In SEC v. Shavers, Case No. 4:13-CV-416 (E.D.Tex.), the defendants moved to dismiss the complaint, in which the SEC accuses Trendon T. Shavers and his company, Bitcoin Savings and Trust (BTSCT), of operating a Bitcoin-based Ponzi scheme, on the grounds that Bitcoins are not true currency and therefore the investments solicited and accepted by BTSCT and Shavers were not "investments of money" subject to federal securities regulation. A magistrate of the U.S. District Court for the District of Texas issued a ruling on August 6, 2013 holding that Bitcoins, the electronic currency we have discussed previously on this blog (see here, here, and here) are currency and therefore subject to regulations concerning monetary investments.
In denying the motion, the Court held:
The term “security” is defined as “any note, stock, treasury stock, security future, security-based swap, bond…[or] investment contract…” 15 U.S.C. § 77b. An investment contract is any contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party. SEC v. W.J. Howey & Co., 328 U.S. 293, 298-99 (1946); Long v. Shultz Cattle Co, 881 F.2d 129, 132 (1989). First, the Court must determine whether the BTCST investments constitute an investment of money. 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. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. 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 comes as little surprise to those familiar with federal securities and monetary regulation, but the question posed to the Court did appear to be one of first impression.
Further coverage of this ruling: