Founder of crypto lender Celsius Network arrested, charged with fraud

I suppose that ad's positioning could be just random programmatic placement. But if anyone in the HN community can figure out why court-filing enthusiasts are especially likely to want to buy an engagement ring off an unverified website, I'd love to know more

Additive would be some highlighting and annotating of the document (as nytimes sometimes does) to point people to salient points.

What are you answering 'yes' to here?

In fact, the SEC does not ever get involved in "making investors whole." It leaves that part up to the investors themselves.

The SEC's complaint seeks to bar Mashinsky from future involvement in crypto trading, to bar him from being an officer or director of a publicly traded company, and for the disgorgement of profits arising from maintaining the price of crypto tokens through market manipulation tactics. [https://www.sec.gov/news/press-release/2023-133]

Also, in your Pokemon example you claim that buying up Pokemon that completes your collection somehow constitutes market manipulation. But that's a thing collectors actually do...so...by definition not market manipulation but a fundamental part of the market for collectibles (and in the Pokemon hypo Pokemons have instrinsic value because they can be used and valued in a Pokemon game independently of their trading value, in addition to their trading fair market value based on their rarity as a collectible item). This is very different from what the Celsisus guy did; he used wash trading to artificially increase the price of a crypto token whose only value was in being traded.

Assume all the money is gone.

Particularly when they are offering 17x the going interest rate.

Nah, it's still an equity. People don't buy pizza with their Microsoft stock, but they still buy Microsoft stock.

Even crypto fanatics use Venmo.

Imagine, for a moment, that I'm a literalist. Which exact part of the constitution prohibits them?

> The government should not be able to force private companies to do the work of LEA.

Good thing they aren't tasked with the work of an LEA, they simply have an obligation to report what they know.

But even if they were, there's nothing that precludes the government from conscripting people for service to the state (The draft). Or from empowering third-parties with LEA-like powers (Bounty hunters, for example).

Are those also prohibited by the constitution? Which part of it?

https://www.cnbc.com/2023/07/13/xrp-surges-after-judge-deliv...

But for large-scale financial crimes, I think worrying about that too much is not just unknowable and irrelevant, I think it's actively harmful.

As with toe-stepping, we can recognize that a whoopsie moment may not deserve punishment. E.g., if you're out hunting with your buds and accidentally shoot somebody in the face, as with Dick Cheney, that's different than intentionally shooting somebody.

But when somebody intentionally sets up or takes on a position of power, I think there are no whoopsies. Drinking a beer on the couch? Have fun. Drinking and getting in a car? Criminal. Drinking and getting in a car and killing somebody? It may be no more intentional than toe stepping. But at that point I don't really care whether they killed somebody because they meant to or not. The harm's the same.

I think this especially matters when we look at things like the 2008 financial crisis. It caused enormous damage, both in financial and human terms. Yet basically nobody was held accountable. Why? Because they didn't mean it. They were just greedy fuckers in positions of extraordinary power that they used for personal gain without regard to the human impact. Plus they were the sort of people who looked a lot like the people who made the laws. They went to the same parties and had nice friends. So they were all somehow let off the hook. And we did little to make sure they'd get held responsible the next time.

I think the personal growth bit is nice, but hopelessly naive. There are plenty of people who will do the right thing not out of love but of fear. There are worlds where those people are kept from doing harm, such that we can help them grow up to be decent. But we don't live in a world like that. And if we want to create that world, we need to stop the sociopaths and morally deficient goofs from causing massive trauma to those around them. Because I promise you, that will interfere with the victims' personal grwoth.

It fails on points 2 and 4.

Magic is being held up by the early cards having been driven up in price by millennial and young gen x players who became adults with real incomes and social lives that revolved around the game. WoC manipulates the market as much as it can manage, trying to maintain the hope that one can strike it rich, but they make their money off the new cards, not the used ones.

It's the same thing that happened with comic books and baseball cards: people who bought baseball cards in the 50s and early/mid-60s found themselves with small fortunes, because there were wealthy nostalgic baby boomers to sell to. People bought baseball cards in the 80s and 90s trying to cargo cult the price increases of those classic cards, and the people who printed baseball cards played into that. That doesn't make baseball cards a type of security where one is investing in the growth in the community that buys baseball cards any more than buying a washing machine makes you an investor in the growth of the community that buys washing machines, although washing machines also have a resale value.

Buying crypto gives you nothing but a line in the distributed accounts of the people who are coining crypto. It's nothing but an obligation. There's not even the token value that a 10 cent stock certificate might provide.

For older cards though I disagree that the the pokemon company can just reprint more any time they want and dilute the value. The most valuable card out there is the original first edition Charizard from the 90s. They can never really reprint this card and have it be treated in the exact same way. And they do regularly "remaster" or reprint the original set from the 90s in order to cash in on the nostalgic 30-somethings who now have a disposable income (I believe there is another one coming later this year). But these are just replicas and not the "real" thing. Kind of like an original antique/book/currency/artifact vs a replica.

However I'd say at least 50% of the cards in any printed set are not useful in gameplay if you are actually trying to build as competitive a deck as possible, and are really only good for collecting a complete set. They will also print "alternate artworks" of common cards which are the exact same gameplay-wise but visually different and artificially much rarer.

Yes, if you ignore the primary reason for Pokemon cards (the game), then they can magically be made to look like securities....

They then sell these things to people who are absolutely buying them with the expectation that they will go up in value.

No, completely false and this betrays a complete lack of understanding of why people buy collectibles. People buy collectibles to collect them; the value is in possessing the collectible; rare collectibles have value because it is harder to acquire them to add to one's collection.

With respect to baseball cards: they are collectibles. They have value because people collect them. To keep. They don't represent an interest in a common for-profit enterprise, and they don't derive their value from the efforts of others. The value of a card is derived from the card itself: the quality of the print, the rarity of the card in its respective printing run, and (most importantly) its physical condition. Popular players' cards are usually more valuable because more people want to own the card, not because owning the card will somehow make you more money from that player's efforts. (I still have a few baseball cards from when I was a kid. My Ken Griffey Jr card is worth about a penny because it is not in good condition; my mint Tim Belcher card is worth $1.35 because I never had a reason to look at it. But even though nobody knows who he is outside of hardcore Dodgers fans, some people out there still want to have a complete Dodgers lineup from the 1987.)

And this is why analogies to collectibles always fail for crypto bros: collectibles have value in themselves, but crypto only has value to the extent it might represent something else.

Not if you're the SEC enforcing securities laws, which only apply if they pass the Howey test.

Also, that all only applies to criminal statues, not civil/regulatory ones. If you're a construction firm who doesn't know that houses have to be built to fire code, maybe you'll escape criminal prosecution, but the government is going to take an axe to your business anyway.

Courts never struggled with the legal definition of a sandwich. But yes, they had to come to a decision on what counted for legal reasons.

Playing the game is a game. (There are dozens of major tournaments, including national and world championships, of people playing the game.) Collecting the cards is also, in a different way, a game. They have made a product that people do things with. You are essentially trying to define all products with resale value as securities.

First of all, SEC enforcement is both civil and regulatory. The SEC is an independent federal agency. Since it is not a member of a federal executive department it has no criminal enforcement capability. All matters of criminal conduct are forwarded to the Justice Department.

Secondly, SEC enforcement is not speculative. They can seize assets just the same as the Justice Department as a matter of regulatory enforcement and they do so regularly. SEC enforcement agents specialize in securities law which is a legal specialty.

Third, the law is unclear whether crypto, crypto exchanges, and transactions therein qualify as securities. If this activity were to become illegal tomorrow then that becomes a matter for the Justice Department to enforce, not the SEC.

Source: I have relations to a famous (in securities enforcement world) former SEC enforcer.

If it's not an investment contract, it's not a security. That's one of the major points of the whole decision. Section 1 details ways that sales to institutional buyers did involve a contract.

The footnote just says the decision does not directly address exchanges. But it's hard to see how the arguments in section 2 wouldn't apply to exchanges just as well.

2) I've used the app before, the fact that someone else and I both want these sneakers doesn't make our purchase of a pair each a "common enterprise".

3) I didn't expect profit, and buying a thing which can be resold for profit doesn't mean every purchase of it was an expectation. All my sneakers are worn.

E.g. if we interpreted the test like that, wouldn't we end up with nearly any "limited run" product being a security? And that's never how the law has been interpreted or enforced, and certainly can't have been the intention.

So I'm unconvinced by the lay reading of the law of folks saying "this makes sneakers a security too" since it seems no more valid than a lay reading that doesn't and there's been no official indication that sneakers or trading cards are getting anything like the attention crypto did from regulators, despite being much older markets.

In this case the sneakers sound like a commodity, not a security.

>to be derived from the efforts of others

The buyer expects to derive profits from arbitrage to the existing market value. If Nike shut down the moment you bought the shoes the profits would still be realized, because they don't require any effort on Nike's part.

Assuming that in a lot of these countries crypto is no big issue and others have long banned it and still a huge adoption I really doubt the US alone would make a huge lasting dent banning it.

* https://triple-a.io/crypto-ownership-data/

Their main problem is money laundering regs which is why they have to be opaque and offshore.

https://www.ftc.gov/news-events/news/press-releases/2023/07/...

> The companies also agreed to a judgment of $4.7 billion, which will be suspended to permit Celsius to return its remaining assets to consumers in bankruptcy proceedings.

https://www.ftc.gov/news-events/news/press-releases/2023/07/...

That quick search is clearly way off, It's closer to 0.1% - 1% depending on how you calculate it.

And many people have considered the benefits and have rejected the scheme anyway.

I'm curious, though... what do you mean by "selfish reasons"? That implies that such people are making a decision that disadvantages others in order to give themselves an advantage. I'm struggling to see how that concept applies here.

I said unintentional because a lot of the same factors were helpful for the tech industry and we as an industry just blithely accepted their continuance. That includes the VC money spigots for sure.

But there are plenty of actors, specific VCs included, where I have a hard time believing they didn't know better. In my view it was often their job to know better.

There's a huge misdirection in the very thin narrative about minors, which is that "everyone knows" they've always had to sell the entirety of their coin bases to break even. This is completely taking the miners at their word when there is absolutely no reason to believe any of it.

The reason the price is stabilized every time it should fall is because the miners, and the OG miners alone, have the ability to collectively throttle back on selling their newly mined coins to the market and can do so almost indefinitely because of the massive profits they realized on early gains held long term. This is the true source of number go up and I'm surprised how little attention it's been given, probably because miners are notoriously publicity shy. You'll notice they're never talked about it any of these articles.

For what it's worth, I think that whatever we choose to do, we're going to get a lot less leeway in the future. I was just at a Trust & Safety conference. European legislators and regulators are very much cracking down on the social media space, and it's clear that years of slippery behavior from places like Meta have burned a lot of goodwill.

But I saw so many entrepreneurs getting pulled into blockchain-ish spaces thinking they could do some good. Even given that most of the money would have gone to something else terrible, there were a lot of people who might have focused on actually useful things.

I would also disagree that the transactions are fast or private.

Let's compare with M-PESA, a money transfer solution that started around the same time. M-PESA has steadily grown, doing 26 billion transactions last year. [1] Bitcoin was somewhere around 100m transactions for the same period. [2] That's about 0.5% of the volume. And its worse than the raw numbers suggest, in that the M-PESA transactions were things with positive economic impact, whereas a lot of the Bitcoin activity was driven by speculation or crime.

And that's wildly smaller than the number of credit and debit transactions that happened over the same time, of course. Bitcoin was hoping to be "electronic cash", but the shift away from physical cash was toward the already existing digital payment mechanisms, not Bitcoin. Merchant adoption, always small, went into decline years ago.

So no, Bitcoin was not successful in the sort of terms that match its initial goals or what was hyped in the early years.

[1] https://www.statista.com/statistics/1139181/m-pesa-transacti...

[2] based on eyeballing this: https://ycharts.com/indicators/bitcoin_transactions_per_day

It's true that crypto has a lot of users too, but I think the difference is that these users are mostly being deceived into thinking that their involvement in crypto will make them rich in the future, when it will not. AI is giving people immediate value instead of making promises of future wealth.

There are several very obvious uses for ChatGPT. Almost everyone I've seen use it can think of something they want to use it for.

I've never had someone give me a plausible usecase for blockchains or crypto currencies. Once you push on the usecases I have heard it quickly devolves into "you just don't get it" or some kind of appeal to authority like "well all the VCs wouldn't be investing in it if it wasn't valuable, clearly they're smarter than you."

It's a matter of perspective. For many people around the world, the US government is the bad actor, the bad actor preventing them transferring funds through "normal" (US controlled) routes.

"bad actors" according to their government, which could mean people who simply want the right to vote, or to live free from oppression, secret police, etc.

Such as?

Blockchains enable trust-less and decentralized ledgers at the expense of major trade-offs (user experience, lack of transaction reversibility, proof-of-work to secure the network, etc).

Most useful business happens off-chain in the real-world, so you need to bridge between blockchain state and real-world state using a trusted party which throws away all the decentralization and trustlessness advantages, so you may as well just let the trusted party run a conventional database directly, and avoid the major trade-offs.

I can't think of many useful & valuable use-cases that happen fully on-chain with no off-chain interactions, aside from cryptocurrencies. As soon as you have off-chain interactions (which is most of blockchain usage outside of cryptocurrency applications), the value proposition of using a blockchain goes away and a database makes more sense.

Financial software is regular software with additional audits and checks to make sure it's safe against the flood of attacks it will receive. With the kind of money we are talking about, you can hire people with the expertise to reasonably protect you against bugs and software exploits (something most traditional financial companies have a close to 100% track record in but many crypto projects failed).

But after that you have a mountain of issues to consider that have little to nothing to do with software:

- financial logical holes like flash loans being used to extract money "democratically"

- people committing age old scams "but on the block chain"

- founders not understanding problems such as that you cannot secure one unsecured coin with another one no matter the algorithm.

- all sorts of unpleasant people using your "financial playground" to do things society frowns upon.

All of these are solvable but not by choosing a better technology stack. Look at how much traditional institutions are spending on compliance and realise that you probably won't be able to cut that by an order of magnitude.

Crypto is learning very quickly that most regulations do not exist to "keep the little man down" but because having regular people get fleeced over and over by charismatics liers/fools can have a devastating effect on any community.

They were completely clear. The whole time. There were no moments when it was a reasonable thought that securities weren't securities "because blockchain.

I guess that's fine and nothing out of the ordinary since people constantly invent new financial instruments.

But since more and more trades happen on regulated exchanges and (as was expected) regular financial regulations such as KYC and AML apply it seems not that revolutionary to be honest.

No reasonable person would (or does) use Bitcoin as an actual currency if they expect the value to increase in the future so it can't become a means of exchange for real world goods.

Most of us have established and secure alternatives for that and inflation doesn't really matter for most of my income (which is spent within 30 days). Even people in countries with unstable government mostly seem to prefer other methods.

Maybe I'm missing something but given all that the underlying technology of Bitcoin and friends look like an implementation Detail that doesn't really matter.

This is satire right?