Topic: The reasons why Bitcoin securities can’t be regulated by the SEC (Read 5907 times)

$60 Visa gift card = substitute for currency
1 BTC = not a substitute for currency

Oh yeah, I'm mostly posting for others benefit.  I discuss with lawyerly types on a regular basis. 

Sooner or later you will have to take this up with a lawyer, foruming only goes so far.

I like the "substitutes for currency" part.  Leaves it nice and wide open.  Doesn't any commodity "substitute for currency"?

They who transmit Bitcoin as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency will conceivably have to get registered. There's a reason bitcoin-central.net is pretty much the only functioning exchange at the present time.

So what's the legal interpretation of this?


What are the implications of being an exchanger and money transmitter?

Hey, guess what! MP was actually right.

Strategic superiority, a saga.

Bitcoin already is the only world currency. "Overtaken" hmm, depends what you mean. If you mean the rich, influential and important will oust the 12yos with delusions of grandeur, then absolutely.

Guruvan: Posting these comments on the blog could actually get you a reply. I'm not qualified to discuss the matter.


Read more, opine less. You can start with the actual link (for instance, it includes a picture).

I see the beginnings of a remake...

A plucky, middle aged man of indeterminable foreign origin opens a fictional stock exchange. Follow him on this raucous adventure as he gets busted by the State's Attorney. He can't afford the $50,000 for his own attorney so he decides to go at it "Pro Se." Will his hail mary "It's all just a MMO" specious defense keep him out of the slammer or will he be doing hard time? Find out in
 
My Cousin Mircea

This is key, I think.  The courts have no problem dealing with abstract intangible things.  But bitcoin is a whole new meta-level of abstraction and intangibility.  Bitcoins don't exist in the real world like paper dollars, but they also don't exist electronically, like abstract bank account dollars.

While there are some interesting points in the article, there seem to be errors.

Though the 5th Circuit Court opinion you cited used the word "money" IMO, this word was used to mean Money - not Legal Tender Your argument suggests that you've equated the two terms. Historically, anything from grain, to gold, to banknotes, to fiat banknotes, and beyond has served as "money" Therefore, anything of value that one might invest might qualify under

true, IANAL, and don't have an extensive law library to search case law for the definition of "money" bit AFAICT, that is a very vague term, not necessarily defined legally, whereas there are much more explicit, well defined terms that could be used if the Court's desire was to limit the scope of the definition of money, and thus the scope of the opinion.

Furthermore,


A contract (in the US) is considered valid if there is an offer, acceptance of the offer, and consideration paid for the offer. There is no requirement in the UCC for that consideration to be made in "money" - just value transferred in consideration for the offer. It, therefore, only need be established that bitcoin has value in order for it to be accepted as consideration for an offer.

That you make the above argument, that a contract with consideration paid in bitcoin is invalid, because bitcoin doesn't qualify as consideration is problematic. It would seem that MPEx has made offers, and accepted bitcoin as payment of consideration by the acceptor(s) of those offers. This cannot go both ways. Either the contracts you've presented are invalid, or a contract with consideration paid in bitcoin is valid. IMO, I'd rather your argument break down here than your contracts  

So, while bitcoin may not actually "care" about the SEC, and may be able to be used to circumvent legal restrictions in any jurisdiction, primarily by obfuscating issuer identities, that doesn't actually mean that the SEC is outside of its (self proclaimed) jurisdiction of "all companies that serve US citizens and deal in or with securities of any sort".

The one part of the argument which may have some merit is the establishment of "ownership" or "legal title to" a/some bitcoin. If one could establish that no one can own, or posess, or have title to, an amount of bitcoin, then it could indeed fail the test for valid consideration payment. However, I believe that one can establish that one has irrefutable control over, and therefore, what is tantamount to ownership of, bitcoin.

It remains to be tested whether or not the ability to sign a message with an address, or to send a specified payment to a specified address is enough to establish "ownership" or "title" or and other sort of legal control that may be necessary for it to be valid consideration paid for an offer made.

But, I'll have to go back to - The Offeror requested consideration in bitcoin, the Acceptor paid consideration in bitcoin, and the bitcoin paid as consideration was accepted, and the goods or services were delivered by the Offeror. After the goods are delivered, unless there is some  move made by the Acceptor to forcibly withdraw the consideration, and the Offeror has accepted, and redeemed in some way, the consideration - the contract is in force. The longer that the Offeror fails to seek remedy after the goods or services are delivered, the more the validity of the consideration is established.

If bitcoin were to be found to be "illegal" itself - then there might be another argument to invalidate any contract based on it as consideration - provisions in contracts that are illegal are generally not upheld in court - if that is the consideration itself, it would stand to reason the contract would be null and void. (if I replace "bitcoin" with "heroin" the contract will not be enforced by any court in the US )

But, all in all.....BTC doesn't care about the SEC. MPEx rules.

It's my opinion that the failures on Wall St. over the last several years have shown that business has grown beyond the government's ability to regulate (ah, here, it certainly is mostly the other way 'round...business regulates government) In the cases where the government fails in its sworn duty to protect its citizens, then the citizens must protect themselves. You may laugh, especially given the GLBSE and other securities scandals in bitcoin, but, it takes time for people to learn, and for the needs to be assessed, and tools developed to support that need for the people to protect themselves.

MPEx currently is the some of best protection we have from overzealous governments who would quash innovation like bitcoin, and more specifically, utilizing the Bitcoin network and bitcoin derived technologies to improve things like transparency in public financial reporting, and reduce opportunities for fraud. Again, with as much fraud as we've seen, this may seem laughable now, but as I look through proposals like this, on decentralized bond markets I'm encouraged that in the long term, we can achieve those goals.

With as much fraud, and crime as we've seen on Wall St, I'm quite sure we need to achieve those goals.

One last thing. While I might pass the test for "sophisticated investor" - I'm sure as hell not going to pass most of the "accredited investor" tests necessary to invest in certain kinds of instruments. This is one of my primary reasons for investing via bitcoin instead of vi USD in traditional markets. With small sums of money, there are extremely limited opportunities in the traditional marketplace. I don't think that it's the governments job to protect me so much that I am unable to participate in the market, and unable to earn. I've had some pretty significant (to me) losses, due to negligence, fraud, and outright theft, but these were risks I clearly understood, and accepted. I invested no more than I can afford to lose. Even with my losses, I've done better than I could with a job in the small town I live in, and that, IMO, is not something the government should be in the business of stopping....there are no jobs in the small town I live in, and that's a significant problem for the government.

So. For all you government employees reading this: take that back to the bosses. Bitcoin is young, and a few scandals like these recent one will necessitate improved processes that protect investors much more than any law will ever be able to - becoming overly involved will crush that innovation, which will, in the end, greatly assist you (if you're still needed, and if you're not needed, provide you new, more exciting and lucrative opportunities!)  [/rant]

To wit:   Distributed Bonds, Colored Coins, Atomic Coin Swapping, Contracts, SmartProperty, and Software Agents] - This would literally diminish the potential scope of any regulatory body. Though one could attempt to police & prosecute human actors in this model, it wouldn't be possible to prevent issuance or exchange of securities, of really any sort.

The promotion and advertising of securities through the means of interstate communication is a large part of what the SEC regulates in the U.S.

Establishing that a Bitcoin security is a pooled venture which is expected to generate profit by relying on the actions of a third party seems to be straightforward.  The only missing piece is an exhibit showing that Bitcoin exchanges for money. 

During discovery, the prosecution could just bring out BitInstant's FinREC registration as a money exchanger.  Or get expert witness testimony from MtGox.  Or both.  Everything else is already in place (profit motive and third party). Expecting a judge to advocate for Bitcoin at this point in the proceedings would probably be a strategic mistake.  The courts don't care how you dress it up.  Precedence in U.S. law makes that very clear.

After that, you are defending against wire fraud.  Which has nothing to do with what constitutes a security.

The funny part is that selling securities isn't illegal in the U.S.,  it's just highly regulated.  Form D gets you private share sales up to $1 million dollars without a full registration.  You just can't advertise or promote them.  And you have to declare and comply with every state law you declare as well.

IANAL.  But I find this discussion fascinating.

How about a TOR hidden service exchange.

Can certainly appreciate that position.

I really and truly hope you're, right, MPOE.

But I would give 4-to-1 odds that the US justice system will disagree, and my advice to anybody thinking of raising funds via an unregulated IPO would be "don't do it unless you want to do it as a protest against our broken system and are willing to face the likely consequences."

I'll cheer you from the sidelines, but I'm either not stupid enough or not brave enough to go up against the SEC.

Nope, grow a reading comprehension. You know, that thing where words have meanings and shit.

Well, "company". Global Scam Exchange.

What company ? I dunno what youre talking about 

You're citing a single case involving Romanian immigration law as a "provable track record" relating to US securities law?  bwahahaha.


Absolutely confidence inspiring.

Hmm, came across "persons that operate or control electronic or other platforms to trade securities;"

at http://www.sec.gov/divisions/marketreg/bdguide.htm

-MarkM-

You don't get to set any goalposts for Mr. P 'till at the very least you're done reimbursing the poor suckers that your company has defrauded.

If you have anything substantial to say, it belongs in the comments section of the reference.


Oh I dunno, just some guy with a provable track record of suing the gov't and winning. Go cook some crow, smartypants.

As Internet Lawyers and Internet Attorneys, Mircea Popescu Internet Law specializes in protecting small, medium and large businesses on internet law issues related to online defamation, copyright infringement, internet and online trademark infringement, software trade secret theft and other internet law issues. When you need a real internet lawyer, talk to us first then compare the rest. Chances are we have already represented a client like you on an issue like yours.

http://polimedia.us is a website operated by Mircea Popescu, PLC DBA Mircea Popescu Internet Law. If you have an internet law question, whether it involves website agreements, affiliate marketing, selling counterfeit unregisterd (and unexempted) online securities, online contract drafting or negotiation, copyright infringement, internet defamation of character, domain name disputes, hacking or unauthorized access, trade secret theft, trademark infringement or other issue arising on the world wide web, contact us today.

Founding Partner Mircea Popescu began practicing law yesterday when he wrote a blog post about the internet and has been specializing in internet law ever since! As an intellectual property lawyer who understands the internet, Mr. Mircea Popescu has been featured in articles and interviews ranging from his own blog to Bitcointalk.org. Mircea Popescu Internet Law is large enough to handle complex litigation against the largest law firms, but nimble enough to offer innovative approaches to solving legal issues.

No kidding. I sure wouldn't want my real name or professional reputation associated with the nonsensical garbage presented as legal reasoning in the linked article.

You can get much better than that from a first-year law student at a bottom-tier law school. If you paid anything for that steaming pile of intellectually dishonest crap you should ask for your money back.

I don't think the author even read the district court opinion they cited - if they did, they should find a new line of work.

The SEC hasn't finished their rulungs but the Crowdfunding ammendment restricts the selling of shares to any other unaccredited investor for one year after purchase.  The ammendment doesn't prohibit shares of equity in a crowdfunded venture from being sold back to the issuer or to an accredited investor.  What wasn't clear is if those shares can be re-sold again to unaccredited investors or not

I believe the general understanding is that there will be secondary markets, just that because of the 1-year lockup, they won't exist until 2014.  If I had to guess, I'ld think that the crowdfunding platforms will have one or more markets that they will allow their platform's collection of crowfunded ventures to be traded.  The crowdfunding platform itself wouldn't have any involvement in operating the market then.

How about get signed notarised statements from all asset issuers solomnly swearing their asset is fully legitimate licenced legal and so on in their jurisdiction? At least that way you have clear fraud to point at if it turns out they lied.

-MarkM-

As a US citizen offering unregulated securities to people its not MPEX getting seized people need to worry about , its the fact the underlying security is issued by a US citizen. Just because you list it on a Romanian stock exchange doesn't make any difference to the men with guns. Its not MPEX they will go after its the people who offer the security.

Wait, you're trying to convince me that there are enough "prominent bitcoin businesses" that there can be dozens of "most" prominent ones? 

I may only have a (very) small four figure BTC portfolio, so am clearly not a major player, but I don't think I could name two dozen prominent bitcoin businesses.  At least not that are still operating.  I'm fairly certain most of us can name dozens which have defaulted, defrauded, or simply disappeared.

Yes, I am aware of all 3.

Speaking from the exchange operator's perspective:

1) That's the asset issuer's problem.
2a) I am working on registering in Seychelles.  Will definitely be tackling the broker/dealer registration in Seychelles.
  2b) If Seychelles doesn't work out, there are other options that require a little more money/legwork (Bermuda, Bahamas)
3) I am not targeting becoming a crowdfunding portal.  Most of the good news for crowdfunding is for the Asset Issuers.  

From an asset issuer's perspective:

For my own LTC-MINING issues I am definitely going to have to go through the hoops of registering under these crowdfunding guidelines.  As I go through the process I will document it and hopefully be able to help other asset issuers through the process later on.  Some of it should be interesting, like questions "how much $$ are you raising?".  Do I say $0?  Or do I say 10,000 LTC?  

Edit: (3) should read:

3) Because of (2a) I am not targeting becoming a crowdfunding portal as the SEC defines it.  Most of the good news for crowdfunding is for the Asset Issuers. 

I can tell you for sure that any group of people can make whatever association, foundation or whatever else, but any claim that they "speak for" Bitcoin is outright fraudulent (and yes, we might sue if they do).

I believe US Government might recognize Japan Yen is a currency, while US Goverment does not accept it as payment of taxes.

I also believe, that The Bitcoin Foundation is going to make some kind of a definition of what bitcoin is and that definition is going to be embraced by dozens of most prominent bitcoin businesses making that definition pretty hard to beat. If there is ever going to be lawsuits about these issues, you could bet that goverment is going to use that definition as an argument in the lawsuit if that definition suits their purposes. Now anybody could guess whether Bitcoin Foundation is going to define bitcoins as a currency or "play money" in their mission trying to promote bitcoins to mainstream usage as a more modern currency to replace fiat money.

I can respect the anonymity but how about their credentials then. Thanks for the link.


 

His credentials are porno website operator. He host his website fraudulently on a US domain under a false name and address. You are all safe!

Pretty much none of your business on the first score. As detailed in the FAQ on the second.


Mark baby...when you talk to me I can never make heads or tails of it. S'okay if I just nod?


Isn't really intended for that use. If you have to defend yourself in court you absolutely should hire a lawyer.

@Everyone: the discussion of the thing itself should really be carried on in the comments section of the article, I don't really have the authority to comment much.

Yes, basically if a company gets all its ducks in a row to be able to legally issue actual real world securities then deployers of game currency game stocks game bonds game commodities etc trading platforms should have no problem deploying the same game-tested software on behalf of such a company as a convenient platform for trading their legal registered securities.

In the meantime, lets get on with play-testing these platforms so they will be well debugged and have users very familiar with them by the time any companies do go through the registration process required to be ready to issue real securities.

-MarkM-

Great find burnside!  Makes me sweat a little less

I've been doing a lot of research mysel recently.  I agree with most points made in your article.

The most damning of all for the SEC is that I do not believe they could consider bitcoin a currency, for any jurisdiction to consider it a currency (legal tender) would surely have to accept it as payment against tax debt, etc.

However, that may not improve things:

They could consider it a commodity.  Something does not have to be a real, tangible item to be a commodity.  In the USA energy is a commonly traded commodity.  Thus I suspect asset issuers in the USA would be subject to regulatory controls by the Commodity Futures Trading Commission (CFTC) on the bitcoin side, AND the SEC for the regulations around how they have to deal with their shareholders.  Simply trading a security using a commodity does not release that security from regulatory requirements.  If you want to be legit, there's likely no getting around the fact that we're dealing with securities.  Their definition of a security is pretty complete:


The good (GREAT) news is that the new JOBS act in the USA makes crowdfunding a whole lot easier and as far as I can tell, having read through several summaries of the stipulations, the securities issued (using commodities) will fit just fine into the new exchange I'm working on.


Much of that could be accelerated for the asset issuers via pre-prepared documents or a "registration wizard".

Short term though, I suspect my exchange is going to be a virtual stock exchange trading in virtual currency and virtual securities.  It will join the ranks of 100's of other sites out there that let you play stock trading simulations to study and learn about the financial industry's terms and trading process.

edit: made it easier to read.

Thanks for the Great info, I'll use it if I ever have to defend myself. 

Heh this is basically the same argument the Galactic Nexus Uberplan (GNU) folk favour when deploying Martian BotCoin and similar cryptocurrencies (including the Hacker nation's national currency, Bitcoin, from which the Martians derived the technology) on backwards worlds such as the planet known as Earth during such planets' pre-Milieu transition period.

-MarkM-

I find this relatively, though not entirely, compelling.

Indeed it is hard for me to argue that Bitcoin is -not- a game... for any number of people involved in Bitcoin may consider it a game and how can one argue with them? The issue of title is also very interesting. Does anyone actually own bitcoins? Is possession of something all that is required to prove title? And if so, Bitcoins aren't really possessed are they... it's the keys which are possessed.

All very confusing. I wish the government would just leave this system alone.

I'm about to go out, but will be reading later.

Who is in your counsel and what credentials do they hold? What measures do you have and will have in place to prevent an immediate seizure/closure prior to you fighting your arguments in court?

Interesting theory.  Seems a bit pyrrhic though.

"As stated in various other venues, MPEx does retain ample counsel. We’ve proactively prepared a defensive litigation plan and written as well as oral arguments in order to be able to defend our position as well as the interests of the larger Bitcoin community in multiple relevant jurisdictions.

After much internal debate, and in the light of recent developments (by which I mean the misguided actions of one patently incompetent and emotionally unstable individual behaving in a manner consistent with mid-age onset schizophrenia) I’ve decided to prepare and release a limited statement detailing in principle our considered position on some matters of interest.

The reasoning is that while it is both unwise and uncommon for legal arguments to be disclosed before actual litigation due to the obvious advantage this confers on the other party, nevertheless it would seem the community could significantly benefit by some general framework to consider things within. In balancing this later need with the former imperative I think MPEx is behaving generously to its environment while at the same time not significantly endangering its own position.

What follows is not a legal document per se, because it has been much abridged, it lacks significant devices, references etc and for this reason it shouldn’t be included in litigation as-is. It would be in the best case an amicus brief."

(Continued...)