SEC Files Fraud Charges in Bitcoin and Office Space Investment Schemes
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As bitcoin becomes more valuable and ransomware / money laundering becomes more prevalent, why not blacklist coins that have been through a mixer? If you can't mix the coins, you can't launder them. It won't be possible to use Bitcoin for these activities anymore.
Here's what I mean by "blacklist": If an exchange detects that your account has received more than N bitcoins that have been through a mixer, your account is closed and your coins are refunded. It's easy to check whether a coin has been through e.g. bitcoinfog, for example, so this is easy to implement.
I think a lot of the resistance to this idea comes from people who use Silk Road clones, most of which force you to use a mixer. And while there's a strong ethical argument to be made that Silk Road ought to exist and that it's made the world safer, there are other types of activities that have been growing with concerning frequency in the Bitcoin world.
The sole reason that Bitcoin is untraceable is because of mixers. Is it time to eliminate them? What are some consequences of pursuing this strategy?
There's nothing stopping it from happening. As soon as a few exchanges become so large that they're the "gatekeepers" for BTC -> USD conversion, it will be difficult to get dollars out. And if other countries follow suit for euros and yen, then mixed Bitcoins won't be worth much.
As far as I can tell, this is a very real possibility for the future, so if it has consequences then we should discuss them now. The era of "pay for everything in bitcoin" is sufficiently far away that we should probably talk about the implications of banning mixed coins.
EDIT: Ok, I've exhausted my self-control for complaining about downvotes. This is a genuine, good-faith question that I spent time crafting. If you don't come to HN to have your preconceptions challenged, then what are we doing here?
And no, people can't troll others by sending them mixed coins. It's no different than the fraud detection that exists today. You'd need tens of thousands of USD to even put a dent in a business account, for example, and exchanges will just forgive it.
I think people don't like the future I've painted, and hence the downvotes. It doesn't bother me much, but it's an interesting phenomenon to see unfold.
But we don't always do that in the non-cyberspace world even when it is technically feasible. If a car is stolen and it changes hands ten times, then yes, it'll get returned to the original owner. But not for fungible transactions like in securities. I'll give you a concrete example of where it doesn't happen:
Canadians experienced a multi-billion dollar stock fraud due a company called Bre-X[1] that found an enormous gold deposit that turned out to be a massive lie. After the fraud was exposed and the stock had collapsed, the brokerages, exchanges, and the Ontario Securities Commission could have reversed all the transactions one by one until everyone who was unjustly enriched had their profit taken away and everyone who lost money was made whole.
All the data to do this was available to the brokers. There is no such thing as anonymous holders and anonymous exchange of shares. If Mr. Wilson was left holding 1000 worthless shares when trading was halted, you could look at the records and see that he bought it from Mr. Coolidge for $85,000. You'd seize $85,000 from Coolidge giving it back to Wilson, and return the 1000 shares to Coolidge. Then you'd look at Coolidge's transactions. You'd unwind all the transactions to the beginning of the fraud. But the brokerages and exchanges did not do this!
You're asking for stricter controls on cryptocurrencies than exist for fungible meat-space transactions.
When someone tries to cash out coins that came predominantly through mixers, the authorities could hold it up and ask the individual to explain. And if they don't have an explanation, the authorities can keep the money. Sure, this sort of enforcement isn't happening yet but it can and it's simple and practical. And I'd be more surprised if it doesn't happen.
Last year I closed a bank account with $11,000 in it, and just for fun I asked for the money as cash. That took a long time, the bank manager got involved and I had to sign a document stating the source of the money. Which is funny because they sure didn't ask when I deposited it. That's the world we live in, and that's where bitcoin is going.
So, I asked for the price on the bundle without that item. They said they couldn't unbundle it... but I could pawn the one item back that I didn't want. Fine, a stupid policy but whatever.
Except that I also had to do the full standard procedure for pawning an item: show ID, sign a statement attesting to legal ownership and the source of the item, and receive payment in cash, separate from my purchase ... even though the source of the item was their very shelf!
Depending on the blockchain, somewhere between infeasible and impossible. In order to even start that process you would require a method to track every miner that signs every block on every blockchain. That would be effectively impossible.
Bottom line, unless everyone in a community agrees to accept currency X, the external government can shut currency X down by not allowing it to be exchanged for the main one.
How do you determine what coins have been through a mixer? By looking at tx inputs and going back all the way to when those coins were mined into existence? What if an innocent wallet happens to receive "dirty" coins even when the wallet holder themselves has done nothing wrong? Who would be in the charge of enforcing this? The network? The exchanges? If this is done at the exchange-level, what's stopping someone from simply cashing out via Amazon gift cards or the like through a non-traditional exchange service?
The list goes on. This is not a simple problem. I personally don't believe private or public regulation is the answer.
> How do you determine what coins have been through a mixer? By looking at tx inputs and going back all the way to when those coins were mined into existence?
Graph the blockchain. This isn't a new idea. There are several visualizations that have already popped up showing who is sending coins to who. Mixers show up as a giant tumbleweed shape in these.
> What if an innocent wallet happens to receive "dirty" coins even when the wallet holder themselves has done nothing wrong?
For one, you'd need to send them a massive amount of money to taint their stash. For two, simply send back the coins to clear your name. The point is that it's relatively easy to detect when an account is receiving coins primarily from a mixer.
> Who would be in the charge of enforcing this? The network? The exchanges?
The exchanges.
> If this is done at the exchange-level, what's stopping someone from simply cashing out via Amazon gift cards or the like through a non-traditional exchange service?
The price of mixed coins will plummet if exchanges refuse to deal with them. Remember "GoxCoins"? Same thing. Non-traditional avenues aren't an escape from these forces when everyone agrees they're relatively worthless.
All in all, the above proposal is no more difficult than implementing the fraud detection prevalent in most financial companies. I'm pretty sure people are being evasive solely because they don't like the idea, not because it's difficult. It seems like a bad idea to refuse to take it seriously.
Earnest question: if someone sent you coins, wasn't it presumably in exchange for something? If so, doesn't that complicate the idea of simply sending them back (without incurring a loss)?
Without controlling all of the exchanges, including the anonymous ones, and track every other alt-coin blockchain, and every miner that has ever produced a coin in one of those blockchains, including the ones that are specifically designed to be impossible to track, you have nothing.
More the point, everyone who has chosen to actually validate this for themselves knows this already. You're raising points that were some of the talking points in crypto about four years ago. Indeed many of these points have already had specific implementations that exist now to counteract any possibility of a potential weak point for the things you're hypothesizing. With the implementation of "atomic swaps" and lightning this will further make control of the type you envisage even more impossible to do. And for all intents and purposes, it's impossible to do now.
> The exchanges.
Any exchange stupid enough to enact such a policy would go out of business immediately. Their competitors would eat them alive.
This is a very good question, because it gets to the heart of the matter of what bitcoin is.
Bitcoin was not created to be a paypal clone.
Bitcoin was created as a way to do non-reversible, censorship-resistant electronic transactions.
Blacklisting coins, or in other words, censoring certain financial transactions, defeats the entire point of bitcoin.
If you want to engage in financial transactions that are censor-able or reverse-able, you have multiple options already. Use one of those instead. The other options are probably better, actually, because bitcoin makes a lot of tradeoffs in order to get the desirable property of censorship resistance.
Blacklisting coins leads to regulation, which leads to government control, etc. Soon I can't send money to someone in China because the Chinese government blocks coins that were used for something that they don't like.
The system quickly falls apart and becomes much less useful.
http://diyhpl.us/wiki/transcripts/gmaxwell-confidential-tran...
http://diyhpl.us/wiki/transcripts/bitcoin-adam3us-fungibilit...
http://diyhpl.us/wiki/transcripts/sf-bitcoin-meetup/2016-11-...
http://diyhpl.us/wiki/transcripts/scalingbitcoin/milan/fungi...
http://diyhpl.us/wiki/transcripts/scalingbitcoin/privacy-and...
Long-term, I expect mixers, coinjoin, confidential transactions or other technology to get implemented into the bitcoin protocol. Short-term I think that they are most likely to show up in sidechains or we'll just stick with the services already deployed (joinmarket, maybe tumblebit, etc.).
And ultimately the whole blockchain data stuff could poof out of existence thanks to the near magic of recursive SNARKs.... which isn't going to get deployed any time soon; uh, maybe on a sidechain.
That said, I recognize we're in a thread about some sort of SEC enforcement action. Stay legal, folks. Fungibility is a property of money, and if fungibility is deemed illegal then that's certainly interesting and something to consider. As a faithful internet comment author, I have not read the article at all, so I am absolutely certain that the accusation is not merely "omg fungible money" it's probably an accusation regarding a crime/scam or whatever. (Oh I guess I get a free pass-- Silly3rd's post says the mixer comment is unrelated to the article.)
If Bitcoin's advantage over PayPal is ransomware, that isn't an advantage governments will tolerate for very long, and why should they? Bans would be popular with the voters.
I think a lot of bitcoiners are in denial about how reliant the system is on tolerance by the authorities. If you can't move money in any significant quantity to exchanges then ransomware usages will go away (along with other usages). Even if residual trading by hard-core users continues it won't be at a scale that is large enough to care about.
Also, if we were to apply this same logic to physical currency we would have to revoke something near 90% or more of the physical currency supply. (http://news.nationalgeographic.com/news/2009/08/090816-cocai...)
If you ban mixers, it might turn bitcoin into the perfect Orwellian currency. Sufficiently far in the future, it might not be possible to hide any of your activities from the government. That may destroy the original point of BTC, but we don't know the original intent -- the point of BTC is that it exists and people use it, nothing more.
Bitcoin is still by far the most popular cryptocurrency, so Zerocoin and other derivatives don't yet matter much in comparison. And if you ban mixed coins, it's easy to imagine nobody will want to trade you Monero for mixed coins.
It's also easy for point of sale systems to check whether any given coin has been through a mixer in real time, so even if we do enter the era of "pay for everything in bitcoin," this still seems like a possibility. The consequences are pretty steep.
In order to blacklist coins, you do not need to get a couple exchanges on board. You need to get EVERY exchange on board. Because if a single exchange exists that accepts my blacklisted coins, in any country in the entire world, then that means that I can turn my blacklisted coins into real money, and then I can convert that money easily afterwords.
And if such an exchange existed, then everybody would just use THAT exchange. Nobody would use an inferior exchange that has a history of taking away your bitcoin or blacklisting your coins.
In order to censor transactions, you have to take control of EVERY important player, not just most of them.
And even if you DO succeed in that monumentally difficult task of taking over every important bitcoin player in the entire world, well now you need to keep that up. Now you need to stop NEW players from forming that don't follow your inferior blacklisting rules.
And you have to stop them in both bitcoin, and every single other altcoin/cryptcurrency . Because even if you succeed in killing bitcoin, anybody can just create a new altcoin.
It's true that you'd be able to use a service like localbitcoins to sell your coins, but in this hypothetical future, exchanges are using an agreed-upon protocol to identify and blacklist mixed coins. Even if it's not fully standardized, it's easy to check whether a coin has been tumbled through any mixer of sufficient size. So I'm not sure anybody on localbitcoins would be willing to pay the same prices for these.
You have it opposite.
The price of censorship coin would crash to 0. Why would I as a consumer want to buy coins that can be blacklisted? Bitcoins would be useless and therefore worthless.
I'd sell those censorship coins and buy alt coins that are not being censored.
And the price of uncensored alt coins would skyrocket, and the exchanges transacting in inferior coins would go out of business.
Your vision of how things might turn out is certainly possible, but so is the opposite.
One way the opposite could happen is if the US government officially backs bitcoin. They might do this if they realize that by banning mixed coins, it becomes the perfect tool for monitoring everyone's financial activities.
It's unlikely, to be sure. Especially if implementing confidentiality into bitcoin is a real possibility. But without that, it seems at least equally likely as bitcoin crashing due to the ban.
You've been taking the conversations in personal directions -- for example, you accused someone else upthread of having Stockholm syndrome, and now you're saying I didn't read replies. Please engage with the argument, not the person.
And I think the stockholm syndrome argument for people who argue for the type of control they think banks have without understanding their limitations is a pretty good description of that argument, especially from someone who, not me, brought up 'denial'. Like I said, these are old arguments and suggestions that wouldn't have been effective four years ago, let alone today, where there is even less possibility of control. For the reasons that have been demonstrated by not just me.
As long as there is a single way of converting Monero to Bitcoin, or any other crytocurrency to Bitcoin, then everyone will just use that.
You don't even need a way to convert Monero to USD. All you need is a single output method to ANY other crytocurrency.
How do you stop an exchange that is run over tor in a different country?
You can stop them from transacting in USD, but you cannot stop them from transacting in crytocurrencies.
> And any exchange that freely trades in blacklisted coins can itself be blacklisted
And no one will trade with those exchanges.
If you operate an MMO or other game where people can buy virtual currency, then the game acts as a "bank" that does periodic settlement transactions with the outside world. Lots of people are thinking about off-chain transactions in this manner, and it seems like you'd be hurting its utility if you couldn't. Then again, games usually don't let you take money out because then they could be used for money laundering.
Exchanges have significant Bitcoin reserves and their employees are highly invested in Bitcoin. If they collectively blacklist other people's coins, they stand to benefit. So there's a conflict of interest.
If Exchanges put a system in place to blacklist certain undesirables, what stops the feds from whispering into their ear, "You should add these porn and gun sites to your list. They're not illegal, but it'd be a shame if we found something else to investigate you for." https://en.wikipedia.org/wiki/Operation_Choke_Point
The policy would increase the value of newly mined Bitcoins, which would further centralize mining in Iceland and China, which have cheap(or subsidized) electricity.
Miners would have to reject these transactions, because otherwise it would end up in the transaction fee and in their account. Miners deal with a larger tree than just the main path, and it might be computationally expensive to calculate it for each transaction. If you exempt transaction fees, then pools stand to make a huge profit by cleaning mixed coins and would probably find a way to do it.
If the miners, exchanges, users don't use exactly the same algorithm and blacklist at all times, then there's a possibility to profit by e.g. scamming a Bitcoin gambling site using newly-tainted coins. I feel like there's already enough ways to lose your hat from one subtle mistake with cryptocurrency, and we don't need any more.
This would totally eliminate privacy. It would be no different than making HTTPS illegal. It's not just criminals that use privacy technology. Eliminating privacy in money for the sake of eliminating some crime at the margins is giving up the farm to gain a horse.
It's making a situation where everyone is subjected to mass-surveillance, and power concentrates to a small politically connected elite that can monitor all private interactions, exponentially more likely to be realized. It's very dangerous to society.
https://aeon.co/essays/if-plastic-replaces-cash-much-that-is...
>There's huge interest in cryptocurrencies and what perhaps they can create in the market place. Now we at MasterCard are not completely comfortable with the idea of cryptocurrencies largely because they go against the whole principle that we've established our business on which is really moving to a world beyond cash and ensuring greater transparency.. If you think about it, cash is a problem for a number of countries. Cash really facilitates anonymity, it facilitates illegal activity, it facilitates tax avoidance and a range of other things that aren't going to drive efficiency in an economy
-https://youtu.be/bO4jHXjCXw8?t=2m57s
>If it's an anonymous transaction, that sounds like a suspicious transaction. Why does somebody need to be anonymous?
-http://youtu.be/bO4jHXjCXw8#t=4m12s
MasterCard SE Asia President on cryptocurrencies and cash
Also, bitcoin doesn't use accounts.
I'm all for criticizing bitcoin and some of the more obvious problems with it (the size of the blockchain makes it less and less practical for normal use to run your own bitcoind) but you have to at least make a minimal effort to understand how the whole thing works and what the abuse potential is for your suggestions.
Also, you're off-topic so no point complaining about the downvotes, and didn't you make it so that you no longer saw whether or not you were downvoted?
To say I'm off-topic on a thread about bitcoin is a bit of a stretch. Not all of us have a blog and an HN army to upvote our weekly motivational posts to funnel views to our consulting business. You want me to wait until a blog post about exactly this topic comes up?
I addressed your abuse argument directly in my edit, which you saw, so this comment was probably the definition of bad faith writing. More amusing than annoying, actually. (Also, the accounts are at the exchanges, which can be closed. Of course, you know this, so I wonder why you're writing this way.)
But yeah, this is exactly why it's verboten to even mention downvotes on HN. I was trying to call attention to a more serious problem, which is that when the voting system loses value, what's the point in contributing? I don't mind this particular instance of it, but it's getting harder to ignore the trend. Nonetheless, with low-value comment chains like this one popping up every time someone even mentions it, it's best not to talk about it.
FWIW, I disagree with virtually everything you've written on this thread, but haven't downvoted you once.
Even for those who realize votes are about as valuable as a warm bucket of spit, it can submarine comments into oblivion, ensuring that fewer people see dissenting ideas. I don't care about votes, but I do take time to comment to engage in discussion.
Downvoting over disagreement is silly, counter-productive, discourages free expression, and encourages group-think.
This is true, even if a decade old pg post endorsed downvoting as a means of disagreement.
How I read HN is none of your business but just FYI I opened the tab when your comment was in its original un-edited state and when I hit reply your edit wasn't there yet.
Talk about bad faith.
From your original comment:
Also, you're off-topic so no point complaining about the downvotes, and didn't you make it so that you no longer saw whether or not you were downvoted?
This is a response to my edit.
I get that we probably did the whole whoops-didn't-see-the-edit a little bit, but c'mon, my comment stayed identical in substance the whole time it was posted. I think I added a sentence at the end a few minutes after it was posted, then the "EDIT:" part about an hour later.
Why don't we kiss and make up? I promise to engage with you in good faith if you do the same.
You're reading way too much into this.
As for you, I don't know what the deal is, but if you feel like attacking me in the future please understand my comment first.
EDIT: Okay, listen. The reaction was to this part:
"but you have to at least make a minimal effort to understand how the whole thing works and what the abuse potential is for your suggestions."
That felt like a personal swipe, combined with the rest of the comment that read as "hey you're offtopic and didn't you write a script to hide downvotes anyway." It felt like that was written solely to put me on the defensive. So -- principle of charity -- I'd rather assume that this was all a miscommunication rather than malicious.
The spat is tedious, I like your writing, so for the second time here is an olive branch.
Who started the attack here? That was an asshole comment. I don't have an army to upvote my posts and I don't funnel views to my consulting business. I've NEVER had any paid work through HN.
If mixed coins can't move through exchanges, they're worthless. If merchant acceptance of BTC increases, they could have some value, but still less than the more useful exchangeable coins.
I think you're right that blacklisting people from exchanges based on the coins they've tried to exchange is a bad idea, but you could much more simply just blacklist the coins.
2. Select Bitcoin as payment method
3. Pay with legitimate Bitcoins
4. Later on, send a tainted post-mixer Satoshi to wherever address your legitimate Bitcoins ended up at
5. You just made a portion of Microsoft Corporation's Bitcoin holdings worthless
Actually, come to think of it, big companies don't actually handle the Bitcoins directly. They have a payment processor that handles the dirty work for them and just receive fiat on their end. So that means this trivially executable attack not only fucks up some of Microsoft's accounts, it also fucks over everyone who uses the same payment processor as well as the payment processor itself.
I already made clear that the cost per attack per address is 1 Satoshi + transaction fees, which is around $1.5USD in today's network conditions. You only need to pull off one successful attack to taint an entire business account.
>a business account would simply call up the exchange and tell them what happened
And a drug dealer on a Silk Road clone can just call up the exchange and tell them that some strange bitcoins landed in their account and that they have no idea how it got there, but they sincerely hope that it won't affect the withdrawal of their other completely legitimate bitcoins.
However, just who, exactly, will put the bell on the cat?
The downside here is that a lot of people don't use Coinbase, i'm not sure what their upside is. They aren't exactly earning a reputation as a safe Bitcoin space.
What you're forgetting is that hot wallets used on popular bitcoin services also serve as tumblers. The distinction between a "malicious tumbler" and a service's hot wallet is just the dedicated use.
For example, if a bitcoin shopping site had a wallet you deposited coins into, you'll be recording that you have <number> of coins and they will show that. Your coins will be mixed with their hot wallet and who knows how long they keep them in there.
If you wait a few days and withdraw, chances are that most (if any) are NOT your original coins.
Not to mention, if you blacklisted these coins, then users who receive these coins wouldn't be able to legitimately use them.
TL;DR: Tumbling services are just dedicated to tumbling bitcoins. Most semi-large bitcoin services with hot wallets inadvertently tumble their user's bitcoins.
Uh, the whole point of bitcoin is returning socioeconomic control to the people. Part of the socioeconomic control government exerts over its citizens is tracing financial transactions to punish those who make transactions the State has deemed "bad".
Getting rid of mixers just hands that control back to the State. Woudln't seem like much of a problem, if these policies weren't set by lobbyists and politicians with sick agendas. Who knows what could be a "bad" transaction tomorrow. Drones? CPUs without a TPM? All forms of pornography? Anti-government propoganda? We are talking about a massive slippery slope here.
Besides, moves like that just result in new tech further obfuscating things from the State, like always. Attempt to read everyone's messages, everyone will move to encrypted communication platforms. Attempt to ban mixed coins, people will adopt a cryptocurrency with an encrypted ledger or obfuscated transactional history.
Unfortunately from their (fine) ideals bitcoin and the other crypto-currencies are just becoming another tool for criminals and speculators and someone needs to find a solution if its going to become a help rather than a hindrance.
And don't worry about the down-votes, I'll take some off you by saying those are mostly from speculators who don't want to see their tower of card collapse.
Indeed, nothing stops from that being implemented at the node level, or by the miners. But then you need to deal with people tainting other people's accounts.
Woth the type of people who invest in bitcoins I can see them simply making sure all bitcoins are tainted in this way for purely idealogical reasons not even to ensure that illigal activity can occur.
I've often wondered if anyone has set someone up by depositing cash into their bank account (account number easy enough to find) and then created or leaked a back story to get them into some kind of trouble.
Edit - direct link https://m.youtube.com/watch?v=m1lhGqNCZlAusg=AFQjCNHkUHeVThw...
Like other forums, HN is largely an echochamber for those who think alike. Break any of the largely unspoken conventions here, and see what happens to you....
This is the number one reason I want nothing to do with Bitcoin. The technology is new and amazing and incredibly exciting, but people are awful as ever. The industry is full of shady characters looking to make a buck any way possible. And anything that touches it tends to fall into the same category.
I'm certain it will be successful in the long run though. There will always be those willing to take the risk.
That's true because the barrier of entry is 0 and Bitcoin is basically money but there are other kind of community members that are pushing all these blockchain/cryptocurrency/smart-contracts stuff forward. An ICO can be an scam but also push interesting projects forward in places without good access to capital. We are just living the prehistoric times of the technology.
I think exchanges are one of the weakest points of the cryptoeconomy. If they are banned or overly regulated Bitcoin will convert into PayPal in some places. That was my experience with Coinbase and I understand that they are overly regulated. In a way the cryptoeconomy is a good thing for the intelligence community since it transparents what is happening in black markets, even in the Monero and Z.cash shielded cases where at least you can measure some level of activity.
One of the biggest flaws with cryptocurrency is that for all its mathematical and structural elegance, it rolls back almost all of the features that mitigate fraudulent human behaviors.
Those aren't flaws; those are features.
Bitcoin was meant to serve a very small number of people attempting to evade the laws surrounding currency exchange.
The fact that it could be propagated as a pyramid scheme (mining gets vastly more expensive the later you "buy in") was marketing genius.
This is precisely my point
It's a minor thing to learn a criminal skill that lets you con your way into a couple thousand dollars. The combination of knowledge, connections, moxie, and motivation to raise an ill gotten 37 million dollars are another thing entirely. Not anyone can just say "oh sure I'll lie my way to 37 million". Given the skills, time, and dedication it must have taken to get this far by a person with these talents, could have been used to be reasonably successful in a whole host of careers or ventures. Perhaps not 37 million effective, but enough to live comfortably and happy for sure, without the constant fear of the long arm of the law creeping up behind you at any moment.
If you don't any gold, and walk into a jewelry shop and ask for a thousand dollar loan, they're laugh.
If your uncle jack owns the jewelry store, they might lend you money on no credit.
If you have some amazing way to fake having a thousand dollars in gold, you can fake jewelry store into loaning you the thousand dollars. But they'll be gunning for you if it becomes clear you've scammed them.
If you have a business that's making money and has valuable assets, your chances of getting loans and investment is fairly high.
If you have a track record of founding businesses, if you have a good idea and if you have connections, your chances of getting investment, even with no business or a minimal business, can also be pretty good.
But this is the skill of faking a real business is somewhat different from the skills of those with a track record of creating multiple real business from scratch. There's similarity, even overlap but they aren't identical.
For one thing generally a portion of any 'success' is linked to either lies or illegal activities. It's quite easy to make money if you fabricate things.
[1] http://www.redd-monitor.org/2017/01/17/bar-works-the-return-... [2] http://www.worldpolicy.org/journal/spring2015/catch-and-rele...
Criminal charges [1] also mention another company that was used to solicit investment: InCrowd Equity Inc.
[1] https://www.justice.gov/usao-sdny/pr/charges-unsealed-agains...
> offering materials presented to investors in both companies touted the backgrounds of senior executives who do not appear to exist
That's a pretty big deal. That implies this is a fly-by-night operation where you give the appearance of being a business, then run off with the money. You can't just make up people involved in your company.
> The materials also misrepresented other key facts about both companies' operations.
When I wrote my paper on NJ's underfunded state pensions, they used similar language to describe what turned out to be "pulled millions of dollars out of thin air every year and told bond investors that imaginary money was put into the pension."
> Haddow allegedly diverted more than 80 percent of the in funds raised by the broker-dealer for the Bitcoin Store
Read: embezzlement
> and sent more than $4 million from the Bar Works bank accounts to one or more accounts in Mauritius and $1 million to one or more accounts in Morocco. Read: tax evasion.
> had generated several million dollars in gross sales
So they basically presented made-up financial statements or at least stats you would get from it and gave that to investors.
> sold leases for more workspaces than actually existed
Come on, they're not even trying.
> [claimed] within months of opening and that Bar Works had engaged an auditor
The whole point of an auditor is that they verify claims like these. If the SEC let people falsely claim they've been audited, there'd be no point in having auditors in the first place. Auditors do the vast majority of the work that the SEC doesn't do. The SEC doesn't individually verify that each corporation has and is worth what they say they are, auditors do that.
Even dollar bills can in theory be marked and tracked. Each one has its own number, it's just that they aren't registered on a global ledger. The real advantage of bitcoin was that no one can block your payment or confiscate your money.
But once it's trackable, they can keep a list of "blacklisted" coins which regulated exchanges will refuse to cash out for things. And which will make it hard to pay for actual stuff (eg expedia via BitPay) with them.
Classic non-Bitcoin type of scam. The SEC sends people to jail for that sort of thing regularly.
Not being pedantic here, just a side note. The SEC actually doesn't have the power to send people to jail. They can only file civil actions. In this case, a parallel (but separate) criminal action was filed by the US Attorney's office, which is the only entity that can bring federal criminal charges.
This is an important distinction, because the standard of proof is lower in civil cases, and there are SEC violations that simply aren't criminal in nature. Accordingly, most conduct that draws the ire of the SEC doesn't actually get criminally prosecuted, nor does all such conduct necessarily deserve it. There are many arcane securities laws (some dating back to the 1920's) that are easy to unintentionally violate.