“Bitcoin is … money” — judge says SEC can target alleged Ponzi schemer

Judge with gavel

A Texas man who is being sued by security regulators for swindling investors failed to persuade a federal judge that the case should be tossed out since the scam involved the crypto-currency Bitcoin and not traditional money.

In a Tuesday ruling, the judge said the SEC could pursue a Ponzi scheme case against Trendon Shavers because “Bitcoin is a currency or form of money” and because “the [..] investments meet the definition of investment contract, and, as such, are securities.”

The case is significant because it further defines the legal status of Bitcoin, a computer-mined currency that is popular with speculators and that has also, in recent months, attracted growing scrutiny from the U.S. government.

In the Texas case, Shavers promised interest rates of up to one percent a day to Bitcoin investors but, when the scheme collapsed, those who had not pulled out lost 263,104 Bitcoins in principal –worth $1.8 million at the time of purchase and around $23 million today.

In fighting the SEC charges, Shavers claimed the regulator had no jurisdiction since transactions regulated by the SEC must involve “an investment of money” — and the investors paid in Bitcoin instead. The judge didn’t buy that argument, noting:

It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses [..] However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.

The ruling does not, however, appear to give the SEC any new powers over Bitcoin. While Reuters has stated that the decision will have “important implications” for investors like the Winklevoss twins, who are starting an investment fund that tracks Bitcoin, it’s hard to see why.

While both the Texas case and the proposed Winklevoss fund are related to Bitcoin, the underlying investment they offer is a traditional security such as a share, a note or a bond. These are precisely the sort of investments the SEC has always overseen.

Meanwhile, the SEC still has no clear power to regulate the trading of Bitcoin — or any other currency — directly. As we’ve explained before, any direct trading regulation would likely be restricted to the Commodity Futures Trading Commission (which governs the futures market).

The bottom line is that the Texas ruling confirms what we already knew: Bitcoin is a form of money. And the fact that someone allegedly used it to run a Ponzi scheme is no reflection on the currency itself — the nature of the scam was the same whether Shavers used Bitcoin, greenbacks or tulips.

Here’s the ruling itself with some key parts underlined:

Texas Bitcoin Decision Re SEC

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