SEC Settles Charges in Bitcoin-Denominated Offering (Originally Published Wednesday, June 11, 2014)
On June 3, 2014, the Securities and Exchange Commission (the “SEC”) announced that it had settled with Erik T. Voorhees, a well-known founder of Bitcoin start-up companies, in connection with allegations that Voorhees conducted unregistered Bitcoin-denominated offerings over the internet in 2012 and 2013.
The SEC alleges that Voorhees distributed prospectuses and actively solicited investors to buy shares in FeedZeBirds and SatoshiDICE, two ventures co-owned by Voorhees. However, despite making general solicitations, Voorhees failed to file registration statements in connection with the offerings and no exemptions from registration were applicable to these offerings.
Voorhees agreed to settle with the SEC by paying more than $15,000 in disgorgement of profits plus a $35,000 penalty.
Bitcoin is a digital currency created (or “mined”) with no central repository and no single administrator, which is traded electronically. Bitcoins can be bought, sold and traded for traditional currencies using online exchanges and used to purchase goods online at an increasing number of mainstream merchants, such as Overstock.com.
The enforcement action signals the SEC’s continued focus on Bitcoin and other digital currencies. Andrew J. Ceresney, director of the SEC’s Division of Enforcement, said of the enforcement action that the SEC “will continue to focus on enforcing our rules and regulations as they apply to digital currencies” and that “[a]ll issuers selling securities to the public must comply with the registration provisions of the securities laws, including issuers who seek to raise funds using Bitcoin.”
Earlier this year, Cersney was quoted as saying that the SEC is “very focused” on evaluating the legality of Bitcoin-denominated stock exchanges given that securities trading platforms are required to be licensed in the U.S.
In May, the SEC issued an Investor Alert on Bitcoin and Other Virtual Currency-Related Investments, citing the potential risks of investments involving digital currency, including the potential for fraud.
Given the heightened scrutiny, we expect to see future SEC investigations and enforcement efforts regarding Bitcoin in the succeeding months.
Originally published at www.lippes.com.
