I don't understand: "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.<p>I would be surprised if a regulatory body <i>didn't</i> come after this setup. There is a very bright regulatory line around gambling and investing in most countries that a typical person should have known about. What am I missing? Why should I sympathize with Sand Hill Exchange?
This blog has more details: <a href="https://medium.com/@eiaine/how-startup-growth-hacks-resulted-in-a-formal-investigation-from-the-sec-cd04598fe58" rel="nofollow">https://medium.com/@eiaine/how-startup-growth-hacks-resulted...</a><p>It's a funny read....<p><i>Another thing I learned: If you’re gonna try to make yourself look like a legitimate financial institution, you’ll be prosecuted like a legitimate financial institution. And when that happens, you sure as shit better have the legal resources of a legitimate financial institution.</i><p><i>The Commission accused us of acting as unregistered broker-dealers, selling security-based swaps, offering swaps on an unregistered securities exchange.</i>
The SEC should have said "Very clever, kids, but, ah, no. Knock it off." A fine here is ridiculous -- the participation was capped at $250, this clearly wasn't intended to take in serious amounts of money. The SEC can't let something like this go on, but it can be less hamfisted in its handling.<p>Really the right thing here would have been a visit by SEC staff, asking a lot of questions and pointing out some security law violations, at which point the operators go "umm, didn't think about that, we'll be good". But that approach doesn't let the bureaucrats justify 100 hours of browsing on their time sheets, does it?<p>The injunction to obey security laws going forward does make sense, it gives the SEC leverage if these same people actually do pop up later as scammers.<p>Some journalism on what they were doing:<p><a href="http://www.bloombergview.com/articles/2015-03-11/how-should-a-bank-be-" rel="nofollow">http://www.bloombergview.com/articles/2015-03-11/how-should-...</a><p><a href="http://ftalphaville.ft.com/2015/03/10/2121090/sand-hill-is-the-new-wall-street/" rel="nofollow">http://ftalphaville.ft.com/2015/03/10/2121090/sand-hill-is-t...</a>
On Twitter several months ago, the financial columnist Matt Levine said something along the lines of "Sand Hill Exchange can't possibly be legal" and one of the founders replied saying "You've got it all wrong, you just don't understand what we are doing".<p>Some things really are as simple as they seem on their face.
<i>... where people could throw pocket change on valuation wagers.</i><p><i>We never had any intention of operating in a regulated industry, nor do we have the resources required to do so.</i><p>"Oh, it was just for shits and giggles" ... when there's real money involved?<p>A peek at archive.org shows the sales pitch at the time of the SEC traffic / tracked visits. I'm not seeing anything about "for entertainment purposes only" here:<p><i>The mission of Sand Hill Exchange is to democratize startup investment.We believe the startup ecosystem benefits when everybody can participate in startup growth. Our vision is to extend the power of public markets to private companies.</i><p>[source: <a href="https://web.archive.org/web/20150315015146/http://sandhill.exchange/" rel="nofollow">https://web.archive.org/web/20150315015146/http://sandhill.e...</a>]
SHX founding team member here. It's been great to read everybody's comments. I'm not going waste my time weighing in on whether we were clever hackers or bozos -- the truth, as always, lies somewhere in the middle.<p>I did want to share some additional facts, which will come to light when the statement of facts gets published.<p><pre><code> (1) We had exactly 55 paying users, who had deposited $1550 and 15.6 BTC.
(2) All but 5 of these users were friends, family, or members of our accelerator.
(3) Our private beta test had been in operation for 7 weeks.</code></pre>
On the other hand, $20,000 for national publicity is probably a deal. It looks like the site is running again using only fantasy money.<p>An interesting thought is that the site itself wasn't making any money on the trades when there was real currency - which was illegal. But as a purely fantasy VC game they can make money on subscriptions, advertising, etc - which is legal.
Something I just realized - why is this being handled by the SEC and not the CFTC? Don't prediction markets fall under the CFTC's jurisdiction, e.g. Intrade?<p>I guess given the nature of the prediction market they could have flipped a coin to see who fined them first....
You shouldn't have tried to add any monetization like IAP. This is simply a prediction market with startups. Didn't you know what happened to Intrade.com?<p>Another example of 'early monetization is dangerous'.
Oi! But, that's why <a href="http://exchangel.co/" rel="nofollow">http://exchangel.co/</a> never deals in real money, and only gives out bitcoin as prizes (no purchase necessary).
Looks like both the links to Sand Hill Exchange blog post and Founders blog post are dead with just a mention of "censored". I wonder what SEC rules did they violate now, may be not disclosing publicly the terms of settlements.
It's a shame. How much did the SEC spend chasing an unfunded startup?<p>EDIT: I don't expect to stem the downvotes, but the SEC's time is better spent policing large-scale financial crime. Consider the opportunity cost here.