The U.S. Securities and Exchange Commission (SEC) is the agency of the federal government that enforces securities laws and regulates the securities industry, the stock and options exchanges and other such activities in the U.S.
In May, the organization came out with an investor alert, which cited the high risk of investment fraud and scams in the bitcoin world. The agency suggested that investors, who might otherwise exercise due skepticism when faced with promises of high returns, may be more easily taken in when considering the novel and cutting-edge. While many in the bitcoin world viewed this as an attack on the crypto-currency community, others acknowledged that the risk of bitcoin-related fraud, like dollar-related fraud, is quite real.
In its most recent move, the SEC has formally charged entrepreneur Eric Voorhees for publicly offering securities without registering with the federal government. Voorhees was soliciting shares in two of his ventures, SatoshiDICE and FeedZeBirds, between 2012 and 2013, according to the SEC. Voorhees agreed to a settlement in which he will relinquish profits of $15,843.98, pay a penalty of $35,000 and refrain from making a bitcoin security offering for the next five years.
“All issuers selling securities to the public must comply with the registration provisions of the securities laws,” wrote SEC Division of Enforcement director Andrew Ceresney. “[This includes] issuers who seek to raise funds using bitcoin.”
Securities Act of 1933
The law that Voorhees allegedly violated is known as the Securities Act of 1933, also commonly known as the “truth in securities” law. The aims of this law is to require that investors receive all financial and significant information about securities being offered for sale, and to prohibit “deceit, misrepresentations and other fraud” in securities sales. Registration is required in order to make company’s disclose this information.
According to the SEC, Voorhees raised more than 50,000 bitcoins from investors between 2012 and 2013, though he returned approximately 45,500 bitcoins in a buy-back transaction in July 2013.
“The first unregistered offering was explicitly referred to as the ‘FeedZeBirds IPO’,” the SEC explained. “Despite these general solicitations, no registration statement was filed for the FeedZeBirds or SatoshiDICE offerings, and no exemption from registration was applicable to these transactions.”
Public reception
On Reddit’s r/bitcoin community, Voorhees wrote a note that mentioned his recent settlement with the SEC and reiterated his intention to continue building the bitcoin community. Several in the community expressed sympathy for Voorhees and frustration with the SEC. The top comment read, “Congratulations on not being extorted as badly as you might have.”
While a number in the Reddit thread made a reasonable comparison between Voorhees’s settlement, which took all of the company’s on-paper profit, and the recent HSBC settlement, in which top officials at the bank were caught laundering money for drug cartels and were made to pay a percent of their profit, the general reaction was anti-regulatory.
This attitude appears surprising, and left PYMNTS.com, a payment processing news source that is sometimes negative toward crypto-currency, as a somewhat more rational voice. Though the settlement is undoubtedly a personal setback for Voorhees, the source explained, the fact that the SEC is officially treating bitcoin as a real currency should be encouraging for users. Laws that are put in place to protect those who are making investments should also protect those who want to invest using digital currencies.
