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Let's say I run a swap meet for people to buy and sell Pokémon cards. There are lots of scammers out there, but I promise people they are going to get good pric

Let's say I run a swap meet for people to buy and sell Pokémon cards. There are lots of scammers out there, but I promise people they are going to get good prices. And I even offer to buy cards off of people at good prices to drum up interest. Tomorrow, the SEC decides that Pokémon cards are securities (far-fetched, but work with me here) Suddenly, anyone buying and selling them becomes a criminal. I tell people via text message "pish-posh - there's no way the SEC could enforce this". But people stop coming so I promise them that I can buy up all of their cards anyway. Especially the cards that complete my collection. Then it gets enforced. Not only did I trade in illegal assets, I am now guilty of fraud for telling people it was safe. I am also guilty of market manipulation! And on top of it, I did it via text message so it's now wire fraud to boot. As far as I understand reading the charges, this is mostly what he is guilty of. This is a bit different than the "true" type-1 frauds that exist in crypto - the blatant pump and dump schemes, et al. In fact, I would feel safe to say there might have been no fraud without the SEC classification. (EDIT: Ignore this since they also did a lot of legitimate fraud too) Regardless, the writing is on the wall for crypto. I could not even fathom why you would want to be holding onto even Bitcoin or Ether right now.

nickphx 3y ago
Uhhh, two brief examples of fraud: Celsius said they had insurance to cover deposits - they did not. Celsius said customer funds are not used for high-risk loans -- they were.
- kevinthew 3y ago
  Right -- this is pretty clear cut fraud. I think the normalization of criminal activity in the crypto space is largely due to regulatory ignorance but when there are clear cut cases of fraud, the SEC should aggressively prosecute these crooks.
dmitrygr 3y ago
Your example left out the crimes… You didn’t promise people that their Pokémon cards ARE money. You didnt promise them that they WILL NECESSARILY go up in value. That’s the difference.
- deleted 3y ago
  [deleted]
vkou 3y ago
Let's say that your analogy has zero actual bearing on what actually happened in this situation, and end the conversation there. He misrepresented Celsius. That's fraud. It doesn't matter if you do it with dollars, bitcoins, scrip, or Pokemon cards.
- Animats 3y ago
  > Let's say that your analogy has zero actual bearing on what actually happened in this situation, and end the conversation there. Yes. Here's Celsius's web site archived in early 2022.[1] See what they claimed. They went all the way to being a fake bank. In their own words: "Meet Celsius: a community of over 1 million users that earn up to 17% yield on their crypto. Get paid new coins every week and borrow cash at 1%. Buy coins, earn yield, borrow, and transfer with no fees. Available on web and mobile apps." [1] https://web.archive.org/web/20220103153602/https://celsius.network/ https://web.archive.org/web/20220103153602/https://celsius.n...
  - CyberDildonics 3y ago
    Yes. What are you answering 'yes' to here?
    - Animats 3y ago
      Agreeing with "Let's say that your analogy has zero actual bearing on what actually happened in this situation, and end the conversation there."
BlandDuck 3y ago
I think the way to understand this is that the SEC is concerned about protecting unsophisticated regular folks from being scammed. If you started aggressively marketing your Pokemon cards, presenting them as financially sound investments, and regular people started putting their entire pension savings into them lured by false promises and being scammed, then the SEC might well take an interest in Pokemon cards as well. In short, what qualifies as a "security" and becomes subject to regulation is fluid and endogenous. As soon it starts involving real wealth for regular folks, chances are it will be deemed subject to regulation.
- RetpolineDrama 3y ago
  [flagged]
  - FireBeyond 3y ago
    > For example I don't see the SEC going after Kilolo Kijakazi, who is actively scamming working adults under 40 every day. Why would they? How is your social security contribution a fungible, tradable asset? And agree or not, she's following government administration policy (which still may not survive legal challenge, but that's separate to 'securities fraud').
  - bandrami 3y ago
    [flagged]
- legitster 3y ago
  > I think the way to understand this is that the SEC is concerned about protecting unsophisticated regular folks from being scammed. Keep in mind, the people the SEC are focused on "making whole" are the investors. The actual "unsophisticated investors" who make up the bulk of Celcius's customer base are going to get next to nothing out of the settlement. However, the sophisticated institutional investors who invested directly into Celsius will get most of their money back. It would actually be a completely different legal case if they just said "Celcius misrepresented the security of their assets". In your Pokémon example where I am scamming people, they could bust me for fraud without having to reclassify all cards everywhere. But that's not the case they are making here.
2OEH8eoCRo0 3y ago
What about coins they created and sold?
vorpalhex 3y ago
> Suddenly, anyone buying and selling them becomes a criminal. No, people buy and sell securities all the time. You simply need to follow the regulations for handling securities which includes certain types of tax and risk effort. If you keep selling securities while not following the KYC and tax stuff for those securities, you will in fact be breaking the law. Nor did the SEC magically throw down one day and start calling crypto a security. It is plainly and obviously a security _and has always been one_.
- legitster 3y ago
  The regulations for handling securities are through a brokerage. This is a HUGE deal because handling crypto through a brokerage would basically neuter it. Imagine trying to buy a pizza with Bitcoin, but you have to go into your Charles Schwab account and wait 3 days for the Bitcoin transaction to settle. In a brokerage system you would get the ownership stake aspect of crypto, but none of the transactional ones.
  - vorpalhex 3y ago
    The settlement time on stocks is minutes. There is no requirement that brokerages are slow to settle. That is your brokerage choosing to be risk adverse.
    - legitster 3y ago
      The requirements are set by the SEC: https://www.sec.gov/about/reports-publications/investor-publications/about-settling-trades-in-three-days-introducing-t-3 https://www.sec.gov/about/reports-publications/investor-publ...
      - vorpalhex 3y ago
        I'm going to repeat myself. There is no requirement that brokerages are slow to settle. There is a requirement - the one you linked - that a brokerage may not take MORE than three days. It does not require them to take three days. A brokerage can settle as fast as it can.
wpietri 3y ago
The important difference being that Pokemon cards don't meet the Howey test: https://www.investopedia.com/terms/h/howey-test.asp https://www.investopedia.com/terms/h/howey-test.asp So yes, if finance were unregulated, then he wouldn't have been violating the securities regulations that didn't exist. But they did exist, and the Howey Test is from 1946, so it shouldn't have been a surprise. A lot of people tried to pretend that the existing financial regulations, many of which were created in response to previous scams, didn't exist. Or at least didn't apply to them. Was this intentional fraud from the start? Or was it more like the sort of Ponzi scheme where some yutz starts off a business in hope, makes big promises, fudges the books a little, and then just gets in deeper and deeper? It's a good question for philosophers and spectators, but personally I don't care at all. And I doubt federal prosecutors care much either. I have zero sympathy for any of these people. "Move fast and break things" is a dubious ethos even when for something as trivial as a website to post selfies. But when you apply it to the foundations of our vigorously financialized capitalist economy, it's about as smart as applying it to submarine design.
- juuular 3y ago
  You should care (not saying it's bad you don't!), because the philosophy of it helps us distinguish between a system in which people participate in good faith but get mislead and cling to bad behavior out of fear, vs people participating in bad faith thinking they can get away with it. The difference is in terms of punishment and enforcement mechanisms. The person who keeps doing something bad out of fear that there's no way out is, in a sense, a failure of society as a whole. The person who is doing something bad as a way to get a leg up thinking they can get away with it is a failure of themselves to understand that society comes with a social contract. The end results and the ultimate suffering are the same. For the first situation, we want to educate people such that they are more aware and can avoid falling into that trap, and give them ways to get out of the trap that minimize damage. For the second situation, we want to isolate the damage they can cause and prevent them from causing more damage because they are fully conscious of what they are doing and what is going on, and that makes them more dangerous. If you mess up and get into an inextricable situation, there should be a way to resolve that with the promise of personal growth (along with guard rails to prevent repeating the same mistakes). If you deliberately cause an inextricable situation so you can profit off of it, the only resolution is to isolate the person who caused it from committing further harm until they go through personal growth such that they don't want to cause that harm anymore because they understand that harming others also means harming themselves in the big picture.
smogcutter 3y ago
> Tomorrow, the SEC decides that Pokémon cards are securities (far-fetched, but work with me here) There’s a little bit of rhetorical sleight of hand here. It’s far fetched because the analogy isn’t actually very good. This isn’t hand waving a minor problem- why the SEC is calling crypto securities and not pokemon cards is the right at the heart of the issue.
RC_ITR 3y ago
Playing Devil's Advocate - The Pokémon card is a thing. I'm not buying it because I think it is a fungible asset that I can use to transact with (the thing I bought has a physical condition that can be graded, it is unique). No one was collecting crypto to complete their collection, they were buying crypto (not caring even a little bit about which particular unique token they bought) because they thought it would be a useful tool in future monetary transactions. The real crime here is US regulators thinking "commodities" was a fix-all solution for regulating crypto when you can eat most commodities, but not crypto (since again, If I buy orange juice futures from someone, they can't deliver me any oranges, they need to be edible and of a certain grade). Now regulators have come to their senses, but in a really confusing and unfair way TBH.
- saurik 3y ago
  People aren't buying Pokémon cards to "complete their collection": they are buying them because they think someone else will pay more for them later, presumably because they want to "complete their collection", but that makes just as little sense... they too will be buying it from the first person in order to sell it to a third person. There is supposedly a game attached to Pokémon cards, but that excuse to establish "utility" is pretty flimsy: even the 10 year old I know who is obsessed with these cards is only in it as an amateur investor and it isn't clear to me he even knows the results; he's simply fallen for the marketing efforts of this company shilling their shitcards on an unsuspecting populace, many of whom will lose thousands of dollars by the time this particular collectible bubble is over.
  - banannaise 3y ago
    > There is supposedly a game attached to Pokémon cards, but that excuse to establish "utility" is pretty flimsy 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.
    - 3y ago
DennisP 3y ago
The writing would definitely be on the wall if the SEC got to make the final decision. But they don't, and they just had a big loss in court with the XRP case. If XRP isn't a security, then most other things traded on exchanges aren't securities either. https://www.reuters.com/legal/us-judge-says-sec-lawsuit-vs-ripple-labs-can-proceed-trial-some-claims-2023-07-13/ https://www.reuters.com/legal/us-judge-says-sec-lawsuit-vs-r...
- kodah 3y ago
  Broader question: Given that SEC enforcement is speculative (eg: we think this might be a security) do they have to pay damages when they're wrong? If not, why? If so, how much?
  - wmf 3y ago
    They're pretty careful to never be wrong.
    - null0pointer 3y ago
      The parent of the comment you’re replying to literally cites a case where they were deemed to be wrong.
      - ethanbond 3y ago
        It looks a bit more nuanced than that. Torres is the judge in the XRP case. From the article: ——- Torres, who is based in New York, on Thursday said the company's $728.9 million of XRP sales to hedge funds and other sophisticated buyers amounted to unregistered sales of securities. But Torres ruled that Ripple's XRP sales on public cryptocurrency exchanges were not offers of securities under the law, because purchasers did not have a reasonable expectation of profit tied to Ripple's efforts. Those sales were "blind bid/ask transactions," she said, in which the buyers "could not have known if their payments of money went to Ripple, or any other seller of XRP." ——- So it seems XRP was deemed a security just the sales on public exchanges weren’t a securities offering? A bit confusing IMO.
reaperman 3y ago
You may be aware already, but if you replace Pokemon with Magic the Gathering cards this actually becomes almost unbelievably close to a true story (minus the SEC story arc). The first "huge" bitcoin exchange[0] was originally a Magic card exchange which got extended to support cryptocurrencies. "Mt. Gox" = "Magic the Gathering online exchange". If it hadn't been hacked it would likely be in Coinbase's shoes right now and then your hypothetical would truly be eerily accurate. But of course it was hacked, it was a trading card exchange dealing in cryptocurrencies -- a major hack was basically inevitable. 0: https://en.wikipedia.org/wiki/Mt._Gox https://en.wikipedia.org/wiki/Mt._Gox
- celdon25 3y ago
  Mtgox was not run very professionally, so I doubt they would have lasted this long. I had to deal with them on IRC to get my money out. I was told that the person with the keys to get my withdrawal was “in the bathtub”. This was on the last day or so before everything was shut down and during the actual crisis, mind you.
  - jack_pp 3y ago
    When your house of cards comes tumbling down might as well take a bath to relieve the stress
    - afterburner 3y ago
      No one can bother you in the bathroom.
      - hutzlibu 3y ago
        I would say that is up for debate. For example in this case: https://www.washingtonpost.com/archive/politics/1995/01/06/87-death-of-politician-still-intrigues-germans/acb38dfb-730e-4f4f-b969-dabc47145451/ https://www.washingtonpost.com/archive/politics/1995/01/06/8...
      - klyrs 3y ago
majormajor 3y ago
The physical collectibles market is over a century old for baseball cards. So far the SEC hasn't stepped in for places trading baseball cards, magic cards, pokemon cards, sneakers, etc. So the burden of proof seems to be on the claim that they're the same, or that it's a meaningful analogy. But hey, let's look at the this case - the accused did the following: * created their own token (ok, so they aren't just a card swap meet or trading site like your analogy) * pumped and dumped that token * paid ridiculous interest rates (I sure haven't seen that from the places I get my Pokemon cards...) and advertised that the principal was safe (these are wildly mutually contradictory, and many people knew it at the time) * lent money... ok let's stop there, we're already clearly in a different universe of financial activity. EDIT: misattributed a followup comment
- okwubodu 3y ago
  To be clear, I think Celsius committed actual fraud. I just want to talk about one particular point here. > So the burden of proof seems to be on the claim that they're the same, or that it's a meaningful analogy. I have a pair of “Dear Summer” Off-White x Nike Dunk Lows, the last collection released while Virgil Abloh was alive. The SNKRs (Nike) app randomly selected active users for the chance to purchase them; necessary, because they were guaranteed to sell out instantly. At the time of purchase nobody had any clue what the shoes would look like, nor which "n of 50" colorway they would get. We were presented with a picture of the shoebox, a size selection, a buy button, and a countdown timer. However, it's not far off to say that despite this, every single person (remember, only active users got this notification) that initially purchased the shoe did so knowing there was absolutely no chance that a limited edition Off-White/Virgil Abloh/Nike shoe would sell for less than a 100%+ premium over retail on the aftermarket. Completely risk-free, assuming $180 wouldn't hurt your pockets in the near term. Under the SEC's reading of the Howey Test that omits the word "solely," the purchase of these shoes constitute 1. An investment of money (check) 2. In a common enterprise (check. Let's be honest, the majority of pairs sold hit the resell market immediately. Forman, 421 U.S. at 852-53 may not be applicable.) 3. With the expectation of profit (check, check, check) to be derived from the efforts of others (the ongoing reputation and marketing efforts of everyone involved), making them unregistered securities. Naturally, this means Nike has to "come in and register," for every limited supply drop, StockX and GOAT have to register as securities exchanges, and only accredited investors are allowed to purchase at retail. Anything else is clearly a violation of The Law. All of this is perfectly reasonable because, "the law is clear, we’re obligated…to enforce the law as Congress passed it and how the courts interpret it," as Chair Gensler put it.
afterburner 3y ago
Crypto assets are illegal if you try to dodge taxes. Or, as a trading institution, pretend that you have no duty to follow tax laws on reporting client transactions. They're no different than equities if you follow all the laws. This all seems weird to me in Canada. Here, it's been acknowledged for years that crypto = equities. Fraud is illegal either way though.
- legitster 3y ago
  The tax thing is overrated. Equities have to be traded through a brokerage and that's the real death knell for crypto. If your dream is to be able to buy a pizza with bitcoin, having to do the transaction via your respective brokerages would not work.
  - afterburner 3y ago
    That dream has been dead for years. BTC is all about investment now.
    - DennisP 3y ago
      That's more true for bitcoin than for some other projects, but even bitcoin has the Lightning Network which they're attempting to use for payments using BTC.
jncfhnb 3y ago
As others have pointed out this analogy is kind of bad. But… also you seem to clearly acknowledge within the hypothetical that performing an action would be a crime, and then do the action. And then you’re upset because it wouldn’t have been a crime if it hadn’t been made a crime… but it was and you knew that and you did it anyway.
- Ensorceled 3y ago
  Yeah, these analogies are always terrible, but this one actually includes the "hey they ruled it was a crime and I decided that was bullshit and kept criming" part.
shawndrost 3y ago
This is a truly insane apologia for a firm which marketed a banking-like product with risk-free returns of up to 17%. > Mashinsky explained that Celsius's rates were so much higher than bank deposit rates not because it was riskier than a bank, but because it passed along more of its earnings to customers. “Somebody is lying,” said Mashinsky: “Either the bank is lying or Celsius is lying.”
Our_Benefactors 3y ago
Maybe I’m misunderstanding the analogy, but I thought wire fraud only applied to abuse of the bank wire system? Is unsavory advice really categorized as wire fraud?
- salawat 3y ago
  A legal "wire" is any communication or signaling system allowing for the propagation of information across State lines, at least as far as I can tell from how it is regularly enforced. You could use TCP over carrier pidgeon to implement your criminal communication network, and it'd still be eligible for wire fraud. The deserialization from what I assume would be message packets strapped to the pidgeon nets you as still using "electronics". https://www.law.cornell.edu/uscode/text/18/1343 https://www.law.cornell.edu/uscode/text/18/1343
jrflowers 3y ago
In this analogy you also had a service where people staked their Pokémon cards and advertised an APY% rate of return on those Pokémon cards, and had a service wherein people could use borrow and lend their Pokémon cards with the intent of financial gain.
__loam 3y ago
Whether something is a security is up to the SEC and other federal agencies, not the companies making Crypto. Ignorance of securities regulation isn't an excuse.
- DennisP 3y ago
  Based on today's XRP case, it appears to actually be up to the courts.
tomcar288 3y ago
what does bitcoin have to do with it? If anything, holding bitcoin (with self custody) protects you from this sort of thing because there's no counter party risk. From that standpoint, holding bitcoin does not have counter party risk, unlike holding gold or equities in an online account. don't throw the baby out with the bathwater.
ajross 3y ago
> Tomorrow, the SEC decides that [whatever] are securities That's not really the way this works. "Security" is defined by law, not by the SEC. Existing stock markets and other trading entities have existing regulatory relationships with the SEC, but the SEC's enforcement powers aren't remotely limited just to the NYSE et. al. The question is why Celsius thought they didn't need to follow securities regulation, given their business. Because, and let's be honest here, crypto coins and assets are really just obviously securities by any reasonable interpretation. They're abstract tokens of ownership, they're liquid, they're traded with others in the same kind of way (via an exchange intermediary), and for the same reasons (investment).[1] Clearly this was the way things were going to shake out. Could the SEC have been clearer? Surely. But to pretend that Celsius couldn't have seen this coming is ridiculous. [1] FWIW: note that trading cards and other collectibles fail most of these tests. While sometimes you buy them for investment or on exchanges, they remain primarily physical devices providing a means to play a game.
Natuerich 3y ago
I find it far fetched that those experts didn't knew they are acting as a type of bank and wouldn't talk to a lawyer upfront. I did clarify things with a lawyer for a very small company. They accepted the risk, they lost.
sroussey 3y ago
More interesting idea: tomorrow Microsoft delists from public exchange and only allows OTC to buy/sell this now private company — but you can only do so with Pokémon trading cards. And anyone that owns some is now a MS owner as well. Now do you decide the Pokémon cards are securities?
themagician 3y ago
The SEC doesn't bring criminal charges. The SEC pursues civil action. The SEC tries to hold people liable for the damages they cause, and the bar here is relatively low—a preponderance of evidence (more likely than not) is all that's needed. If they suspect something is criminal they will then recommend that the Justice Department seek criminal charges. Different legal case, and this has a much higher bar. Reporting on the SEC often gets mixed up and convoluted. You read about the SEC "charges" and a not guilty criminal plea, but these are actually two separate legal cases happening simultaneously. This is the way it usually happens, since the SEC is unlikely to "enforce" the law (since they can't) unless they can get the Justice Department to bring charges. It's much easier to pursue civil litigation and hold people responsible if you can get a criminal conviction. If you are facing a criminal trial for fraud there is likely substantial evidence that doesn't fully come through in the reporting. Criminal charges like this don't actually happen that often, which is why the SEC is said to be toothless. They only really pursue if they think they can get the Justice Department onboard AND they can get a criminal conviction. Yeah, yeah, innocent until proven guilty and all that… but if you are facing allegations from both the SEC and the Justice Department you've probably done something pretty heinous.
LapsangGuzzler 3y ago
In order for your analogy to hold, you can’t forget about the part where you constantly push the idea that trading Pokémon cards is a better way to make money than banking, manipulating the prices of cards and lying about how the cards are priced. Guys like Mashinsky bad-mouthed banking nonstop and touted their exchanges as more equitable platforms to store and make money.
chemmail 3y ago
If you really look deep down into crypto, its really just Uber or Airbnb skirting the law with technical, and often mental loopholes. You need a license to drive taxi or rent out your place. But NO i'm just sharing my ride or i'm just sharing my house, no taxi/renting going on here! At the end of the day you are offering the same service that is regulated, calling it something else can only get you so far until you pay all the politicians off. The real issue here is crypto paid off the wrong people.
- bandrami 3y ago
  Uber can't take street hails, though, which is what you need a taxi medallion for. That's why they're a fleet limo service rather than a cab company.
sethd 3y ago
> legitimate fraud I understand the intent, but part of my brain is having a hard time with this wording. :)
nathias 3y ago
because we don't like tyranny
herbst 3y ago
> I could not even fathom why you would want to be holding onto even Bitcoin or Ether right now. The US is not the world. There is far more usage and legit use of crypto than whatever US regulators seem to think.
- bdcravens 3y ago
  True, but like in many things, it makes up a significant amount of the the market. What happens in the US will affect the market rate worldwide.
  - herbst 3y ago
    Got me curious now, indeed a lot of people in the US have crypto however on the big scale the US is just a small fraction Of all crypto holders. 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/ https://triple-a.io/crypto-ownership-data/
    - bdcravens 3y ago
      Focusing strictly on the number of users tells only a small story, as a "user" can hold the tiniest percentage. Overall value by country tells a more complete story; the US by far has the highest value traded. https://originstamp.com/blog/the-top-10-countries-that-use-crypto-and-bitcoin-the-most/ https://originstamp.com/blog/the-top-10-countries-that-use-c... https://www.statista.com/statistics/1195753/bitcoin-trading-selected-countries/ https://www.statista.com/statistics/1195753/bitcoin-trading-...

nickphx 3y ago

Uhhh, two brief examples of fraud: Celsius said they had insurance to cover deposits - they did not. Celsius said customer funds are not used for high-risk loans -- they were.

kevinthew 3y ago
Right -- this is pretty clear cut fraud. I think the normalization of criminal activity in the crypto space is largely due to regulatory ignorance but when there are clear cut cases of fraud, the SEC should aggressively prosecute these crooks.

dmitrygr 3y ago

Your example left out the crimes… You didn’t promise people that their Pokémon cards ARE money. You didnt promise them that they WILL NECESSARILY go up in value. That’s the difference.

deleted 3y ago
[deleted]

vkou 3y ago

Let's say that your analogy has zero actual bearing on what actually happened in this situation, and end the conversation there. He misrepresented Celsius. That's fraud. It doesn't matter if you do it with dollars, bitcoins, scrip, or Pokemon cards.

Animats 3y ago
> Let's say that your analogy has zero actual bearing on what actually happened in this situation, and end the conversation there. Yes. Here's Celsius's web site archived in early 2022.[1] See what they claimed. They went all the way to being a fake bank. In their own words: "Meet Celsius: a community of over 1 million users that earn up to 17% yield on their crypto. Get paid new coins every week and borrow cash at 1%. Buy coins, earn yield, borrow, and transfer with no fees. Available on web and mobile apps." [1] https://web.archive.org/web/20220103153602/https://celsius.network/ https://web.archive.org/web/20220103153602/https://celsius.n...
- CyberDildonics 3y ago
  Yes. What are you answering 'yes' to here?
  - Animats 3y ago
    Agreeing with "Let's say that your analogy has zero actual bearing on what actually happened in this situation, and end the conversation there."

BlandDuck 3y ago

I think the way to understand this is that the SEC is concerned about protecting unsophisticated regular folks from being scammed. If you started aggressively marketing your Pokemon cards, presenting them as financially sound investments, and regular people started putting their entire pension savings into them lured by false promises and being scammed, then the SEC might well take an interest in Pokemon cards as well. In short, what qualifies as a "security" and becomes subject to regulation is fluid and endogenous. As soon it starts involving real wealth for regular folks, chances are it will be deemed subject to regulation.

RetpolineDrama 3y ago
[flagged]
- FireBeyond 3y ago
  > For example I don't see the SEC going after Kilolo Kijakazi, who is actively scamming working adults under 40 every day. Why would they? How is your social security contribution a fungible, tradable asset? And agree or not, she's following government administration policy (which still may not survive legal challenge, but that's separate to 'securities fraud').
- bandrami 3y ago
  [flagged]
legitster 3y ago
> I think the way to understand this is that the SEC is concerned about protecting unsophisticated regular folks from being scammed. Keep in mind, the people the SEC are focused on "making whole" are the investors. The actual "unsophisticated investors" who make up the bulk of Celcius's customer base are going to get next to nothing out of the settlement. However, the sophisticated institutional investors who invested directly into Celsius will get most of their money back. It would actually be a completely different legal case if they just said "Celcius misrepresented the security of their assets". In your Pokémon example where I am scamming people, they could bust me for fraud without having to reclassify all cards everywhere. But that's not the case they are making here.

2OEH8eoCRo0 3y ago

What about coins they created and sold?

vorpalhex 3y ago

> Suddenly, anyone buying and selling them becomes a criminal. No, people buy and sell securities all the time. You simply need to follow the regulations for handling securities which includes certain types of tax and risk effort. If you keep selling securities while not following the KYC and tax stuff for those securities, you will in fact be breaking the law. Nor did the SEC magically throw down one day and start calling crypto a security. It is plainly and obviously a security _and has always been one_.

legitster 3y ago
The regulations for handling securities are through a brokerage. This is a HUGE deal because handling crypto through a brokerage would basically neuter it. Imagine trying to buy a pizza with Bitcoin, but you have to go into your Charles Schwab account and wait 3 days for the Bitcoin transaction to settle. In a brokerage system you would get the ownership stake aspect of crypto, but none of the transactional ones.
- vorpalhex 3y ago
  The settlement time on stocks is minutes. There is no requirement that brokerages are slow to settle. That is your brokerage choosing to be risk adverse.
  - legitster 3y ago
    The requirements are set by the SEC: https://www.sec.gov/about/reports-publications/investor-publications/about-settling-trades-in-three-days-introducing-t-3 https://www.sec.gov/about/reports-publications/investor-publ...
    - vorpalhex 3y ago
      I'm going to repeat myself. There is no requirement that brokerages are slow to settle. There is a requirement - the one you linked - that a brokerage may not take MORE than three days. It does not require them to take three days. A brokerage can settle as fast as it can.

wpietri 3y ago

The important difference being that Pokemon cards don't meet the Howey test: https://www.investopedia.com/terms/h/howey-test.asp https://www.investopedia.com/terms/h/howey-test.asp So yes, if finance were unregulated, then he wouldn't have been violating the securities regulations that didn't exist. But they did exist, and the Howey Test is from 1946, so it shouldn't have been a surprise. A lot of people tried to pretend that the existing financial regulations, many of which were created in response to previous scams, didn't exist. Or at least didn't apply to them. Was this intentional fraud from the start? Or was it more like the sort of Ponzi scheme where some yutz starts off a business in hope, makes big promises, fudges the books a little, and then just gets in deeper and deeper? It's a good question for philosophers and spectators, but personally I don't care at all. And I doubt federal prosecutors care much either. I have zero sympathy for any of these people. "Move fast and break things" is a dubious ethos even when for something as trivial as a website to post selfies. But when you apply it to the foundations of our vigorously financialized capitalist economy, it's about as smart as applying it to submarine design.

juuular 3y ago
You should care (not saying it's bad you don't!), because the philosophy of it helps us distinguish between a system in which people participate in good faith but get mislead and cling to bad behavior out of fear, vs people participating in bad faith thinking they can get away with it. The difference is in terms of punishment and enforcement mechanisms. The person who keeps doing something bad out of fear that there's no way out is, in a sense, a failure of society as a whole. The person who is doing something bad as a way to get a leg up thinking they can get away with it is a failure of themselves to understand that society comes with a social contract. The end results and the ultimate suffering are the same. For the first situation, we want to educate people such that they are more aware and can avoid falling into that trap, and give them ways to get out of the trap that minimize damage. For the second situation, we want to isolate the damage they can cause and prevent them from causing more damage because they are fully conscious of what they are doing and what is going on, and that makes them more dangerous. If you mess up and get into an inextricable situation, there should be a way to resolve that with the promise of personal growth (along with guard rails to prevent repeating the same mistakes). If you deliberately cause an inextricable situation so you can profit off of it, the only resolution is to isolate the person who caused it from committing further harm until they go through personal growth such that they don't want to cause that harm anymore because they understand that harming others also means harming themselves in the big picture.

smogcutter 3y ago

> Tomorrow, the SEC decides that Pokémon cards are securities (far-fetched, but work with me here) There’s a little bit of rhetorical sleight of hand here. It’s far fetched because the analogy isn’t actually very good. This isn’t hand waving a minor problem- why the SEC is calling crypto securities and not pokemon cards is the right at the heart of the issue.

RC_ITR 3y ago

Playing Devil's Advocate - The Pokémon card is a thing. I'm not buying it because I think it is a fungible asset that I can use to transact with (the thing I bought has a physical condition that can be graded, it is unique). No one was collecting crypto to complete their collection, they were buying crypto (not caring even a little bit about which particular unique token they bought) because they thought it would be a useful tool in future monetary transactions. The real crime here is US regulators thinking "commodities" was a fix-all solution for regulating crypto when you can eat most commodities, but not crypto (since again, If I buy orange juice futures from someone, they can't deliver me any oranges, they need to be edible and of a certain grade). Now regulators have come to their senses, but in a really confusing and unfair way TBH.

saurik 3y ago
People aren't buying Pokémon cards to "complete their collection": they are buying them because they think someone else will pay more for them later, presumably because they want to "complete their collection", but that makes just as little sense... they too will be buying it from the first person in order to sell it to a third person. There is supposedly a game attached to Pokémon cards, but that excuse to establish "utility" is pretty flimsy: even the 10 year old I know who is obsessed with these cards is only in it as an amateur investor and it isn't clear to me he even knows the results; he's simply fallen for the marketing efforts of this company shilling their shitcards on an unsuspecting populace, many of whom will lose thousands of dollars by the time this particular collectible bubble is over.
- banannaise 3y ago
  > There is supposedly a game attached to Pokémon cards, but that excuse to establish "utility" is pretty flimsy 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.
  - 3y ago

DennisP 3y ago

The writing would definitely be on the wall if the SEC got to make the final decision. But they don't, and they just had a big loss in court with the XRP case. If XRP isn't a security, then most other things traded on exchanges aren't securities either. https://www.reuters.com/legal/us-judge-says-sec-lawsuit-vs-ripple-labs-can-proceed-trial-some-claims-2023-07-13/ https://www.reuters.com/legal/us-judge-says-sec-lawsuit-vs-r...

kodah 3y ago
Broader question: Given that SEC enforcement is speculative (eg: we think this might be a security) do they have to pay damages when they're wrong? If not, why? If so, how much?
- wmf 3y ago
  They're pretty careful to never be wrong.
  - null0pointer 3y ago
    The parent of the comment you’re replying to literally cites a case where they were deemed to be wrong.
    - ethanbond 3y ago
      It looks a bit more nuanced than that. Torres is the judge in the XRP case. From the article: ——- Torres, who is based in New York, on Thursday said the company's $728.9 million of XRP sales to hedge funds and other sophisticated buyers amounted to unregistered sales of securities. But Torres ruled that Ripple's XRP sales on public cryptocurrency exchanges were not offers of securities under the law, because purchasers did not have a reasonable expectation of profit tied to Ripple's efforts. Those sales were "blind bid/ask transactions," she said, in which the buyers "could not have known if their payments of money went to Ripple, or any other seller of XRP." ——- So it seems XRP was deemed a security just the sales on public exchanges weren’t a securities offering? A bit confusing IMO.

reaperman 3y ago

You may be aware already, but if you replace Pokemon with Magic the Gathering cards this actually becomes almost unbelievably close to a true story (minus the SEC story arc). The first "huge" bitcoin exchange[0] was originally a Magic card exchange which got extended to support cryptocurrencies. "Mt. Gox" = "Magic the Gathering online exchange". If it hadn't been hacked it would likely be in Coinbase's shoes right now and then your hypothetical would truly be eerily accurate. But of course it was hacked, it was a trading card exchange dealing in cryptocurrencies -- a major hack was basically inevitable. 0: https://en.wikipedia.org/wiki/Mt._Gox https://en.wikipedia.org/wiki/Mt._Gox

celdon25 3y ago
Mtgox was not run very professionally, so I doubt they would have lasted this long. I had to deal with them on IRC to get my money out. I was told that the person with the keys to get my withdrawal was “in the bathtub”. This was on the last day or so before everything was shut down and during the actual crisis, mind you.
- jack_pp 3y ago
  When your house of cards comes tumbling down might as well take a bath to relieve the stress
  - afterburner 3y ago
    No one can bother you in the bathroom.
    - hutzlibu 3y ago
      I would say that is up for debate. For example in this case: https://www.washingtonpost.com/archive/politics/1995/01/06/87-death-of-politician-still-intrigues-germans/acb38dfb-730e-4f4f-b969-dabc47145451/ https://www.washingtonpost.com/archive/politics/1995/01/06/8...
    - klyrs 3y ago

majormajor 3y ago

The physical collectibles market is over a century old for baseball cards. So far the SEC hasn't stepped in for places trading baseball cards, magic cards, pokemon cards, sneakers, etc. So the burden of proof seems to be on the claim that they're the same, or that it's a meaningful analogy. But hey, let's look at the this case - the accused did the following: * created their own token (ok, so they aren't just a card swap meet or trading site like your analogy) * pumped and dumped that token * paid ridiculous interest rates (I sure haven't seen that from the places I get my Pokemon cards...) and advertised that the principal was safe (these are wildly mutually contradictory, and many people knew it at the time) * lent money... ok let's stop there, we're already clearly in a different universe of financial activity. EDIT: misattributed a followup comment

okwubodu 3y ago
To be clear, I think Celsius committed actual fraud. I just want to talk about one particular point here. > So the burden of proof seems to be on the claim that they're the same, or that it's a meaningful analogy. I have a pair of “Dear Summer” Off-White x Nike Dunk Lows, the last collection released while Virgil Abloh was alive. The SNKRs (Nike) app randomly selected active users for the chance to purchase them; necessary, because they were guaranteed to sell out instantly. At the time of purchase nobody had any clue what the shoes would look like, nor which "n of 50" colorway they would get. We were presented with a picture of the shoebox, a size selection, a buy button, and a countdown timer. However, it's not far off to say that despite this, every single person (remember, only active users got this notification) that initially purchased the shoe did so knowing there was absolutely no chance that a limited edition Off-White/Virgil Abloh/Nike shoe would sell for less than a 100%+ premium over retail on the aftermarket. Completely risk-free, assuming $180 wouldn't hurt your pockets in the near term. Under the SEC's reading of the Howey Test that omits the word "solely," the purchase of these shoes constitute 1. An investment of money (check) 2. In a common enterprise (check. Let's be honest, the majority of pairs sold hit the resell market immediately. Forman, 421 U.S. at 852-53 may not be applicable.) 3. With the expectation of profit (check, check, check) to be derived from the efforts of others (the ongoing reputation and marketing efforts of everyone involved), making them unregistered securities. Naturally, this means Nike has to "come in and register," for every limited supply drop, StockX and GOAT have to register as securities exchanges, and only accredited investors are allowed to purchase at retail. Anything else is clearly a violation of The Law. All of this is perfectly reasonable because, "the law is clear, we’re obligated…to enforce the law as Congress passed it and how the courts interpret it," as Chair Gensler put it.

afterburner 3y ago

Crypto assets are illegal if you try to dodge taxes. Or, as a trading institution, pretend that you have no duty to follow tax laws on reporting client transactions. They're no different than equities if you follow all the laws. This all seems weird to me in Canada. Here, it's been acknowledged for years that crypto = equities. Fraud is illegal either way though.

legitster 3y ago
The tax thing is overrated. Equities have to be traded through a brokerage and that's the real death knell for crypto. If your dream is to be able to buy a pizza with bitcoin, having to do the transaction via your respective brokerages would not work.
- afterburner 3y ago
  That dream has been dead for years. BTC is all about investment now.
  - DennisP 3y ago
    That's more true for bitcoin than for some other projects, but even bitcoin has the Lightning Network which they're attempting to use for payments using BTC.

jncfhnb 3y ago

As others have pointed out this analogy is kind of bad. But… also you seem to clearly acknowledge within the hypothetical that performing an action would be a crime, and then do the action. And then you’re upset because it wouldn’t have been a crime if it hadn’t been made a crime… but it was and you knew that and you did it anyway.

Ensorceled 3y ago
Yeah, these analogies are always terrible, but this one actually includes the "hey they ruled it was a crime and I decided that was bullshit and kept criming" part.

shawndrost 3y ago

This is a truly insane apologia for a firm which marketed a banking-like product with risk-free returns of up to 17%. > Mashinsky explained that Celsius's rates were so much higher than bank deposit rates not because it was riskier than a bank, but because it passed along more of its earnings to customers. “Somebody is lying,” said Mashinsky: “Either the bank is lying or Celsius is lying.”

Our_Benefactors 3y ago

Maybe I’m misunderstanding the analogy, but I thought wire fraud only applied to abuse of the bank wire system? Is unsavory advice really categorized as wire fraud?

salawat 3y ago
A legal "wire" is any communication or signaling system allowing for the propagation of information across State lines, at least as far as I can tell from how it is regularly enforced. You could use TCP over carrier pidgeon to implement your criminal communication network, and it'd still be eligible for wire fraud. The deserialization from what I assume would be message packets strapped to the pidgeon nets you as still using "electronics". https://www.law.cornell.edu/uscode/text/18/1343 https://www.law.cornell.edu/uscode/text/18/1343

jrflowers 3y ago

In this analogy you also had a service where people staked their Pokémon cards and advertised an APY% rate of return on those Pokémon cards, and had a service wherein people could use borrow and lend their Pokémon cards with the intent of financial gain.

__loam 3y ago

Whether something is a security is up to the SEC and other federal agencies, not the companies making Crypto. Ignorance of securities regulation isn't an excuse.

DennisP 3y ago
Based on today's XRP case, it appears to actually be up to the courts.

tomcar288 3y ago

what does bitcoin have to do with it? If anything, holding bitcoin (with self custody) protects you from this sort of thing because there's no counter party risk. From that standpoint, holding bitcoin does not have counter party risk, unlike holding gold or equities in an online account. don't throw the baby out with the bathwater.

ajross 3y ago

> Tomorrow, the SEC decides that [whatever] are securities That's not really the way this works. "Security" is defined by law, not by the SEC. Existing stock markets and other trading entities have existing regulatory relationships with the SEC, but the SEC's enforcement powers aren't remotely limited just to the NYSE et. al. The question is why Celsius thought they didn't need to follow securities regulation, given their business. Because, and let's be honest here, crypto coins and assets are really just obviously securities by any reasonable interpretation. They're abstract tokens of ownership, they're liquid, they're traded with others in the same kind of way (via an exchange intermediary), and for the same reasons (investment).[1] Clearly this was the way things were going to shake out. Could the SEC have been clearer? Surely. But to pretend that Celsius couldn't have seen this coming is ridiculous. [1] FWIW: note that trading cards and other collectibles fail most of these tests. While sometimes you buy them for investment or on exchanges, they remain primarily physical devices providing a means to play a game.

Natuerich 3y ago

I find it far fetched that those experts didn't knew they are acting as a type of bank and wouldn't talk to a lawyer upfront. I did clarify things with a lawyer for a very small company. They accepted the risk, they lost.

sroussey 3y ago

More interesting idea: tomorrow Microsoft delists from public exchange and only allows OTC to buy/sell this now private company — but you can only do so with Pokémon trading cards. And anyone that owns some is now a MS owner as well. Now do you decide the Pokémon cards are securities?

themagician 3y ago

The SEC doesn't bring criminal charges. The SEC pursues civil action. The SEC tries to hold people liable for the damages they cause, and the bar here is relatively low—a preponderance of evidence (more likely than not) is all that's needed. If they suspect something is criminal they will then recommend that the Justice Department seek criminal charges. Different legal case, and this has a much higher bar. Reporting on the SEC often gets mixed up and convoluted. You read about the SEC "charges" and a not guilty criminal plea, but these are actually two separate legal cases happening simultaneously. This is the way it usually happens, since the SEC is unlikely to "enforce" the law (since they can't) unless they can get the Justice Department to bring charges. It's much easier to pursue civil litigation and hold people responsible if you can get a criminal conviction. If you are facing a criminal trial for fraud there is likely substantial evidence that doesn't fully come through in the reporting. Criminal charges like this don't actually happen that often, which is why the SEC is said to be toothless. They only really pursue if they think they can get the Justice Department onboard AND they can get a criminal conviction. Yeah, yeah, innocent until proven guilty and all that… but if you are facing allegations from both the SEC and the Justice Department you've probably done something pretty heinous.

LapsangGuzzler 3y ago

In order for your analogy to hold, you can’t forget about the part where you constantly push the idea that trading Pokémon cards is a better way to make money than banking, manipulating the prices of cards and lying about how the cards are priced. Guys like Mashinsky bad-mouthed banking nonstop and touted their exchanges as more equitable platforms to store and make money.

chemmail 3y ago

If you really look deep down into crypto, its really just Uber or Airbnb skirting the law with technical, and often mental loopholes. You need a license to drive taxi or rent out your place. But NO i'm just sharing my ride or i'm just sharing my house, no taxi/renting going on here! At the end of the day you are offering the same service that is regulated, calling it something else can only get you so far until you pay all the politicians off. The real issue here is crypto paid off the wrong people.

bandrami 3y ago
Uber can't take street hails, though, which is what you need a taxi medallion for. That's why they're a fleet limo service rather than a cab company.

sethd 3y ago

> legitimate fraud I understand the intent, but part of my brain is having a hard time with this wording. :)

nathias 3y ago

because we don't like tyranny

herbst 3y ago

> I could not even fathom why you would want to be holding onto even Bitcoin or Ether right now. The US is not the world. There is far more usage and legit use of crypto than whatever US regulators seem to think.

bdcravens 3y ago
True, but like in many things, it makes up a significant amount of the the market. What happens in the US will affect the market rate worldwide.
- herbst 3y ago
  Got me curious now, indeed a lot of people in the US have crypto however on the big scale the US is just a small fraction Of all crypto holders. 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/ https://triple-a.io/crypto-ownership-data/
  - bdcravens 3y ago
    Focusing strictly on the number of users tells only a small story, as a "user" can hold the tiniest percentage. Overall value by country tells a more complete story; the US by far has the highest value traded. https://originstamp.com/blog/the-top-10-countries-that-use-crypto-and-bitcoin-the-most/ https://originstamp.com/blog/the-top-10-countries-that-use-c... https://www.statista.com/statistics/1195753/bitcoin-trading-selected-countries/ https://www.statista.com/statistics/1195753/bitcoin-trading-...