Author [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] Topic: How big a threat is the SEC?  (Read 938 times)

0 Members and 1 Guest are viewing this topic.

Offline nomoreheroes7

How big a threat is the SEC?
« on: August 26, 2014, 12:47:37 PM »

While doing my usual perusal of "anti-Bitshares" posts on the forums, one remark caught my eye. Some are of the opinion that the SEC will be ready to crack down on Bitshares as soon as it grows large enough to catch notice, due to illegal securities trading. My thought had been that since Bitshares is more of a "prediction market" in that the underlying assets are not truly being bought or sold, that this would not be a problem. However, I am not well versed in securities law nor am I sure that I entirely understand what is being bought or sold in these prediction markets, so I would definitely like to hear some thoughts on this matter from those more knowledgeable than I. Is the SEC ban hammer a threat?

Offline bytemaster

Re: How big a threat is the SEC?
« Reply #1 on: August 26, 2014, 12:50:11 PM »
No promises, no contracts, no security. 
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline kokojie

  • Sr. Member
  • ****
  • Posts: 286
    • View Profile
  • Witness: kokojie
  • Payrate: 3%
Re: How big a threat is the SEC?
« Reply #2 on: August 26, 2014, 01:19:50 PM »
While doing my usual perusal of "anti-Bitshares" posts on the forums, one remark caught my eye. Some are of the opinion that the SEC will be ready to crack down on Bitshares as soon as it grows large enough to catch notice, due to illegal securities trading. My thought had been that since Bitshares is more of a "prediction market" in that the underlying assets are not truly being bought or sold, that this would not be a problem. However, I am not well versed in securities law nor am I sure that I entirely understand what is being bought or sold in these prediction markets, so I would definitely like to hear some thoughts on this matter from those more knowledgeable than I. Is the SEC ban hammer a threat?

Governments has been proven to fail to crack down on any decentralized protocol. Hell they can't even crack down on TPB, even though it's semi-centralized, and they tried pretty hard.

Offline celticwarrior72

  • Jr. Member
  • **
  • Posts: 25
    • View Profile
Re: How big a threat is the SEC?
« Reply #3 on: August 26, 2014, 02:10:28 PM »
Eventually the SEC will get interested in one of cryptos as a test case for securities fraud.  And then, they won't be so much interested in the protocol as the people behind it.  Will BitShares be that test case?  Time will tell.  But one thing is certain.  A test case is going to happen.

Offline maqifrnswa

  • Hero Member
  • *****
  • Posts: 661
    • View Profile
Re: How big a threat is the SEC?
« Reply #4 on: August 26, 2014, 02:18:51 PM »
I actually spent some time thinking about this, but this is such a weird technology that I can't even find the analogy which with you could frame how bitshares fits into the SEC. It seems like the SEC should care, but I can't even figure out what should be done to comply with regulations because I can't figure out what regulations apply to bitshares...

It's the equivalent of a bulletin board where people post notes that they want to buy/sell pebbles for money. The value of pebbles is constantly changing, and every 10 seconds someone shows up and says "yes, person X did trade A pebbles with person Y for B dollars" and tells everyone to update their books to reflect that.

Pebbles do not represent an ownership in any company (no securities), pebbles carry to implicit promise to pay or buy back (security/lending law/promises), pebbles won't do anything for you in the future (contracts).
maintains an Ubuntu PPA: https://launchpad.net/~showard314/+archive/ubuntu/bitshares [15% delegate] wallet_account_set_approval maqifrnswa true [50% delegate] wallet_account_set_approval delegate1.maqifrnswa true

Offline luckybit

Re: How big a threat is the SEC?
« Reply #5 on: August 27, 2014, 06:32:19 AM »
While doing my usual perusal of "anti-Bitshares" posts on the forums, one remark caught my eye. Some are of the opinion that the SEC will be ready to crack down on Bitshares as soon as it grows large enough to catch notice, due to illegal securities trading. My thought had been that since Bitshares is more of a "prediction market" in that the underlying assets are not truly being bought or sold, that this would not be a problem. However, I am not well versed in securities law nor am I sure that I entirely understand what is being bought or sold in these prediction markets, so I would definitely like to hear some thoughts on this matter from those more knowledgeable than I. Is the SEC ban hammer a threat?

If the SEC can go after Bitshares for "simulating" the value of real securities then they'll have to go after Bitcoin under the exact same argument. Bitcoin is like a database where people exchange value with each other only it's not as powerful as Bitshares. They are written in the same language as well (C++), so anyone who says the SEC can go after Bitshares doesn't understand how Bitcoin works.

As long as Bitshares doesn't directly act as a financial institution then it's not a securities exchange. If we have the buying power to send an IOU to a securities exchange to get real securities using Bitshares that is a different question but the entity being regulated in that case would be the Gateway to the securities or to fiat.

So if we have well regulated Gateways then they can use the Gateways as stock brokerage firms, the Gateways would keep our real life identities and follow all the rules. Bitshares doesn't need any of that because it's only really digits being exchanged which take on value.

I'm not a lawyer so don't take it as professional advice. That is just my understanding of it.
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline luckybit

Re: How big a threat is the SEC?
« Reply #6 on: August 27, 2014, 06:36:09 AM »
Eventually the SEC will get interested in one of cryptos as a test case for securities fraud.  And then, they won't be so much interested in the protocol as the people behind it.  Will BitShares be that test case?  Time will tell.  But one thing is certain.  A test case is going to happen.

Then they'll go after Bitcoin first because Bitcoin would be the main security with the highest market cap right?

Since the SEC isn't going after Bitcoin they can't go after Bitshares. Colored Bitcoins aren't securities. Mastercoins aren't securities. Litecoins aren't securities. They are numbers.

BTSX to my understanding is just a bunch of digits which simulate the buying power of real securities. They could go after the digits under what authority? We have freedom of speech.

If the SEC were to try to do something that ridiculous it's time to move to another country.
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline woriedbana

  • Newbie
  • *
  • Posts: 2
    • View Profile
Re: How big a threat is the SEC?
« Reply #7 on: October 17, 2014, 07:32:58 PM »
it might be happening soon, ask mr .lewis

taariqlewis

Offline Ander

  • Hero Member
  • *****
  • Posts: 3499
    • View Profile
  • BTS: Ander
Re: How big a threat is the SEC?
« Reply #8 on: October 17, 2014, 07:42:01 PM »
it might be happening soon, ask mr .lewis

taariqlewis

So...new account dredging up old FUD threads?  You just discovered BTSX and want the price to drop so you an get in cheaper?
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline sschechter

  • Sr. Member
  • ****
  • Posts: 379
    • View Profile
Re: How big a threat is the SEC?
« Reply #9 on: October 17, 2014, 08:05:54 PM »
In my uneducated opinion, avoiding the the SEC is like avoiding bears.  You don't need to be faster than the bear, you just need to be faster than your friends!  The I3 team has taken a lot of legal precautions already.  If the SEC is to enter the cryptosphere, they're going to go after the easiest targets.  They don't have the manpower to go after anything they feel like. And, if history is any indication, they suck at their jobs anyway.

BTSX: sschechter
PTS: PvBUyPrDRkJLVXZfvWjdudRtQgv1Fcy5Qe

Offline luckybit

Re: How big a threat is the SEC?
« Reply #10 on: October 17, 2014, 08:33:23 PM »
Conduct a threat analysis to find out.

Your inputs are the size of the fines the SEC has historically committed to making entities pay as consequence and the frequency of SEC enforcement in this space.

The formula for a risk assessment requires frequency of event exposure and the magnitude of  consequences.

https://en.wikipedia.org/wiki/Probabilistic_risk_assessment


The SEC went after Satoshi Dice last year. The magnitude of the consequence was a $50,000 fine. The SEC did not go after anyone else and when it went after Satoshi Dice it could not secure the cooperation of the foreign exchange operator.

Based on this you can see that there is no crackdown from the SEC. The risk of SEC prosecution is also fairly low if you're in a position like Satoshi Dice where no one was scammed and everyone is happy with the outcome. In the case that there would be a prosecution it would likely result in a fine which means no one is going to prison and the main expense would be time, legal fees, and an SEC fine.

Now do a cost benefit analysis of this space and calculate how much you have to gain vs how much you have to lose if you get fined by the SEC. How much money did Erik Voorhees make and how much was he fined, how bad was it?

If the SEC cracks down then it will be documented by journalists. These journalists will make it known that it's a victimless crime. Individuals involved will make their intentions known so that the good people of the country can judge the situation for themselves. The SEC does have the power to crack down but then people could and should protest the SEC for unfairly targeting the little guys in the industry for victimless offenses.

This isn't the first post I've made on how to conduct risk assessments. Conducting a risk assessment and a cost benefit analysis should be fundamental knowledges for anyone in this space. If you cannot do this then you're going to not only be scammed, be a sucker tricked into making poor investments, but you'll also be the sort of investor who dumps all your coins on rumors. I encourage everyone in this community or perhaps I3 itself to conduct and share risk assessments where the actions of the SEC are considered along with technical concerns (such as black swan events). I consider an SEC crackdown a black swan event.

In my uneducated opinion, avoiding the the SEC is like avoiding bears.  You don't need to be faster than the bear, you just need to be faster than your friends!  The I3 team has taken a lot of legal precautions already.  If the SEC is to enter the cryptosphere, they're going to go after the easiest targets.  They don't have the manpower to go after anything they feel like. And, if history is any indication, they suck at their jobs anyway.

When the SEC targets individuals in this space like Trendon Shavers everyone is fine with it. Trendon Shavers was running an obvious Ponzi scheme and should be prosecuted without mercy. On the other hand we have legitimate innovations in this space in which no one is being scammed, everyone is happy with it, and in that case the SEC would be playing the role of political persecutor. Political persecution may happen but the media is not going to be on the side of the SEC if it does.

The best defense if this black swan event does happen is to document it, put it in the media, and make sure that everyone's true intentions are known. The SEC if it were to recklessly attack this space would create as much negative media attention as when the IRS was caught targeting convervatives. People would ask why the SEC would focus on an industry with less than a 10 billion dollar market cap trying to grow the US economy and create jobs.
« Last Edit: October 17, 2014, 08:47:40 PM by luckybit »
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline bytemaster

Re: How big a threat is the SEC?
« Reply #11 on: October 17, 2014, 09:13:40 PM »
In my uneducated opinion, avoiding the the SEC is like avoiding bears.  You don't need to be faster than the bear, you just need to be faster than your friends!  The I3 team has taken a lot of legal precautions already.  If the SEC is to enter the cryptosphere, they're going to go after the easiest targets.  They don't have the manpower to go after anything they feel like. And, if history is any indication, they suck at their jobs anyway.

SEC, IRS, FINCEN are the three bears you have to watch. 

If the SEC says AGS is a security then we could be fined like SDICE $50K ... if they declare PTS a security then $100K fine... if they go "all out" and and hit the statutory limit on fines it could be $750,000 per violation.   If they really go all out they could nit pick many micro violations and charge arbitrary fines.... however, the fig leaf of legitimacy the SEC hides behind is protecting investors and the public and thus almost all fines they collect are done so with the intention of recovering losses incurred to investors.   Fines that large against a company would bankrupt it.  Against an individual would require trial by jury because they would be punitive in nature and imply criminal rather than civil violations.

If the IRS says AGS are donations then we could be taxed on anything we don't spend this year... likely worse than a $100K fine from the SEC.  We have professional accountants carefully reviewing everything on a tax perspective and are going to pay taxes on the unspent donations if necessary in compliance with IRS codes.   Enforcement actions from the IRS in the form of an audit (if any) are likely 2 years out and if our accountants do their job right the audit will pass just fine.

We are probably safest FINCEN compared to everyone else because we do not hold funds on behalf of any 3rd party. 

We have taken actions to minimize the likelihood of being a security (explicitly stating no strings attached, no legal obligation, etc) while also minimizing our tax liability.    We have spent more than we are likely to be fined attempting to minimize tax liabilities and SEC violations.   If AGS is declared a security despite our objections and donations are classified as capital received for security sold... then it is not taxable... the money the SEC fines us with can be covered by the IRS refunding a revised tax filing.     

Worst possible case the SEC and IRS don't care that their claims are in contradiction and fine us both ways.  I wouldn't put it past them.

In any event how much of a risk are these agencies... I think it is fair to say we are clearly not at risk of being accused of committing either security or tax fraud due to the very conservative accountants and lawyers we have working with us.   Leaving any and all violations unintentional disagreements over interpretation of US code and regulations as civil fines that can be solved with money rather than jail.

Regardless of what happens to me... even if they decide I did something criminal and throw me in jail... BTSX and our other projects will go on.
« Last Edit: October 17, 2014, 11:50:42 PM by Stan »
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline xeroc

  • Board Moderator
  • Hero Member
  • *****
  • Posts: 12058
  • ChainSquad GmbH
    • View Profile
    • ChainSquad GmbH
  • BTS: xeroc
  • GitHub: xeroc
Re: How big a threat is the SEC?
« Reply #12 on: October 17, 2014, 09:48:55 PM »
Thanks for the clear clarification! +5%
Give BitShares a try! Use the http://testnet.bitshares.eu provided by http://bitshares.eu powered by ChainSquad GmbH

Offline Stan

  • Hero Member
  • *****
  • Posts: 2734
  • You need to think BIGGER, Pinky...
    • View Profile
    • Cryptonomex
  • BTS: Stan
Re: How big a threat is the SEC?
« Reply #13 on: October 17, 2014, 11:38:23 PM »
Then they'll go after Bitcoin first because Bitcoin would be the main security with the highest market cap right?

Depends on when they do it.  Are you talking this year or next year?   8)
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

Offline oldman

  • Hero Member
  • *****
  • Posts: 543
    • View Profile
Re: How big a threat is the SEC?
« Reply #14 on: October 18, 2014, 04:22:40 AM »
In my uneducated opinion, avoiding the the SEC is like avoiding bears.  You don't need to be faster than the bear, you just need to be faster than your friends!  The I3 team has taken a lot of legal precautions already.  If the SEC is to enter the cryptosphere, they're going to go after the easiest targets.  They don't have the manpower to go after anything they feel like. And, if history is any indication, they suck at their jobs anyway.

SEC, IRS, FINCEN are the three bears you have to watch. 

If the SEC says AGS is a security then we could be fined like SDICE $50K ... if they declare PTS a security then $100K fine... if they go "all out" and and hit the statutory limit on fines it could be $750,000 per violation.   If they really go all out they could nit pick many micro violations and charge arbitrary fines.... however, the fig leaf of legitimacy the SEC hides behind is protecting investors and the public and thus almost all fines they collect are done so with the intention of recovering losses incurred to investors.   Fines that large against a company would bankrupt it.  Against an individual would require trial by jury because they would be punitive in nature and imply criminal rather than civil violations.

If the IRS says AGS are donations then we could be taxed on anything we don't spend this year... likely worse than a $100K fine from the SEC.  We have professional accountants carefully reviewing everything on a tax perspective and are going to pay taxes on the unspent donations if necessary in compliance with IRS codes.   Enforcement actions from the IRS in the form of an audit (if any) are likely 2 years out and if our accountants do their job right the audit will pass just fine.

We are probably safest FINCEN compared to everyone else because we do not hold funds on behalf of any 3rd party. 

We have taken actions to minimize the likelihood of being a security (explicitly stating no strings attached, no legal obligation, etc) while also minimizing our tax liability.    We have spent more than we are likely to be fined attempting to minimize tax liabilities and SEC violations.   If AGS is declared a security despite our objections and donations are classified as capital received for security sold... then it is not taxable... the money the SEC fines us with can be covered by the IRS refunding a revised tax filing.     

Worst possible case the SEC and IRS don't care that their claims are in contradiction and fine us both ways.  I wouldn't put it past them.

In any event how much of a risk are these agencies... I think it is fair to say we are clearly not at risk of being accused of committing either security or tax fraud due to the very conservative accountants and lawyers we have working with us.   Leaving any and all violations unintentional disagreements over interpretation of US code and regulations as civil fines that can be solved with money rather than jail.

Regardless of what happens to me... even if they decide I did something criminal and throw me in jail... BTSX and our other projects will go on.

Respect.

 

Google+