8 ms·

Bitcoin Bucket Shop Kicks Bucket

39 points by dsri 11y ago

stephengillie 11y ago
This article was not only educational, but entertaining. Some of my faves: > As I put it at the time, "Haha what? Just because you mumble the word 'blockchain' doesn't make otherwise illegal things legal." > But the basic illegality of Sand Hill was covered in thick doughy layers of other, stranger illegality. For instance: The blockchain stuff was fake! > overdetermined illegality It's an interesting spin to see their situation described by multiple layers of compound illegal activity.
- phdp 11y ago
  > It's an interesting spin to see their situation described by multiple layers of compound illegal activity. Can you describe how this was NOT illegal? They were illegally selling derivative contracts and illegally creating fake trade history.
  - stephengillie 11y ago
    Oh, I wholeheartedly agree. It delights me to see this situation described not only as very illegal, but in layers of illegality, like an ogre.
    - phdp 11y ago
      Ah, I was thrown off by the word spin. I assumed it had a negative connotation towards the writing in the Bloomberg article.
    - imc 11y ago
      Beautiful reference.
- harryh 11y ago
  If you enjoyed this you should read more of Matt Levine's writing. He is consistently both educational and entertaining!
- markbnj 11y ago
  My favorite: >> Tech is an industry of moving fast and breaking things. Finance is an industry of moving fast, breaking things, being mired in years of litigation, paying 10-digit fines, and ruefully promising to move slower and break fewer things in the future.
- davidgerard 11y ago
  Here is Elaine Ou's blog: http://elaineou.com/ http://elaineou.com/ After being told not to talk about this stuff, she thought she'd get someone else to guest-blog it for her (which she then published on her blog): https://archive.is/LBBC2 https://archive.is/LBBC2 The arrogance and lack of self-awareness of these "creative entrepreneurs" defies belief.
deleted 11y ago
[deleted]
- lost_name 11y ago
  I'm either confused by your statement or the article. The article seems to imply that they created a fake history for the listings as well as fake buyers/sellers, and yet were taking real money (albeit Bitcoin) from their users, with the intention of paying out to users out of pocket. Even if the laws are unjust or prediction markets are good, surely neither of those points matter if the data backing it up is generated rather than real. I'm not claiming to know anything about economics here I just don't feel like this statement meshes with what actually happened -- the law took care of what reads like fraudulent practices, and we certainly shouldn't be cheering on Sand Hill because they tried to set up a game around it.
  - Moshe_Silnorin 11y ago
    I commented before I read the full article. You are correct.
Hermel 11y ago
Given that they had virtually 0 real users, I'm not convinced the strict fintech laws are a necessity. It seems like the free market on its own is alreardy pretty good at avoiding dodgy companies. One might think of Mt.Gox as a counterexample. However, I see that debacle more as an unintended consequence of too much regulation: making it too hard to setup legit exchanges reduces consumer choice and forces users onto alternatives like Mt.Gox even though they don't really trust them.
- ForHackernews 11y ago
  > It seems like the free market is pretty good at avoiding dodgy fintech startups. Hahaha, are you kidding me? https://www.reddit.com/r/sorryforyourloss https://www.reddit.com/r/sorryforyourloss
- Johnie 11y ago
  FinTech specific laws aren't necessary. There are more than enough financial regulations beyond what you can wrap your head around. The thing that many tech entrepreneurs underestimate is the power of these financial regulators. It's not like Uber/Taxi industry that will bend to their wills. Financial regulators don't like any risk that they can't manage/mitigate.
- Retric 11y ago
  I think your underestimating how often banks fail. "The Panic of 1819. The Panic of 1837. The Panic of 1873. The Panic of 1907. The Great Depression. The savings and loan crisis of the '80s and '90s. The financial crisis of 2007-2009. The list goes on and on." http://www.davemanuel.com/history-of-bank-failures-in-the-united-states.php http://www.davemanuel.com/history-of-bank-failures-in-the-un... PS: The average is more than 6 banks per month over the last 50 years in the US. With only 2 years from 1934 to now having zero bank failures in the US.
- nickodell 11y ago
  >One might think of Mt.Gox as a counterexample. However, I see that debacle more as an unintended consequence of too much regulation I don't agree. A fairly simple asset control system would have detected that someone was embezzling money from the exchange. That's been standard at companies I've worked at, even though they weren't in the financial sector.
pnathan 11y ago
One interesting question the author obliquely brings up is this: Should all the financial regulation exist? My general sense is ... "not for things more complicated than savings accounts, checking accounts, and basic mortgages". I really don't see the harm in prediction markets, even if they are putting together strange derivatives.
- nosuchthing 11y ago
  2007 called, they want their "mortgaged backed[1] security-derivatives[2]" back. [1] (mortgaged backed) = lenders were rubber stamping home loans to people who given their current income would not be able to pay back the loan. [2] "security derivatives" were created on those mortgages as financial instruments that could be traded like stocks, effectively like allowing a 3rd party to take out insurance on your car and get paid when you get in a crash... a full on BET against the bad mortgages - paying out if the mortgages went into default [3] https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the_subprime_crisis https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the... — credit rating agencies, trusted to research, validate and rate the mortgages were for some reason giving the obviously bad and likely to default mortgages ratings on AAA, thus allowing for a greater insurance pay out on the security-derivative bets, creating an incentive for investors to make shit tons of money from defaults on these loans not to mention the repossession of the properties by banks. TLDR; Unregulated 'prediction markets' seemingly colluded to create loans that could not be payed back, than created insurance on those bad loans - falsely evaluated as safe, inflating the pay out, and effectively fabricated a profitable bet against the entire global economy.
  - maxerickson 11y ago
    The credit ratings agencies exist because of highly regulated markets. They are most relevant for things like pension funds that are legally required to buy investments above given ratings. It's quite likely that a completely unregulated market would not have that particular set of incentives.
    - s73v3r 11y ago
deleted 11y ago
[deleted]
Animats 11y ago
The Bitcoin world has replicated most of the known financial scams. This has worked because it preys on a population that doesn't know the known financial scams. There is a long, long history of financial scams. That's why the handling of other people's money is regulated. FINRA fines about one broker a day, year in and year out. Even with regulation, there are problems, but today in the US you can often get your money back. Bank failures occur, stock brokerages fail, and the SIPC and the FDIC pay off the losses up to $250K per person. Madoff's victims already have about half their money back, after years of litigation and clawbacks. Madoff himself, of course, is in the federal pen at Butner, North Carolina. The Bitcoin world thinks it doesn't need regulation. About half of Bitcoin brokers, and most of the Bitcoin online wallet companies, have gone bust, most of them taking customer assets with them. Any questions?
- ikeboy 11y ago
  >About half of Bitcoin brokers, and most of the Bitcoin online wallet companies, have gone bust, most of them taking customer assets with them. Any questions? Do you have a source for that?
  - Animats 11y ago
    "Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk"[1] That was written in 2013. At that point, 45% of the exchanges listed had gone bust. Check their list on page 3. That was before the collapses of Mt. Gox, Vicurex, Intersango, Bitfloor... [1] http://lyle.smu.edu/~tylerm/fc13.pdf http://lyle.smu.edu/~tylerm/fc13.pdf
    - ikeboy 11y ago
      "Five exchanges have not reimbursed affected customers, while six claim to have done so" So, how did that turn into "most of them taking customer assets with them"? And that only talks about exchanges, not wallets. (I'm also disappointed that it didn't break down what percentage of funds were lost).
- s73v3r 11y ago
akg_67 11y ago
IMO, the main problem is the success of Uber and AirBNB in flaunting the laws has led some entrepreneurs to believe that they can ignore the laws. They just don't realize that ignoring and fighting laws at municipal and state level is much easier to manage than ignoring and fighting the federal laws.
- tptacek 11y ago
  I don't think it has anything to do with local vs. federal. The real factors are: * Civil vs. criminal: Airbnb and Uber are violating regulations with civil penalties attached to them. SHX violated statutes with criminal penalties, though it appears they were charged civilly as a "slap on the wrist". The "1099 vs. FTE" issue Uber is running up against not only doesn't have criminal penalties attached (so long as they don't deliberately try to keep payroll taxes for themselves), but is also extremely common: 1099s are routinely reclassified. * Ordinance/regulation vs. statute: The laws Airbnb and Uber are running afoul of are regulations set by regulatory bodies. The SEC is a regulatory body but it's also a prime mover in criminal enforcement actions, unlike, say, a taxicab commission. * Principal vs. facilitator: The regulations Airbnb challenges are challenged by Airbnb's users, who are letting out houses and apartments in violation of local hotel/short-term-renter regulations. The law as it stands does not directly recognize culpability for sites that facilitate unlawful rentals. The law directly contemplates third parties marketing and creating venues for unauthorized securities transactions.
  - akg_67 11y ago
    Both Uber and Airbnb violated the laws set forth by the cities and states. The advantage for both startups was that the laws only extended to a city or state. So both still had 100s of other cities and dozens of other states, that were slow to react, to target and gain traction and turn this into "Principal vs facilitator" and "consumer-benefit" issues. When you are running afoul with a federal law, you are losing the whole country with very little recourse unless you have a war chest. BTW, SHX would have been fine if they stayed under the radar for a while until they had a war chest to hire lawyers to argue and work with SEC to come up with a suitable compromise. See the example of Lending Club and Prosper that were shutdown by SEC in 2008/2009. Both emerged from it because they already had traction and enough of war chest to hire securities lawyers to work with SEC. Now Lending Club is a $5+ billion public company.
zyxley 11y ago
The same folks were on HN a while back attempting to justify their poor decisions: https://news.ycombinator.com/item?id=9642186 https://news.ycombinator.com/item?id=9642186
paulpauper 11y ago
Matt actually thinks that allowing the short selling of hot web 2.0/app companies could actually make prices go lower, but in actually it tends to be the opposite as short sellers have to scramble to buy back the shares in panic as prices keep going up. Oh, you think snapchat is a bubble at $4 billion..now it's worth $40 billion. Enjoy your 900% loss. Remember the Porsche/Volkswagen short squeeze fiasco?
- emodendroket 11y ago
  That doesn't mean it's not a bubble though; it just means it hasn't burst yet.
ghall 11y ago
Here's our video response to the allegations. Many thanks to all of our users for your continued support and trust! http://blog.sandhill.exchange/post/121768113883/sand-hill-exchange-response-to-sec-enforcement http://blog.sandhill.exchange/post/121768113883/sand-hill-ex...
- tptacek 11y ago
  When you say you employed "aggressive marketing techniques", you're really saying "you employed bots to create fake wash trades to create the illusion of liquidity on the market", right? You launched a prediction market and then traded manipulatively on that market. Also: they stopped being "allegations" recently, right?
  - ghall 11y ago
    My friend, I unfortunately cannot comment publicly outside our video due to legal sensitivities. Of course, I always have an open door policy, provided any discussion is private and off the record.
    - davidgerard 11y ago
      Did you tell your boss that? https://archive.is/LBBC2 https://archive.is/LBBC2 None of you people should be allowed to handle cash or goods over the value of $1.00 ever again without adult supervision.
pdeuchler 11y ago
Here is the archived Sand Hill blog post he talks about: https://archive.is/L97V5#selection-607.1-607.101 https://archive.is/L97V5#selection-607.1-607.101 Hilarious in the lack of self-awareness

39 points by dsri 11y ago

This article was not only educational, but entertaining. Some of my faves: > As I put it at the time, "Haha what? Just because you mumble the word 'blockchain' doesn't make otherwise illegal things legal." > But the basic illegality of Sand Hill was covered in thick doughy layers of other, stranger illegality. For instance: The blockchain stuff was fake! > overdetermined illegality It's an interesting spin to see their situation described by multiple layers of compound illegal activity.

phdp 11y ago
> It's an interesting spin to see their situation described by multiple layers of compound illegal activity. Can you describe how this was NOT illegal? They were illegally selling derivative contracts and illegally creating fake trade history.
- stephengillie 11y ago
  Oh, I wholeheartedly agree. It delights me to see this situation described not only as very illegal, but in layers of illegality, like an ogre.
  - phdp 11y ago
    Ah, I was thrown off by the word spin. I assumed it had a negative connotation towards the writing in the Bloomberg article.
  - imc 11y ago
    Beautiful reference.
harryh 11y ago
If you enjoyed this you should read more of Matt Levine's writing. He is consistently both educational and entertaining!
markbnj 11y ago
My favorite: >> Tech is an industry of moving fast and breaking things. Finance is an industry of moving fast, breaking things, being mired in years of litigation, paying 10-digit fines, and ruefully promising to move slower and break fewer things in the future.
davidgerard 11y ago
Here is Elaine Ou's blog: http://elaineou.com/ http://elaineou.com/ After being told not to talk about this stuff, she thought she'd get someone else to guest-blog it for her (which she then published on her blog): https://archive.is/LBBC2 https://archive.is/LBBC2 The arrogance and lack of self-awareness of these "creative entrepreneurs" defies belief.

deleted 11y ago

[deleted]

lost_name 11y ago
I'm either confused by your statement or the article. The article seems to imply that they created a fake history for the listings as well as fake buyers/sellers, and yet were taking real money (albeit Bitcoin) from their users, with the intention of paying out to users out of pocket. Even if the laws are unjust or prediction markets are good, surely neither of those points matter if the data backing it up is generated rather than real. I'm not claiming to know anything about economics here I just don't feel like this statement meshes with what actually happened -- the law took care of what reads like fraudulent practices, and we certainly shouldn't be cheering on Sand Hill because they tried to set up a game around it.
- Moshe_Silnorin 11y ago
  I commented before I read the full article. You are correct.

Hermel 11y ago

Given that they had virtually 0 real users, I'm not convinced the strict fintech laws are a necessity. It seems like the free market on its own is alreardy pretty good at avoiding dodgy companies. One might think of Mt.Gox as a counterexample. However, I see that debacle more as an unintended consequence of too much regulation: making it too hard to setup legit exchanges reduces consumer choice and forces users onto alternatives like Mt.Gox even though they don't really trust them.

ForHackernews 11y ago
> It seems like the free market is pretty good at avoiding dodgy fintech startups. Hahaha, are you kidding me? https://www.reddit.com/r/sorryforyourloss https://www.reddit.com/r/sorryforyourloss
Johnie 11y ago
FinTech specific laws aren't necessary. There are more than enough financial regulations beyond what you can wrap your head around. The thing that many tech entrepreneurs underestimate is the power of these financial regulators. It's not like Uber/Taxi industry that will bend to their wills. Financial regulators don't like any risk that they can't manage/mitigate.
Retric 11y ago
I think your underestimating how often banks fail. "The Panic of 1819. The Panic of 1837. The Panic of 1873. The Panic of 1907. The Great Depression. The savings and loan crisis of the '80s and '90s. The financial crisis of 2007-2009. The list goes on and on." http://www.davemanuel.com/history-of-bank-failures-in-the-united-states.php http://www.davemanuel.com/history-of-bank-failures-in-the-un... PS: The average is more than 6 banks per month over the last 50 years in the US. With only 2 years from 1934 to now having zero bank failures in the US.
nickodell 11y ago
>One might think of Mt.Gox as a counterexample. However, I see that debacle more as an unintended consequence of too much regulation I don't agree. A fairly simple asset control system would have detected that someone was embezzling money from the exchange. That's been standard at companies I've worked at, even though they weren't in the financial sector.

pnathan 11y ago

One interesting question the author obliquely brings up is this: Should all the financial regulation exist? My general sense is ... "not for things more complicated than savings accounts, checking accounts, and basic mortgages". I really don't see the harm in prediction markets, even if they are putting together strange derivatives.

nosuchthing 11y ago
2007 called, they want their "mortgaged backed[1] security-derivatives[2]" back. [1] (mortgaged backed) = lenders were rubber stamping home loans to people who given their current income would not be able to pay back the loan. [2] "security derivatives" were created on those mortgages as financial instruments that could be traded like stocks, effectively like allowing a 3rd party to take out insurance on your car and get paid when you get in a crash... a full on BET against the bad mortgages - paying out if the mortgages went into default [3] https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the_subprime_crisis https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the... — credit rating agencies, trusted to research, validate and rate the mortgages were for some reason giving the obviously bad and likely to default mortgages ratings on AAA, thus allowing for a greater insurance pay out on the security-derivative bets, creating an incentive for investors to make shit tons of money from defaults on these loans not to mention the repossession of the properties by banks. TLDR; Unregulated 'prediction markets' seemingly colluded to create loans that could not be payed back, than created insurance on those bad loans - falsely evaluated as safe, inflating the pay out, and effectively fabricated a profitable bet against the entire global economy.
- maxerickson 11y ago
  The credit ratings agencies exist because of highly regulated markets. They are most relevant for things like pension funds that are legally required to buy investments above given ratings. It's quite likely that a completely unregulated market would not have that particular set of incentives.
  - s73v3r 11y ago

deleted 11y ago

[deleted]

Animats 11y ago

The Bitcoin world has replicated most of the known financial scams. This has worked because it preys on a population that doesn't know the known financial scams. There is a long, long history of financial scams. That's why the handling of other people's money is regulated. FINRA fines about one broker a day, year in and year out. Even with regulation, there are problems, but today in the US you can often get your money back. Bank failures occur, stock brokerages fail, and the SIPC and the FDIC pay off the losses up to $250K per person. Madoff's victims already have about half their money back, after years of litigation and clawbacks. Madoff himself, of course, is in the federal pen at Butner, North Carolina. The Bitcoin world thinks it doesn't need regulation. About half of Bitcoin brokers, and most of the Bitcoin online wallet companies, have gone bust, most of them taking customer assets with them. Any questions?

ikeboy 11y ago
>About half of Bitcoin brokers, and most of the Bitcoin online wallet companies, have gone bust, most of them taking customer assets with them. Any questions? Do you have a source for that?
- Animats 11y ago
  "Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk"[1] That was written in 2013. At that point, 45% of the exchanges listed had gone bust. Check their list on page 3. That was before the collapses of Mt. Gox, Vicurex, Intersango, Bitfloor... [1] http://lyle.smu.edu/~tylerm/fc13.pdf http://lyle.smu.edu/~tylerm/fc13.pdf
  - ikeboy 11y ago
    "Five exchanges have not reimbursed affected customers, while six claim to have done so" So, how did that turn into "most of them taking customer assets with them"? And that only talks about exchanges, not wallets. (I'm also disappointed that it didn't break down what percentage of funds were lost).
s73v3r 11y ago

akg_67 11y ago

IMO, the main problem is the success of Uber and AirBNB in flaunting the laws has led some entrepreneurs to believe that they can ignore the laws. They just don't realize that ignoring and fighting laws at municipal and state level is much easier to manage than ignoring and fighting the federal laws.

tptacek 11y ago
I don't think it has anything to do with local vs. federal. The real factors are: * Civil vs. criminal: Airbnb and Uber are violating regulations with civil penalties attached to them. SHX violated statutes with criminal penalties, though it appears they were charged civilly as a "slap on the wrist". The "1099 vs. FTE" issue Uber is running up against not only doesn't have criminal penalties attached (so long as they don't deliberately try to keep payroll taxes for themselves), but is also extremely common: 1099s are routinely reclassified. * Ordinance/regulation vs. statute: The laws Airbnb and Uber are running afoul of are regulations set by regulatory bodies. The SEC is a regulatory body but it's also a prime mover in criminal enforcement actions, unlike, say, a taxicab commission. * Principal vs. facilitator: The regulations Airbnb challenges are challenged by Airbnb's users, who are letting out houses and apartments in violation of local hotel/short-term-renter regulations. The law as it stands does not directly recognize culpability for sites that facilitate unlawful rentals. The law directly contemplates third parties marketing and creating venues for unauthorized securities transactions.
- akg_67 11y ago
  Both Uber and Airbnb violated the laws set forth by the cities and states. The advantage for both startups was that the laws only extended to a city or state. So both still had 100s of other cities and dozens of other states, that were slow to react, to target and gain traction and turn this into "Principal vs facilitator" and "consumer-benefit" issues. When you are running afoul with a federal law, you are losing the whole country with very little recourse unless you have a war chest. BTW, SHX would have been fine if they stayed under the radar for a while until they had a war chest to hire lawyers to argue and work with SEC to come up with a suitable compromise. See the example of Lending Club and Prosper that were shutdown by SEC in 2008/2009. Both emerged from it because they already had traction and enough of war chest to hire securities lawyers to work with SEC. Now Lending Club is a $5+ billion public company.

zyxley 11y ago

The same folks were on HN a while back attempting to justify their poor decisions: https://news.ycombinator.com/item?id=9642186 https://news.ycombinator.com/item?id=9642186

paulpauper 11y ago

Matt actually thinks that allowing the short selling of hot web 2.0/app companies could actually make prices go lower, but in actually it tends to be the opposite as short sellers have to scramble to buy back the shares in panic as prices keep going up. Oh, you think snapchat is a bubble at $4 billion..now it's worth $40 billion. Enjoy your 900% loss. Remember the Porsche/Volkswagen short squeeze fiasco?

emodendroket 11y ago
That doesn't mean it's not a bubble though; it just means it hasn't burst yet.

ghall 11y ago

Here's our video response to the allegations. Many thanks to all of our users for your continued support and trust! http://blog.sandhill.exchange/post/121768113883/sand-hill-exchange-response-to-sec-enforcement http://blog.sandhill.exchange/post/121768113883/sand-hill-ex...

tptacek 11y ago
When you say you employed "aggressive marketing techniques", you're really saying "you employed bots to create fake wash trades to create the illusion of liquidity on the market", right? You launched a prediction market and then traded manipulatively on that market. Also: they stopped being "allegations" recently, right?
- ghall 11y ago
  My friend, I unfortunately cannot comment publicly outside our video due to legal sensitivities. Of course, I always have an open door policy, provided any discussion is private and off the record.
  - davidgerard 11y ago
    Did you tell your boss that? https://archive.is/LBBC2 https://archive.is/LBBC2 None of you people should be allowed to handle cash or goods over the value of $1.00 ever again without adult supervision.

pdeuchler 11y ago

Here is the archived Sand Hill blog post he talks about: https://archive.is/L97V5#selection-607.1-607.101 https://archive.is/L97V5#selection-607.1-607.101 Hilarious in the lack of self-awareness