It is clear that the SEC has been focusing on securities fraud involving digital currencies. In July 2013, the SEC charged Trendon T. Shavers, the founder and operator of Bitcoin Savings and Trust, with defrauding investors in a Ponzi scheme involving Bitcoin. In June 2014, the SEC charged a Bitcoin-related website owner with publicly offering shares in his venture without first registering them. I previously wrote about these actions here and here. On December 8, 2014, the SEC issued a press release announcing yet another enforcement action relating to digital currencies. This time, it was against Ethan Burnside, a computer programmer who operated two online portals that traded securities using Bitcoin and Litecoin without registering the portals as broker-dealers or stock exchanges. Mr. Burnside was also sanctioned for conducting unregistered securities offerings.
From August 2012 to October 2013, Mr. Burnside and his company BTC Trading Corp. operated BTC Virtual Stock Exchange and LTC-Global Virtual Stock Exchange. These exchanges allowed users to use Bitcoin or Litecoin to buy, sell and trade securities of businesses listed on the exchanges' websites. The exchanges weren't registered as broker-dealers or stock exchanges. Separately, Mr. Burnside offered investors opportunities to buy shares of LTC-Global Virtual Stock Exchange and a separate Litecoin mining venture. A copy of the SEC order is found here.
The current SEC position with respect to Bitcoin and other digital currencies is pretty clear. As the SEC Chairman Mary Jo White stated in her August 30, 2013 letter, although virtual currency itself may not be a "security" subject to the SEC enforcement, interests that are issued by entities that own or trade virtual currencies are securities, and therefore are subject to the SEC regulation.
Another proof that the SEC has intensified its focus on digital currencies, in addition to more frequent enforcement actions, is the fact that in its December 8th press release, the SEC highlighted the existence of a multi-office Digital Currency Working Group. Although the Group was actually formed in 2013, the SEC has not publicly linked it to any enforcement action until the press release of December 8th. This Group has approximately 50 members from different SEC divisions and offices.
As Bitcoin and other digital currencies become more prominent in our daily lives, the regulatory focus on digital currencies also increases. If Bitcoin, Litecoin and other ditigal currencies are here to stay, they need to be regulated, and laws relating to them should be enforced.
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.