There have been quite a few references and questions regarding BTC-TC, so I'll address things as best I can.
- One of the fun things that I'd like to know regarding the 1933 securities act is what their definition of profit is. Since I've never cross-connected BTC and Fiat, I'm not sure where the connection gets made. For all I know, a hole in sha256 will be discovered tomorrow and BTC will be shown to have zero value in terms of Fiat. It seems like by the strict letter of the law, playing a game such as Monopoly is illegal, as the little paper moneys have SOME fiat value, no matter how finite.
- Location of the servers is an issue. This is partly why we do the several times a day emails to issuers of the share lists. Addressing the server location issue has been discussed and will be tackled as soon as I can garner some trustworthy help from someone that can bootstrap an installation from bare metal. Biggest issue is that I simply cannot trust a random ISP's platform install. I may even end up having to make the trip myself.
- Humans involved could be nabbed. Three things about this:
1) They'll nab anyone they want for anything they want. We've all done something wrong. (google "three felonies a day.") There's so much vague crap on the books in the US that they can find something on anyone.
2) Things changed very recently with the "Bitcoin is money" approach the feds have taken. Prior to that our legal approach was that Bitcoin is WOW Gold or Linden Dollars and we were a game. (Someone want to explain to me the difference? Why is WOW Gold or Linden Dollars not on the SEC website? Both have exchanges (eg: ebay) and investments going on.) To what extent law breaking occurred depends on a whole lot of things. Probably the easiest way around this is for BTC-TC to stop accepting traffic from US users.
3) I've been looking for overseas investors to take over the majority stake. My personal goal is to get to where I'm the "programmer for hire" and really nothing more. This is why so much of the site is setup to be self sustaining. The site really won't miss me much with the exception of the issues I have been running. Which brings me to:
- Exposure on LTC-MINING and LTC-MINING.LTC... Please sell me back your shares.
Both of these are in closure mode.
- Exposure on ASICMINER-PT... this one I'm not sure there's much exposure on... it'd be hard to pin any losses for example on the PT rather than the underlying issue. Probably I'll have to close it to US participation though as well.
- It'd be interesting to try to pin down -exactly- what distinguishes a game from an investment. To me it's always been about learning the trading ropes in an environment that didn't involve losing "real money". That was why we started on Litecoin. It was a convenient in-game currency. To me it's as cut and dry as it is for WoW. I have no problem telling the difference between the game world and the real world. One I walk around in for real. The other I have to sit at the computer and log in and interact through a computer. Take this same argument to BTC-TC and I have to ask myself, can I interact with BTC-TC in the real world? Or do I HAVE to sit down at a computer and log in to play? The answer so far as I can tell is that no, I cannot use my bitcoin in the real world. I cannot hold them, I cannot buy starbucks with them, I cannot trade them at any shop in town that I am aware of. I cannot call my broker and buy them or buy anything tangible using them. For me and 99.9% of americans they're still an imaginary experiment.
I get back to wondering why all of a sudden the SEC/FinCEN decided out of the blue to recognize them. The only thing I can come up with is so that they can prevent them from ever becoming "real". To prevent people from using them they have to make examples out of people and to make examples out of people they have to first recognize them. A bit of a catch-22 for sure.
I'm also still wrapping my brain around why all of a sudden Bitcoin is money to the US when so many prior incarnations of similar things are not money. The Feds have argued for a century that the only real money is the money they (or another government) print. Time and again rather than allowing commodities that act like money to exist, they have shut them down and denied that they ever were "money" or "currency". It's definitely caught me somewhat by surprise and the site needs to make some changes to co-exist in this new world order.
In any case, there are definitely things that need to be improved for the site. I hate to say this, but barring some kind of loophole, it may come down to excluding US citizens from playing the game.
Rather than try to naunce some terms like "profit" why not look at SEC case against BTCST. Pretending something is a "game" is not a defense. If it looks like a duck, and quacks like a duck, the courts are going to find that it is a duck. There is ABSOLUTELY nothing which requires an investment to be in legal tender or even money in general. The definition is intentionally broad and courts have created substantial precedent allowing non-standard investments to be considered investments. The very fact that Mr. Shavers advertised in the "Securities" portion of the forum is used against him. However why not read what the SEC actually allegedes in the complaint.
Spoiler alert the following are not a legal defense and no competent counsel would tell you otherwise:
1) It is not an investment because ... Bitcoin.
2) It is not an investment because ... "it is a game".
3) It is not an investment because ... "I can't interact with BTC-TC in the real world" (Hint: I can't interact with the NYSE in the real world either).
Trying to self-rationalize why "LTC is a game" is a fools errand. The law rarely ever is based on "common sense". Find legal counsel able to stipulate that you and you might have the start of something.
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
http://ia600904.us.archive.org/35/items/gov.uscourts.txed.146063/gov.uscourts.txed.146063.1.0.pdfBTW I am not a lawyer and none of this should be considered legal counsel however the highlighted #3 is going to be a killer. You can call it a "game" all you wan't, you can scream "GAME, GAME, GAME" as they deliver a summons but if the "reasonable expectations of the investing public" don't see it as a game but as an investment well that is going to ring hollow. This entire forum is already reviewed by the SEC (as evident by the detailed threads recorded and notarized in the action against Mr. Shavers). You pointed out what about Linden dollars and WOW gold. Well Linden has taken steps to eliminate in game investing and gambling for this EXACT reason (to avoid being regulated by SEC) and Blizzard provides no convertibility and takes steps to ban gold to USD exchangers. Now people still do it but it provides Blizzard and Linden some level of deniability. Having an "asset exchange" which is denominated in the worlds largest and most liquid virtual currency is hardly the same thing. What steps have you taken to prevent people from generating (or promising) real world profits by playing this "game". I mean if you call it a game in name only it isn't going to take a rocket scientist to pierce that paper defense. Sudaffed can be used to make meth and that isn't the distributors of Sudafed's fault however if the box of Sudafed came with instructions on making meth and your local drug store held meth demonstrations on weekends obviously the DEA would be looking at those distributors in a different light right? There is a difference between misuse of a product and the use of product as intended. Do you honestly think (hint SEC likely has already downloaded an archived copy of this entire forum, plus your entire website) that based on your words, the words on your site, and the words of your issuers that an average juror is going to see this as a "not for profit" game. Forget the prosecution's case imagine the jury just read "your side". Do you honestly think they are that dumb?
Really you have three logical ways forward and one of them involve anything as silly as "if we keep calling it a game we are exempt"
a)
The MtGox model. becomes licensed and regulated. Most likely it will be insanely expensive, time consuming, and difficult. Even if licensed your business model would need to change radically (hint there are no anonymous investments in the US, so called "bearer" bonds/notes have been prohibited for the better part of 40 years). I just include this option for completeness.
b)
The PokerStars model. ACTIVELY exclude US residents, citizens, and entities from either listing or trading. Simply having a checkbox "I am not a US resident" is likely not sufficient, just ask the foreign online poker sites that the DOJ took down (servers, companies, and bank accounts all in non-US soil and the DOJ got sufficient help from governments where the activity was legal to seize assets in excess of >$500 million). You likely will need to consult with SEC on what would provide you a safe harbor exception but based on online poker's fallout I would imagine they would look for policies which require proof of non-US residence and actively blocking US based IP addresses.
c)
The SR model. It is illegal and so what. SR doesn't try to pretend they are a "game" that is just an idiotic half step. Make sure your servers, operator's identities, assets, and operations are sufficiently shielded that prosecution becomes difficulty if not impossible. Note that the SR wouldn't exist if they tried to pretend US laws didn't apply, that is just dumb. They embrace the illegality of their actions AND are very conscious that lots of agencies with lots of resources would love nothing more than to shut them down forever. I am sure that provides a lot of motivation to ensure they are diligent in keeping themselves shielded. Nobody on the SR has to check a box saying this is just a "indirect delivery game", everyone is a grown up and they know what is going on.
