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I don't know the answer to that, but this is the same problem any new fintech company suffers. Regulations often benefit incumbents and don't scale to new servi

I don't know the answer to that, but this is the same problem any new fintech company suffers. Regulations often benefit incumbents and don't scale to new services testing the market. See eg anything related to bitcoin. How much do you think it cost them to go after Sand Hill?

jdmichal 11y ago
The thing is, I don't care how much it costs the SEC to do their job. Their purpose is not to be a profit center based around prosecuting financial law violations. And actually, I'm very happy about that, because profit incentives in law enforcement creates very perverse incentives for the individual actors involved.
- refurb 11y ago
  I get your point, but profit has nothing to do with it. The SEC has limited resources. I think the grandparent is questioning whether this is the best use of them.
  - dragonwriter 11y ago
    Honestly, I think nipping violations like illegal marketplaces in the bud -- getting them to conform or shutdown before they become major issues with widespread harms, is probably one of the most efficient uses of SEC resources. It's cheaper in direct costs than dealing with them once they become major problems, and results in less innocent people being harmed by both the violation and the enforcement action (while someone is culpable for any violation, when its by a firm there are going to be lots of innocent employees, customers, etc., who aren't doing anything culpable that are going to be negatively impacted by the enforcement action, however necessary it may be.)
- logicallee 11y ago
  This is an excellent comment. To be a bit more clear on jdmichal's point, the reason for the SEC is to allow any - real - startups to be funded at all. If you didn't have the SEC, you wouldn't be able to be an accredited investor and invest in all the startup offers in the world, who all have to play by the rules. It really is a good thing. If you're a startup, it's a good thing because you can just build something and monetize it, and then when you're doing well, you can get investment in a protected investment market in a regulated way. If you're doing something normal. I mean just juxtapose this (from the article): "For added credibility, we randomly generated trading histories for each company going all the way back to last year..... We pasted descriptive text cribbed from the websites of banks and registered exchanges to make our website look like a serious business." Source: https://medium.com/@eiaine/how-startup-growth-hacks-resulted-in-a-formal-investigation-from-the-sec-cd04598fe58 https://medium.com/@eiaine/how-startup-growth-hacks-resulted... With what Ivanplenty said in this thread: "'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." (Source https://news.ycombinator.com/item?id=9642353 https://news.ycombinator.com/item?id=9642353) What a scary world if the SEC didn't shut these guys down with a slap on the wrist! (Assuming Ivanplenty is correct and they monetized as he stated.) I mean they are literally inventing trading histories and collecting bitcoins and dollars to trade on them. That's the kind of market that sends real investors scurrying away from it, and I'm glad the SEC protects investors from that happening, by simply shutting it down. It is positively a good thing. (Also, the history of investor protection is because snake-oil salesmen really did take advantage of investors, selling them the clear blue sky: http://en.wikipedia.org/wiki/Blue_sky_law http://en.wikipedia.org/wiki/Blue_sky_law So it's not like this is some theoretical thing. The problem happened first, and the solution simply solved it. There are a lot of areas where the legal system can improve, but the existence itself of the SEC and the fact that it shut this exchange down is not one of them. This is absolutely warranted and called-for. Yes, you need to register if you want to do this type of thing, and you need to play by the rules.)
- mhluongo 11y ago
  You really should. It's not about profit incentives, it's about proper use of their resources. Squashing tiny companies might make them feel better, but it's not impactful. Going after companies defrauding investors / playing it fast and loose for millions is how you clean up finance.
  - knorby 11y ago
    The SEC has incentive to stop growth of things it would shut down. Stopping scams is a big part of what they do, and a lot of the sorts of basic fraudsters that exist look more like this site than Goldman Sachs. The SEC needs to do both, and I assume those divisions are composed of very different people.
  - dragonwriter 11y ago
    > Squashing tiny companies might make them feel better, but it's not impactful. Going after companies defrauding investors / playing it fast and loose for millions is how you clean up finance. Putting out big fires like that is a good -- but expensive -- way to grab headlines, sure. Something the SEC definitely needs to do to the extent it can. Dealing with small things like a little market that lets you bet real money on company valuations in a market with deliberately falsified trade histories is how you prevent something from becoming one of those big fires, relatively cheaply for all involved, and before lots of people get hurt by it. Also an important thing for the SEC to do.
minimaxir 11y ago
Considering what happened to Mt. Gox, I'm not sure that using Bitcoin as an example of innovation being stifled by government is a good idea.
- mhluongo 11y ago
  I think bitcoin is a wonderful example. Regulations should scale with volume- clearly Gox wasn't in the "small startup" category, and should've been under more scrutiny. Also not really a useful comparison, since it's not in the US. See eg Coinbase's comments on the BitLicense. There's an opportunity to move fintech forward in the US, and actions like this- regulators trying to pad their resume- are stifling.

jdmichal 11y ago

The thing is, I don't care how much it costs the SEC to do their job. Their purpose is not to be a profit center based around prosecuting financial law violations. And actually, I'm very happy about that, because profit incentives in law enforcement creates very perverse incentives for the individual actors involved.

refurb 11y ago
I get your point, but profit has nothing to do with it. The SEC has limited resources. I think the grandparent is questioning whether this is the best use of them.
- dragonwriter 11y ago
  Honestly, I think nipping violations like illegal marketplaces in the bud -- getting them to conform or shutdown before they become major issues with widespread harms, is probably one of the most efficient uses of SEC resources. It's cheaper in direct costs than dealing with them once they become major problems, and results in less innocent people being harmed by both the violation and the enforcement action (while someone is culpable for any violation, when its by a firm there are going to be lots of innocent employees, customers, etc., who aren't doing anything culpable that are going to be negatively impacted by the enforcement action, however necessary it may be.)
logicallee 11y ago
This is an excellent comment. To be a bit more clear on jdmichal's point, the reason for the SEC is to allow any - real - startups to be funded at all. If you didn't have the SEC, you wouldn't be able to be an accredited investor and invest in all the startup offers in the world, who all have to play by the rules. It really is a good thing. If you're a startup, it's a good thing because you can just build something and monetize it, and then when you're doing well, you can get investment in a protected investment market in a regulated way. If you're doing something normal. I mean just juxtapose this (from the article): "For added credibility, we randomly generated trading histories for each company going all the way back to last year..... We pasted descriptive text cribbed from the websites of banks and registered exchanges to make our website look like a serious business." Source: https://medium.com/@eiaine/how-startup-growth-hacks-resulted-in-a-formal-investigation-from-the-sec-cd04598fe58 https://medium.com/@eiaine/how-startup-growth-hacks-resulted... With what Ivanplenty said in this thread: "'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." (Source https://news.ycombinator.com/item?id=9642353 https://news.ycombinator.com/item?id=9642353) What a scary world if the SEC didn't shut these guys down with a slap on the wrist! (Assuming Ivanplenty is correct and they monetized as he stated.) I mean they are literally inventing trading histories and collecting bitcoins and dollars to trade on them. That's the kind of market that sends real investors scurrying away from it, and I'm glad the SEC protects investors from that happening, by simply shutting it down. It is positively a good thing. (Also, the history of investor protection is because snake-oil salesmen really did take advantage of investors, selling them the clear blue sky: http://en.wikipedia.org/wiki/Blue_sky_law http://en.wikipedia.org/wiki/Blue_sky_law So it's not like this is some theoretical thing. The problem happened first, and the solution simply solved it. There are a lot of areas where the legal system can improve, but the existence itself of the SEC and the fact that it shut this exchange down is not one of them. This is absolutely warranted and called-for. Yes, you need to register if you want to do this type of thing, and you need to play by the rules.)
mhluongo 11y ago
You really should. It's not about profit incentives, it's about proper use of their resources. Squashing tiny companies might make them feel better, but it's not impactful. Going after companies defrauding investors / playing it fast and loose for millions is how you clean up finance.
- knorby 11y ago
  The SEC has incentive to stop growth of things it would shut down. Stopping scams is a big part of what they do, and a lot of the sorts of basic fraudsters that exist look more like this site than Goldman Sachs. The SEC needs to do both, and I assume those divisions are composed of very different people.
- dragonwriter 11y ago
  > Squashing tiny companies might make them feel better, but it's not impactful. Going after companies defrauding investors / playing it fast and loose for millions is how you clean up finance. Putting out big fires like that is a good -- but expensive -- way to grab headlines, sure. Something the SEC definitely needs to do to the extent it can. Dealing with small things like a little market that lets you bet real money on company valuations in a market with deliberately falsified trade histories is how you prevent something from becoming one of those big fires, relatively cheaply for all involved, and before lots of people get hurt by it. Also an important thing for the SEC to do.

minimaxir 11y ago

Considering what happened to Mt. Gox, I'm not sure that using Bitcoin as an example of innovation being stifled by government is a good idea.

mhluongo 11y ago
I think bitcoin is a wonderful example. Regulations should scale with volume- clearly Gox wasn't in the "small startup" category, and should've been under more scrutiny. Also not really a useful comparison, since it's not in the US. See eg Coinbase's comments on the BitLicense. There's an opportunity to move fintech forward in the US, and actions like this- regulators trying to pad their resume- are stifling.