The U.S. District Court for the Eastern District of Texas recently granted the SEC’s Motion for Summary Judgment, holding that the operator of a Bitcoin Ponzi scheme who defrauded investors of over $150,000 worth of Bitcoins was subject to SEC jurisdiction, and subsequently ordered Bitcoin Savings & Trust (BS&T) and its founder to pay more than $40 million in disgorgement and penalties. In SEC v. Shavers, the court held that the Bitcoin investments in question qualify as “investment contracts” and “securities” under the Securities Act of 1933 and the Exchange Act of 1934. The court reasoned that since Bitcoins have a measure of value, can be used as a form of payment, and as a method of exchange, they generally qualify as an “investment of money”, rather than trying to address Bitcoin as legal tender. As a result, the SEC was able to show that BS&T and Shavers were subject to the SEC’s jurisdiction because they defrauded investors through a Ponzi scheme involving the virtual currency.
Last year the Judge in the same matter ruled that bitcoins were “money” and subject to the court’s jurisdiction. This decision, to treat Bitcoins as securities, may have broad implications, even as some state and federal regulators continue to treat them as property, most notably the IRS. As the legal landscape for virtual currencies takes shape, it seems a trend is developing where courts are more willing to consider virtual currencies as money when fraud is involved, while regulators remain more split on the matter in general.
More information may be found here.