Hacker News Reader

Comment by chernevik | Hacker News Reader

The SEC should have said "Very clever, kids, but, ah, no. Knock it off." A fine here is ridiculous -- the participation was capped at $250, this clearly wasn't intended to take in serious amounts of money. The SEC can't let something like this go on, but it can be less hamfisted in its handling.

Really the right thing here would have been a visit by SEC staff, asking a lot of questions and pointing out some security law violations, at which point the operators go "umm, didn't think about that, we'll be good". But that approach doesn't let the bureaucrats justify 100 hours of browsing on their time sheets, does it?

The injunction to obey security laws going forward does make sense, it gives the SEC leverage if these same people actually do pop up later as scammers.

Some journalism on what they were doing:

http://www.bloombergview.com/articles/2015-03-11/how-should-...

http://ftalphaville.ft.com/2015/03/10/2121090/sand-hill-is-t...

View on HN

Unfortunately, the "not as bad as" argument is also used by every scammer out there trying to stay just under the radar. (Particularly when Bitcoins are involved.)

$20,000 was a cheap lesson.

20k fine is nothing. They were let off with a slap on the wrist, probably because they were willing to cooperate.

We understand that we did some unacceptable things. We get it. As individuals, we don't have $20k. The fine is not just a slap on the wrist, it's financially ruinous.

No it isn't, people leave college with many times that amount of debt. Split it up between you, ask to get into a payment that's capped at a % of your income, work it off over a year or two. Make copies of your bank statements and your tax returns to confirm that you are in fact poor. You could probably make the money back in speaking fees or writing an e-book about your experience and what you learned (rather than how pissed off you are).

Yeah, it's a lot of cash, but I've been billed more than that for a night in the ER when I didn't have insurance. And seriously, it was up to you to think about the fact that this was bound to attract regulators' attention and that the time they spent on you is currently being picked up by taxpayers. I know you want to compare yourselves with bucket Shops, which you think played an important role in democratizing/disrupting finance a century ago, but this whole idea of 'a chance for regular folk to get in on the action!' is unfortunately the same sort of psychology that con artists use to qualify their marks.

Honestly, if one of you had done an ask HN about whether this was a viable thing people here would have told you why not and what you needed to do to be legit.

Edit: come to think of it, I'm surprised your mentors int he Accelerator didn't point out this very obvious pitfall to you.

> No it isn't, people leave college with many times that amount of debt.

Student loans are federally subsidized (or directly issued by the federal government) and specially non-dischargeable in bankruptcy, so banks are more willing to make them than they would be to make other unsecured loans to people in similar financial circumstances. So its a bad example, unless you are aware of similar federal or federally-subsidized "pay off your SEC fine" loans.

>No it isn't, people leave college with many times that amount of debt.

Generally, it's pretty easy to get a loan for college. It's more difficult to get a loan because the government fined you.

If you have even a mediocre credit score, you can go on Prosper or LendingClub and get a loan for up to $35k for practically any reason. You have to declare a general purpose for the loan like "wedding" or "debt consolidation" (including "other"), but there is no screening to verify that the loan will actually be used for that purpose. The interest will be very high for an installment loan, but it's something.

> it was up to you to think about the fact that this was bound to attract regulators' attention

Oh please, these people are what, 22? 25? They are supposed to know the basics of security law off the tops of their heads?

They got an idea and spun it up in a weekend. Yes, on reflection, allowing this sort of thing opens all sorts of loopholes for bad actors. And it had to be shut down. But it isn't as if this was done by a bunch of associates at Sullivan & Cromwell, or the interns at Goldman Sachs. They did something fun, it got afoul of the securities laws, whatever. Explain the legal breech and practical problem and tell them to pack it up, boom, we're done.

But bureaucrats are basically sycophants and / or bullies. They aren't in the job to protect the public. They're in the job to make money by connections, and to push around people without the knowledge or stones to tell them to fuck off.

> Oh please, these people are what, 22? 25? They are supposed to know the basics of security law off the tops of their heads?

No, but they should have known that it might be relevant and done some research online and/or talked to a lawyer.

Later, when Matt Levine, who is a columnist from Bloomberg and a lawyer, wrote about them in his column and said that he could not see how it is legal, specifically mentioning SEC and CFTC regulations as problem areas, that should have been a giant freaking clue that they should investigate these things. Instead, they tweeted "Cool! NYC banker hipster @matt_levine is hating on us. We must be getting too mainstream :)".

Because we should all talk to lawyers before we do anything.

I said do research online and/or talk to a lawyer.

And we are not talking about doing just "anything". We are talking about a very specific thing: starting a company that is going to take real money from people, and help them do risky things with it--a company that depending on how you look at it is a securities company or a gambling company or a prediction market. According to their FAQ, they planned to have no limits on how much money someone could put into this, and they were aiming for very high volume, so if it had worked out they would be dealing with vast amounts of money.

All of those are highly regulated areas, and it is hard to believe that anyone who had even glanced in the general direction of doing a company in any of those areas would not be aware of that.

So are you seriously suggesting that it is reasonable to start a company that is going to handle, you hope, vast quantities of money for a vast number of people in a highly regulated industry, and NOT do any online research or seek legal advice to make sure that you are legal?

And do you seriously think that when a prominent writer who covers your field and is a lawyer tells you he can't see how your business is legal, it's reasonable to mockingly dismiss that?

My understanding is that this was a project -- not really a company, never intended to make a lot of money.

Now if that is wrong -- if they intended to generate real revenue and profit off this thing, and raise money -- then yes, they're idiots.

But if this was something put together as a project, something fun and interesting to do, then I understand why they didn't consult a lawyer.

It would have been fine as long as they were running it with fantasy money, like many of the other play markets out there. When you create a mechanism for people to put real money into it, though, that's like the difference between breadboarding some electronics with a battery or DC adapter, and plugging straight into the wall socket. Once you take in money, for whatever purpose, you're operating some sort of business - and the laws surrounding issues are money transmission, transacting with bitcoin vs national currencies and other topics are discussed frequently on HN.

> Because we should all talk to lawyers before we do anything.

Not "anything". Starting a business, especially in a highly-regulated domain, OTOH, is not the same as "anything".

And, even granting that one might not be aware enough of the regulatory landscape to recognize that need, when someone who is knowledgeable points to the specific areas of risks and you just blow it off as a sign of success than someone is "hating on" you, yeah, then its arguably gone from innocent to willful ignorance.

They know enough to be reading HN (for a good while now) and making a stock market game. I don't expect them to know the details of securities laws, but I do expect to know that there are some laws about that sort of thing which they should look up or ask someone about, because that's just basic common sense that you'd know if you were interested in stocks in the first place. Plus, every sort of contest or public entertainment website or write-in competition has a bunch of fine print that says things like 'For entertainment only, not valid in every state etc. etc.' I've been aware of those disclaimers since I was , I dunno, 8 or 10. You don't have to be a securities lawyer to figure out that they're there for a reason and that there must be some rules in each state about how you conduct such activities.

They got an idea and spun it up in a weekend.

They ran it over a few months, publicized it, and demonstrated their knowledge of brokerage history history. Plus just about every 'How to set up a small business' guide ever written warns about setting up a structure to protect yourself such and LLC or the like.

Yes, everyone is exactly the same. They're all big old killjoys who don't want you to have any fun man.

Grow up.

> Oh please, these people are what, 22? 25? They are supposed to know the basics of security law off the tops of their heads?

They are supposed to do due diligence before starting a business and accepting money. That doesn't mean knowing things "off the tops of their heads", it means doing their homework.

"Ruinous" is a strong word. It seems like a lot of money, plus the legal bills, right? But you'll be ok.

I definitely agree that it's unfair. But life goes like that. Don't focus on the assholes. Pay your bills and move. Ten years from now, this just a really good story.

You'll be fine.

Thanks, you're right -- "ruinous" is an exaggeration. It seemed like a lot of money to us, especially since we had made $0, but in the grand scheme of things it won't kill us.

You're on developer salaries in SV. I really doubt that.

This may be an unpopular view, but I can understand why they did this. Without a fine, we wouldn't be talking about this, and they'd have to spend time and money trying to find and stop this kind of thing in the future.

They didn't have to spend a lot of time and money to stop _this_. Visit the site, send someone to ask some questions, operators get the message, done.

When two dozen of these start popping up, ok, now it's time for a message. Until then? Just get the thing on side and call it a day.

It is just a simple case of bullying the little guys while SEC plays "you scratch my back and I scratch yours" with big guys.

Second is not readable without account.

Reply on news.ycombinator.com