Quote from: Viceroy on May 27, 2013, 06:19:09 PM

While a handful of posters would prefer an option for 'ban Viceroy from the forums' I think my questions are important and I am guessing there are many who had no idea why these laws exist at all or who they are designed to protect. Let me tell you a story.

In the late 1920's when liquor was illegal but pot was not, speakeasy's were all the rage. In these crazy times of prohibition the underground liquor market thrived. These were good times (I've read). After years of having no regulation snake oil salesmen and other charlatans discovered Charles Ponzi. Ponzi had been jailed in the beginning of the decade but the scheme was just starting to creep into the modern American vernacular.

Throughout the twenties thousands of men, some with no ill intent, crafted investment schemes by which investors would become 'millionaires' overnight. (For those who watch you'll recognize in Downton Abbey's third season they speak of the magical Mr Ponzi and his 'scheme' that could keep their castle afloat). And you know what happened next?

In late 1929 the American stock market crashed and sent the country into the Great Depression, an event which would forever change the way we deal with poverty and investment and social services.

Prior to the 1930's there were no real 'securities' laws and the schemers could offer 'stocks' and 'bonds' to non-qualified investors. After the crash the regulators stepped in to create a series of laws that would protect individuals from unscrupulous investments schemes. The regulators operate under a set of rules created in 1933 which completely disallow any non-licensed securities 'broker' to sell or offer to sell any non-registered investment.

So what?

Well the impact is huge. As a small business-person you are NOT ALLOWED to ask anyone in public for funding. It's against the law. I cannot say to anyone in this or any other forum something like: "hey I want to borrow bitcoins from you and I'll pay you back with interest". To do that is ILLEGAL. You may think it's not important, but this is exactly what the Securities and Exchange Commission regulates and believe me you do not want to cross them. Beyond federal regulation we have state regulation.

The short version is this:

Anyone starting or involved in a commercial enterprise that exchanges bitcoin for money or money for bitcoin is regulated under money transmitter requirements which the department of treasury regulates with their FINCEN unit who came out with guidance last month just before they seized Mt Gox's money as it entered the USA.

Anyone starting or involved in a a commercial enterprise that lends bitcoin to AMERICANS or borrows from them is regulated under securities laws at the state and federal level.

Anyone who borrowed bitcoin to start a business has probably broken state and federal law as they likely did not create a PPM and only provide it to vetted 'accredited' investors.

If you or anyone you know has done any of these things they SERIOUSLY NEED to talk to a securities lawyer IMMEDIATELY. This is not a joke.

MT Gox was trying to (and I'm sure they still are) to become a money transmitter in every state and has spent more than $25,000,000 doing so. Unfortunately, from my layman position, they appear to have broken the law as they traded in "commodities" and/or "items of monetary value" PRIOR to becoming licensed as a money transmitter in each state.

The American Public has a right to know and as a provider of service you have a duty to provide information related to this. One simple option is to cut off the USA and if you are not an American you should PROBABLY do this RIGHT NOW. Else you will be the next to have your funds seized. Do not think for a second that the Mt Gox issue has ended, it has only just begun. Liberty Reserve is a great example of what happens to foreigners who deal in America without the appropriate licenses.

At this time I am unaware of any bitcoin "exchanges" or "lenders" who meet state requirements with the exception of Bitinstant who appears to have filed as a money transmitter in some 30 states and Mt Gox's claim that they are attempting to be fully compliant.

I have no reason to believe that PERSONAL trading of bitcoin is in ANY way regulated. Businesses, however, are CERTAINLY regulated if they exchange or buy and sell bitcoin. A PERSON investing bitcoin into another entity is definitely regulated and has been for 80 years.

You have a good idea and a big heart but your premise is flawed.

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Well the impact is huge. As a small business-person you are NOT ALLOWED to ask anyone in public for funding. It's against the law. I cannot say to anyone in this or any other forum something like: "hey I want to borrow bitcoins from you and I'll pay you back with interest". To do that is ILLEGAL. You may think it's not important, but this is exactly what the Securities and Exchange Commission regulates and believe me you do not want to cross them. Beyond federal regulation we have state regulation.

This used to be true but is no longer the case since the 2012 Jobs Act. Even a pocket IPO site like GLBSE would have been fine except that the SEC has refused to issue guidance on the matter, despite being ordered by congress to do so. However if you are only raising money for your business you are now allowed to do so as long as it complies with the 2012 JOBS act.

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Anyone starting or involved in a commercial enterprise that exchanges bitcoin for money or money for bitcoin is regulated under money transmitter requirements which the department of treasury regulates with their FINCEN unit who came out with guidance last month just before they seized Mt Gox's money as it entered the USA.

I'm not trying to be contrarian here, but according to the text of the warrant, MtGox's Wells Fargo account was seized because they declared under penalty of law that the account they were opening was not to be used for the transference of money, that they were not a money service business and that they would not be engaging in the act of international money transfer. Regardless of if they hard registered with FinCen as an MSB or not, they lied and got caught.
You are correct that if you trade money for money or money like objects you need to be registered. In fact there is no penalty for not being an MSB and yet being registered. However needing to be registered and not doing it is a crime under US Law. If you accept money for money and there is ANY chance that ANY of your customers is from the USA then you need to register with FinCen. If they are from Canada you need to register there. In fact you need to register everywhere, globally worldwide unless you are a chartered bank or financial institution. If you are chartered then you only need to register in places where YOU have bank accounts.

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Anyone starting or involved in a a commercial enterprise that lends bitcoin to AMERICANS or borrows from them is regulated under securities laws at the state and federal level.

Agreed to a point. In this case it's where the money is being sourced not where it's going to. If you are an American company doing lending you need to register as a lender and comply with all local, state & federal laws. However if you are from a jurisdiction where there is no need to register, then there is no need to register just to grant loans to Americans. Be very careful conflating repayment of a loan with acceptance of a deposit.

Now on the other hand you as a foreign entity risk losing the ability to collect on your loan in the case of default if you are not recognized as a lender by the jurisdiction of the customer. You may also lose recourse. However you have not broken any laws, you merely assumed risk and lost.
That is a far cry from accepting a deposit for a customer and being in a position of trust and safekeeping. This is MUCH more tightly regulated.

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Anyone who borrowed bitcoin to start a business has probably broken state and federal law as they likely did not create a PPM and only provide it to vetted 'accredited' investors.

There is a significant difference between borrowing bitcoin and accepting bitcoin as currency in an exchange of stock.
Borrowing bitcoin would be governed by lending laws and can easily be secured by personal credit or some collateral. In this case the lender bares the risk of the loan going bad and being defaulted upon. However they should be recieving an interest payment high enough to cover their own assessment of the risk.
When you are in a position to lend and you lend, you bear responsibility for compliance, not the borrower. The borrower bears responsibility for repayment.

In the second case where bitcoin is being traded for stock, the same laws apply as any other stock offering. If it is small enough to fall under the 2012 JOBS act then no harm, no foul, just keep up on your paperwork. If it is big enough to fall outside the scope of the jobs act then you run a risk, but only if an investor complains. In this case you as an executive bear personal risk, the corporate veil will not protect you. It can and will be rolled back in an effort to recoup investor money should your enterprise not meet the expectations of your investors. However once the ship has sailed, the SEC will not take action generally to shutter you unless you are engaging in illegal activity or activities that are regulated and you are failing to meet regulatory compliance requirements. Most often they will just fine you for an illegal offering and many times a simple "I'm sorry, and I promise never to do it again" will actually suffice.

The SEC probably isn't what you need to worry about here either. You also need to comply with securities laws in the state in which you engage in business. I recommend if you are in Arizona to shut down and re-open in Wyoming. The Arizona Securities Commission does not care that you have properly registered your offering with the SEC. If you are an AZ corp and you offer shares of your corp publicly without ALSO registering with the AZ authories they will spank you and take away your birthday. This is true even if none of your investors are in AZ. Take my advice on that one. I personally lost $250,000 a couple years ago just for the solicitation even though I had complied with SEC laws only because my butt happened to be sitting in a chair in Arizona when we made the offering. This despite the fact that the offering failed to attract 1 cent in outside investment and I was held personally liable (I did use a registered securities lawyer for this too, so don't just trust that advice, read the law and know it).
That was a crappy year for me. They almost took away Christmas for my kids! Sad

One other protip. Make sure you are actually a corp, your LLC is not allowed to issue shares.

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MT Gox was trying to (and I'm sure they still are) to become a money transmitter in every state and has spent more than $25,000,000 doing so. Unfortunately, from my layman position, they appear to have broken the law as they traded in "commodities" and/or "items of monetary value" PRIOR to becoming licensed as a money transmitter in each state.

They don't need to do this. They only need to register in the state they are incorporated in. Then they need to be honest when they fill out applications. This is what got them, laziness and dishonesty.

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The American Public has a right to know and as a provider of service you have a duty to provide information related to this. One simple option is to cut off the USA and if you are not an American you should PROBABLY do this RIGHT NOW. Else you will be the next to have your funds seized. Do not think for a second that the Mt Gox issue has ended, it has only just begun. Liberty Reserve is a great example of what happens to foreigners who deal in America without the appropriate licenses.

You would be cutting off your nose to spite your face. AML regulations are fairly standardized and are required to participate in the money ecosystem. Liberty Reserve's screw up was in not bothering to participate in the AML system by becoming registered in ANY jurisdiction to do what they were doing. Furthermore to the best of my knowledge they have no idea who owned what accounts. As a deposit taking or money transmitting institution this is illegal in all jurisdictions. As a lender it's just stupid.
At the time MtGox opened their account they were engaged in money transmission and they were aware of it. They do have an affirmative defense in that money doesn't enter or leave the systems unless they know the parties involved. They also have an affirmative defense in that the account itself was not being used for money transmission (to the best of my knowledge) and that FinCen had not yet issued guidance on the matter.

This will end up with a stipulation order demanding they do not do it again, and probably a forfeiture of the funds that have been seized.
If they fight it, it will take several years to work out. However I'm sure they have a lawyer working on it right now trying to hammer out a settlement.

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At this time I am unaware of any bitcoin "exchanges" or "lenders" who meet state requirements with the exception of Bitinstant who appears to have filed as a money transmitter in some 30 states and Mt Gox's claim that they are attempting to be fully compliant.

Bitinstant has to file because they accept deposits in those states. These are walk in cash deposits.
Unless MtGox adopts the same marked deposit scheme used by BitInstant they won't have to worry about it.
There are services you can use now to accept marked deposits. These services didn't exist when bitinstant started and last time I tried bitinstant it appeared that they had moved to one or more of these services. ZipZap is an example.
If you take money from people the law says you need to know who those people are.

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I have no reason to believe that PERSONAL trading of bitcoin is in ANY way regulated. Businesses, however, are CERTAINLY regulated if they exchange or buy and sell bitcoin. A PERSON investing bitcoin into another entity is definitely regulated and has been for 80 years.

Personal trading of bitcoin is as regulated as personal trading of cash. There is no difference to the government. If you accept it as a method of payment for goods and services you need to comply with all the laws of your jurisdiction in regards to those goods and services as though they were cash transactions. This means IRS forms once it reaches a certain threshold. For instance buying a $10,000 automobile with bitcoin would require the same paperwork as buying a $10,000 automobile with a suitcase full of cash.

A person investing cash in anything is as regulated as a person investing cash into anything.
If I walk into a casino and hand them a suitcase full of cash in exchange for a stack of chips, the same laws apply as if I walk in and hand them a bitcoin QR code.
When I convert those chips back to US Dollars, the same paperwork will need to be filled out and filed.

Same with a bank, same with a western union, same with an investment company, same with a forex.
Cash is cash and bitcoin and all other crypto currencies have now been declared cash by the US & Canada. It's exactly what we've been asking for because it means that governments are saying that bitcoin is not some exotic investment instrument that needs more regulation. It is as regulated as cash, no more, no less. You need to comply with cash laws, not securities law (unless you are accepting bitcoin for shares instead of US Dollars).

It is a good idea to assume that all other countries will eventually follow suit.
So comply with the laws of where you are at and understand that accepting bitcoin is largely held as being the same as standing where the person is at and taking cash from them.