SEC Slams Programmer of Virtual Currency-Based Stock Exchanges

“Burnside operated two online enterprises that weren’t properly registered to engage in the securities business they were conducting,” said Andrew Calamari, director of the SEC’s New York Regional Office, in a statement. “The registration rules are vitally important investor protection provisions, and no exemption applies simply because an entity is operating on the Internet or using a virtual currency in securities transactions.”

Berger says that the SEC sanction highlights that “an enterprise engaging in the securities business is subject to SEC oversight, regardless of whether it is dealing in traditional or digital currency.”

Investors seeking to capitalize on the rapidly emerging digital currency economy, he continued, ”are well advised to seek a competent advisor – i.e., a professional with an in-depth understanding of both digital currencies and the securities laws. There are ample means of accessing exposure to Bitcoin through registered investment vehicles.”

The SEC’s order also finds that Burnside conducted separate transactions in which he offered investors the opportunity to use virtual currencies to buy or sell shares in the LTC-Global exchange itself and a separate litecoin mining venture he owned and operated. These offerings were not registered with the SEC as required under the federal securities laws.

Burnside was also sanctioned for conducting unregistered offerings, and because he “significantly cooperated” with the SEC’s investigation agreed—without admitting or denying the agency’s findings—to settle the case by paying more than $68,000 comprising his profits from the unregistered venues plus interest and a penalty. Burnside and BTC Trading Corp. consented to cease and desist from committing or causing any future violations of the registration provisions. Burnside was barred from the securities industry with the right to reapply after two years.

— Check out Should 401(k)s Have Bitcoin? on ThinkAdvisor.