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Comment by ivanplenty | Hacker News Reader

I don't understand: "Sand Hill Exchange" accepted items of real value (USD and BC) that could be used to "purchase" (or bet on) things named after real securities that trade (or are expected to trade) on public markets for a profit.

I would be surprised if a regulatory body didn't come after this setup. There is a very bright regulatory line around gambling and investing in most countries that a typical person should have known about. What am I missing? Why should I sympathize with Sand Hill Exchange?

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This is specifically why when we set up http://longbets.org/ we made is so the money always goes to charity. It's also why the Iowa Election Markets got a special waiver to operate. Either they're a market or a gambling operation, and both are heavily regulated in the US.

As far as I'm concerned you should have no more sympathy for them than anybody else. Even if this risk really never crossed their minds, their lawyer should have warned them of how problematic this was during their first five minutes in the law office.

Indeed, a quick Google for "Prediction Markets" popped up, http://en.wikipedia.org/wiki/Prediction_market#Legality

But then, tie that to real Securities ... its a miracle they got off with only $20,000 in fines.

The issue here isn't whether "real-value" was used or not. Technically kids selling lemonade on street corner on a Sun afternoon need a business licence. Do we prosecute them for illegal activity ? Do we arrest their parents ?

Does the punishment befit the crime. These guys had limits on what the users could do. Anybody - yes even the SEC - could take a look and see it wasn't a platform for massive illegal trading. They could order a cease and desist. Better yet "cap" the volume to its no more than "tiny gaming level". But imposing a 5 digit fine on founders who are working without pay, without funding ? That's not just stifling innovation, but fear mongering.

> Does the punishment befit the crime.

The title says they only got a $20k fine. Am I misreading it? Was this a lemonade stand run by an 8 year old, or by grown adults who are able to use a search engine and Wikipedia?

Thank you.

I didn't know this, but you can write the SEC and request a "no action letter" if you aren't sure about the legality of what you are doing.

http://www.sec.gov/answers/noaction.htm

These guys could have started there.

You don't just write a no action letter. You hire a securitied lawyer and this can cost $50-200k. Had LendingClub asked for a no-action when they started, the SEC probably would have said no. Sometimes it's better to ask for forgiveness than permission.

>Sometimes it's better to ask for forgiveness than permission.

It's almost always better to ask forgiveness than permission.

Well I think sending subpoenas to everyone behind the site and their mentors, and then fining them, is a bit disproportionate as a first step. I think (from the Medium writeup) part of the issue was that the site broadcast itself as more professional-looking and “in business” than it really was. I personally hadn’t realized when I’d seen the site earlier that most of the ‘users’ engaged in ‘trading’ were actually bots for example.

Accepting Bitcoin without figuring out regulatory issues was an unwise step for sure.

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