Man Who Issued Securities For Bitcoins Settles With SEC

MrBingoBoingo writes with news that the U.S. Securities and Exchange Commission has settled federal civil charges with Erik Voorhees, a man who sold shares of two businesses in exchange for Bitcoins without registering them. Voorhees must make restitution for the $15,000 in profit he made, plus interest, and a $35,000 fine. Here's the SEC's filing (PDF). "The agreement reflects an expanded effort by U.S. regulators to cast a wider net over the burgeoning bitcoin economy. It comes as investor enthusiasm grows for direct offerings of shares by new bitcoin-focused ventures over bitcoin's global computer network. Maidsafe, a system for sharing computer memory, raised $7 million last month in such a deal."

Comments

The what strikes where now?

[Anonymous Coward]

The dude broke the law. A very real, very good (shockingly) law.

Doesn't matter if he offered securities for bitcoin, bushels of corn, or steamy massages. The currency isn't the problem with what he did.

Re:The what strikes where now?

[SuricouRaven]

The only issue that involves bitcoin specifically is enforcement. If he hadn't been so public, the crime could have gone unnoticed - there are no reporting requirements. If you move more than $10,000 or so in a conventional bank, it'll set off alarms and someone will come to see what is going on.

Re:The what strikes where now?

[IamTheRealMike]

The dude broke the law. A very real, very good (shockingly) law.

Is it good?

I don't think there's any problem with governments competing against ratings agencies: I think 2008 showed pretty conclusively that the existing private sector organisations kind of suck at protecting people from risk. But the SEC isn't just an organisation that gives a stamp of approval to well run investment schemes. They actively stamp out any that don't register with them and report to them. That makes the entire economy very vulnerable to poor decision making by a mere handful of people. It also can seriously hinder innovation: look at the glacial speed of progress towards the oh so ambitious goal of "not killing crowdfunding sites". You'd think not doing something would be easier, wouldn't you, but it's taking years and an 800+ page report.

If the SEC lost their enforcement powers and just acted as a place where reputable, respectable fundraisers wanted to go it'd be pretty unobjectionable and there'd be natural flex in the system if they started making bad decisions. They'd give Moody's a run for their money. But it's not like that. They probably stopped some scams by virtue of the threat of their enforcement actions, it's hard to know how many, but they probably also stopped a lot of legitimate and non-scam investments too. The cost/benefit ratio of securities laws is rather hard to know.

Re:The what strikes where now?

[Archangel Michael]

I would go a step further, in that the SEC was completely complacent in the whole Banking Investment fraud that led up to the collapse of the economy. They failed, completely, to understand the "new" derivative investments and thus the problems associated with compounded leveraging, that they of all people should have recognized.

IMHO when a organization, which has one task, fails to manage in their duties in such a complete way as this, the whole thing needs scrapped. Caveat Emptor is heartless, but it is heartless at both ends. However if you break the law, you should go to jail. Too bad our elected officials were in on the scam and thus nobody is going to jail for the theft and fraud that was perpetrated on our country (and the world)

Re:His brother Jason, though...

[the_humeister]

You don't have to run fast, just faster than the other guy.

Routine unregistered securities case

[Animats]

That's a routine sale of unregistered securities case. If he'd sold them for dollars or yen, the SEC would have done the same thing. Bitcoin is irrelevant here.

Re:Routine unregistered securities case

[DontLickJesus]

Exactly. Title is misleading. Crime was for unregistered securities.

Re:Routine unregistered securities case

[MaskedSlacker]

Welcome to the world of white collar crime. Yes, that is normal.

Re:SEC

[jbeaupre]

Because the SEC's job isn't to stop stupid. Its job is to stop fraud. Distinguishing the two can be tricky. Selling unregistered securities is one area that has been designated at fraudulent. Selling over overpriced or excessively risky investments has not been designated fraud as long as the buyer isn't knowingly fed false information.

Re:the empire strikes back...

[jythie]

So.... equal treatment is 'not taking it lying down'? That is less like striking back and more like official recognition with all the rights and responsibilities that affords.

Re:SEC

[jythie]

They are foreseeable in hindsight. At the time there was a lot of reasonable debate about what was happening and what the consequences would be, with very little prediction of the scale that occurred.

Ironic

[Anonymous Coward]

Vorhees is a man who is an extremist libertarian to the point of nearly being an anarchist. He spent most of the last few years hating on regulators and government in general, and moved to Panama to escape US regulation. He is one of the foremost in the "Bitcoin can't be regulated" school of thought. So the fact that he's now sending a big pile of dollars to the US Govt is .... ironic.

Still, the real question here is the merits of the case. A Twitter spamming service and a gambling site are hardly businesses making great contributions to society but he doesn't seem to have actively hurt anyone by issuing these securities. The filing suggests all he had to do, to be legal, was file a registration statement with the SEC. I wonder how much effort is involved in doing that. Is it one of those cases where it's extremely hard to be legally compliant for a relatively small $337,000 raise or could he have easily gone through the registration process?

I bet the sticking point would have been the exchanges. MPEx is shady as hell.

Re:Ironic

[tomhath]

So the fact that he's now sending a big pile of dollars to the US Govt is .... ironic.

There is nothing ironic (or surprising) about a guy who thinks he doesn't need to play by the rules getting caught and fined.

Re:Ironic

[Minwee]

Why? He's doing business from Panama. US regulators can FOAD if they think they have the right to regulate the planet. If some US investors bought these securities, then that shoud be between them and the SEC. Not Vorhees.

That's nice, dear.

"Voorhees, age 29, is a U.S. citizen who, at the time of the FeedZeBirds and SatoshiDICE offerings, was living in the United States."

[...]

"As a result of the conduct described above, Voorhees violated Sectons 5(a) and 5(c) of the Securities Act, which prohibit the direct or indirect sale of securities, offer to sell or offer to buy securities through the mails or interstate commerce unless a registration statement has been filed or is in effect. "

So a US citizen, living in the US, sells securities to US investors in violation of US law, but he should walk because he used a .PA email address to do it?

Okay, that makes sense. It's not very much different from how a US citizen is able to make a phone call to Romania to hire a hit man. That's totally legal because part of the call takes place in another country, right?

Re:Madoff

[Goaway]

Similarly, because murders still happen, we don't need the police.

Re:You don't want financial "innovation"

[Darinbob]

Basically most of the economy is about person A selling something to person B. Many of the financial "innovations" involve ways for person C to get a piece of that transaction.