Online gambling website SatoshiDice.com is undergoing an investigation to determine if the company broke any U.S. laws by having a Bitcoin-denominated stock sale. The Securities and Exchange Commission (SEC) believes this may be in fact illegal.
Not like ordinary money
The Securities and Exchange Commission contacted MPEx, an online exchange for Bitcoin-based trading, asking them to provide contracts and other documents relating to SatoshiDice.com. This was seen in a copy of the request that was posted on the website Trilema.com.
Mircea Popescu, the MPEx operator to whom the latter was addresses, confirmed this but also stated that MPEx hasn't broken any laws. The letter also fails to specify as to what rules may have been broken. It only mentions SatoshiDice.com as the topic of the inquiry.
"The commission didn't say what rules may have been broken. And even if they would have, U.S. security laws don't apply to MPEx because Bitcoin doesn't fall under the legal definition of money.", Popescu said during a chat session about the subject.
"There's no discussion of breaking laws. If somebody wants to propose I broke a law, they'll have to come up with the law It broke.", he added.
The actions taken by the commission aren't that surprising. In January, the commission's enforcement director Andrew Ceresney said the agency is "very focused" on whether Bitcoin-denominated stock exchanges are illegal. U.S. law requires securities-trading platforms to be licensed.
“You can invest in those companies with your Bitcoin online,” Ceresney said at a January conference. “And so the question is, are those unregistered exchanges or broker dealers operating in violation of the securities laws?”
The event being investigated seems to date back to August 2012. At that time, SatoshiDice listed shares on MPEx, according to an MPEx-affiliated website. The commission tries to get a hand on "all documents or contracts" between the exchange and Erik Voorhees, SatoshiDice's CEO during that period.
Voorhees made an online statement in July where he mentioned that he had sold the company to a private party. What party that would be wasn't identified in the statement. SatoshiDice's stock aren't currently listed on MPEx.
Because of Bitcoin's nature, it has many of the same properties as traditional currencies; people use it to create securities such as shares and derivatives. Many countries are trying to come up with a legal framework so they can control what happens with the virtual currency. The illegality of any use of Bitcoin is a two-faced matter. One group, usually authorities, claim that Bitcoin should be subject to the laws. However, that same group also claims cryptocurrencies can't be regarded as a real means of payment. Warnings about the dangers of Bitcoin are being spread daily. If cryptocoins can't be regarded as a real currency, they can't fall under any law that is targeted at real currencies. Maybe authorities should make a choice about what Bitcoin is to them, before trying to get money out of it. That way, Bitcoin's status would become much clearer and authorities would actually be able to call something illegal and proving it at the same time.