-gox-shutdown-said-to-be-probed-by-u-s-.html
http://www.bloomberg.com/video/fbi-said-to-probe-criminal-violations-by-mt-gox-tpCZEWuhTRqD24E_W9gewQ.html

I see; perhaps we were getting our lines crossed. They must first issue guidance on Bitcoin and actually formally regulate it before they can come after anyone for insider trading or anything else that is illegal under the SEC with regards to Bitcon trading (obviously Ponzi schemes, et al, are still fair game). Even if they do end up regulating it, it would not be retroactive (i.e. they would not come after people for past behavior). If the CFTC ends up regulating BTC, there is a good chance that trading on insider information would be legal. Why? Because it's legal in the FOREX market and the CFTC may regulate it like they regulate FOREX. The SEC does not regulate FOREX. Just my thoughts.

One more thought -- depending on whether or not Gox had any investors (I don't think it did), providing false balance sheets and not being transparent with investors can certainly make the SEC come knocking on one's door.

This is what I was asking from the start -- the explicit definition of "security" and whether or not bitcoin can be interpreted to be within the purview of that definition. I am confident that an asset does not need to be explicitly classified as a security if it fits the legal definition. I am not confident that bitcoin necessarily fits that definition. I wanted clarification on this point.

Ok, can you show me the SEC ruling that shows that Bitcoin has been classified as a security? The SEC regulates 'securities'. Their rules only apply AFTER something has been classified as a security, and not before. Perhaps this is your confusion. Bitcoin has not yet been classified as a security, hence the fact nobody knows how it will one day be classified. Until then, none of the SEC or CFTC rules apply.

The SEC already regulates insider trading and front running. Is this confusing for you? Whether or not those regulations apply to bitcoin is a matter of conjecture on both of our parts.

Security regulations won't apply until the SEC steps in and begins regulating. They haven't done that yet. Is this confusing for you?

Yes, very happy to be done with this.


"No, it is very clear that Bitcoin itself does not currently fall under the SEC or else they would be regulating it." That is a joke. The question is not whether or not the SEC has taken an action. The question is whether or not SEC regulations can be applied.

"I can't show you a regulation that does not exist. But I can tell you that if the regulation does not exist, it cannot be applied." This suggests that SEC regulations do not exist. That is absurd. What I am asking you to do is show me statutory language that implies that bitcoins are not subject to SEC regulation. That entails a legal analysis of the pertinent regs regarding, for instance, insider trading and front running, that exhibits why bitcoin is exempt from such regulation.

Instead, you keep insisting that the SEC has to come out and say, "here, this applies to bitcoin." That's not how the law works. If there are laws on the books that can be applied, they are already on the books, after all. I can't be bothered to do such an analysis. All I am saying is your position is pure conjecture without it.


You are implying that there is no basis to apply regulations. You have, however, done nothing to prove this. This involves actually reading the law. You are simply saying, "the SEC does not regulate bitcoin. Therefore it cannot regulate bitcoin." If prosecutors view laws regarding fraudulent trading activities as belonging within the purview of SEC regulations, then yes, they can certainly prosecute on that basis.


I never asked you to cite a law that doesn't exist. I asked you to prove that SEC regulations don't apply. That entails reading the regulations pertinent to insider trading and front running and citing language that implies that bitcoin is not subject to those regulations. Absent language explicitly omitting assets that are arguably analogous to bitcoin, SEC regulators may interpret given regs as applicable. Since you stated you are knowledgeable about this aspect of the law, it seems that this should be fairly trivial for you. If the assets under regulation are that explicit, what are they, and can you cite the statute for reference?

Securities law is relevant because it has historically encompassed these very issues of insider trading, front running and other forms of market manipulation.

When regulation becomes more clear in the future, do you think such activities carried about by exchanges will be explicitly legal? If not, why do you assume they are implicitly legal?

I've been regulated by both the SEC and CFTC, I have undergone AML procedural training and consider myself fairly knowledgeable with regards to Reg-D regulation and hedge fund law (considering I've been involved in management of these types of entities). I can put you in contact with an attorney if you don't take my word for it.

http://www.mondaq.com/unitedstates/x/283878/Commodities+Derivatives+Stock+Exchanges/Regulating+Bitcoins+CFTC+vs+SEC
http://www.jdsupra.com/legalnews/bitcoin-current-us-regulatory-developme-38412/

Until they are regulated, they are not. It's that simple. You will know when they are regulated. There will be no ambiguity because guidelines will be issued. It's highly likely that one of these reg bodies will regulate it in the future......but that doesn't apply to today. Again, this is not legal advice, just opinion. I am not an attorney.

Alright, I'm finished with this topic. This is becoming a troll fest.

No, it is very clear that Bitcoin itself does not currently fall under the SEC or else they would be regulating it. Please show me evidence stating that it is currently regulated by the SEC. I can't show you a regulation that does not exist. But I can tell you that if the regulation does not exist, it cannot be applied. Regulations must exist to be applied. If you can show me the regulation, I will concede.

Also, it's clear that the general operations of a Bitcoin exchange don't fall under the SEC because the SEC is currently not regulating Bitcoin exchanges as they are MSBs. So, the SEC could not prosecute an exchange for front-running or insider trading. If you think they could, please provide evidence showing me A) their current power to regulate Bitcoin exchange operations and B) the fact that that don't allow this specific activity. These two things must be in place BEFORE they can regulate these types of things.

What is not clear? Are you thinking that the SEC is secretly regulating Bitcoin but they haven't told anyone?



Yes, but they must first have a basis to apply the regulations. The SEC cannot jump into a fray that is outside of their realm initially and then let courts decide if they can be there. It cannot prosecute a potato case based on the fact that it is a potato alone. It must be within it's realm of regulation. Then the court can decide if the law is being applied correctly.



I cannot cite a law that doesn't exist. Can you have me prosecuted by a law that doesn't exist? No, you cannot.



True, as I have said. But then we are not talking about securities law. We are talking about criminal fraud or something else. FINCEN or the DOJ can prosecute but they would not be using securities law. How is this hard to understand? I'm not sure why you keeping bringing securities law into this.

this

If something did happened the US Government will defiantly get involve. Look at Pirate40, he loves his new vacation spot.

Yes. Again, what is not clear is that bitcoin does not fall under SEC regulation. You've said nothing to prove that whatsoever.


Enforcement agencies, not courts, decide when and how to apply regulations. Courts decide whether they acted legally after the fact.

What basis do you have to say "arbitrarily"? You have not even cited any law! What legal basis do you have to say that SEC regulations are not applicable? Hint: None so far. This is just conjecture on your part -- you are simply appealing to authority by attempting to state your opinion as fact.

Bitcoin exchanges fall under FINCEN regulation for the purpose of transmitting and converting money. That is all. This does not mean that any and all actions taken by bitcoin exchanges are regulated and enforced by FINCEN. As you indicated earlier, a bitcoin exchange that engages in other types of fraud may be dealing with the DOJ, for instance.


Again, I understand this. But saying that the SEC regulates A, therefore the SEC does not regulate B, is illogical, on its face.

I think you are confused as to how the U.S. legal system works. Are you British? Perhaps it's different in the U.K. I used to live there but don't know the nuances of their legal system.

If something doesn't fall under the SEC regulation, then they cannot use securities laws to prosecute. It's extremely clear. Sure, they may in the future but that would not apply to something that happened today and it would have nothing to do with precedent. Actually, the CFTC has already said that they could easily have the power in the future to regulate so it's highly unlikely it would ever be an SEC issue.

The courts do not have the power to pick an SEC regulation and arbitrarily apply it to Bitcoin. It's either SEC regulated or it's not. No precedent is needed. Currently, Bitcoin exchanges fall under FINCEN as MSBs.

http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html
http://fincen.gov/financial_institutions/msb/msb.registration.html

The things that would make SEC laws apply are -- if someone had a Bitcoin fund and used it to defraud. Any equity fund is regulated by the SEC, whether it contains Bitcoins or potatoes.

And no -- insider trading is not illegal in any other market. It's illegal in the stock market but not, to a large degree, in the commodity markets. And the FOREX market, a massive global currency market, does not have insider trading laws. It is 100% legal to trade on insider information in FOREX. The only time it becomes illegal in any market is if a regulatory authority that deems it illegal has the power to regulate that market. There is no ambiguity and a judge cannot simply create a precedent that changes this fact. So, insider trading is currently legal for Bitcoin in the U.S. It's actually quite simple and not dependent on a precedent.

Of course it's fake.

Now that the hyper ventilating media have started reporting it as real - on the same day that he resigned from the foundation - Gox stopped trading cause if they didn't the price would have completely collapsed due to panic.

For the third time, I believe, this is crystal clear. I explicitly pointed out the difference between a BTC-denominated asset and BTC. Please stop repeating yourself. If it pleases you, forget that I ever mentioned Pirate40.

What I am trying to explain to you is that it is not clear that the SEC does not / will not apply securities regulations to businesses as they pertain to bitcoin.

If SEC regulations specifically omit certain types of assets from regulation -- what are they, and what is the basis of omission? Can this basis be applied to bitcoin or not? This is the legal question which has not been touched on. You have not even brought up the pertinent laws, let alone proven this.

I asked if you could provide specific statutory language -- and precedent -- that suggests that security law does not apply. I assume you cannot. Absent that, there really is no basis by which you can say with any certainty that security laws do not apply here.


The implicit permission for exchanges to engage in fraudulent practices -- such as insider trading and front running -- which would be illegal in any other conceivable market.

I am asserting that the spirit of securities regulations were to address fraud in investment markets. The only thing that separates bitcoin from stocks or physically-backed commodities in this sense is the existence of an underlying asset. I am not convinced that this basis alone permits market actors to legally engage in fraud.

Exactly. With this # of coins in question there could very well be an element of what you are describing playing out. To me, this possible explanation is at least AS likely as an 'accidental' loss of 744K coins? Perhaps even more likely.....

So, what are you saying here? Of course SEC laws apply to anyone purporting to sell an investment scheme. He could have been involved in a 'potato' based investment scheme and the SEC would have gotten involved because he was promoting an investment scheme. Mt Gox was not promoting an investment scheme. They are an exchange. The Pirate40 example has no relation to Mt Gox, which is what I am trying to explain to you.



What is this? What would violate the spirit of securities regulation? The reason the SEC got involved with Pirate40 isn't because the coins were stolen, it was because he promoted an investment scheme and then stole coins. If Pirate40 had an exchange and used it to steal coins, the FBI would have gotten involved. It would not have been an SEC matter. I'm confused as to how this example convinces you that securities law applies.....

Had a similar thought when I first read the leaked (or maybe "leaked") document. What if leaking an undeniably damaging (for mtgox' reputation) document is actually a scapegoat, to take the wind out of even worse accusations.

Say for a second Mark acted fraudulently. Reading a few articles in the general media, it looked like the discussion had turned to the unbelievable incompetence with which gox was run. "How can they lose 740k coins without noticing". Say he gets away with that perception, but in reality, kept parts (or all) of the supposedly lost funds as private profit.

Well, like I said, that was my first or second thought that came through my head when I read the draft. Not sure how likely it is.

http://www.bingham.com/Publications/Files/2012/02/A-Practical-Guide-to-Japanese-Insolvency-Procedures


'a trustee has very few public disclosure requirements in respect of the debtor’s financial well-being. For instance, the laws do not require U.S.-style monthly operating reports to creditors, nor do they require a disclosure statement in support of a plan of reorganization'

'a courtsupervised restructuring process in Japan tends to be far less transparent than in the United States.'

'the system’s lack of required notice, disclosure and hearings makes it difficult for smaller creditors (even financial creditors) to play an active role'

'Corporate Reorganization Law Trustee: An individual appointed by the court to run the debtor’s affairs and to develop its restructuring
Plan. Although historically the trustee has been an independent bankruptcy professional, recent cases have permitted the appointment of an existing member of management.'

I didn't suggest that. I acknowledged the difference and stated my position.


To this, I would still say:

The issues raised have nothing to do with this alleged theft -- only to do with the proposed tactics of market manipulation and arbitrage proposed in the draft.