SEC Begins Sending Out Investigation Letters

Late last week Coin Fire learned that the Securities and Exchange Commission (SEC) has begun sending out blanket letters to operators of various bitcoin companies requesting further information about the operations, fundraising activities and finances of the company.

Coin Fire has learned that eight companies specifically have been targeted by the agency for the offering of unregistered securities but to make sure that all bases are covered several hundred letters are now going out to a plethora of companies.

A key element of the letter requires that those receiving the letter stay quiet and treat it as confidential. They may seek legal counsel but they may not reveal the fact they received a letter to those who are not directly involved with responding to the letter nor the public so the exact number of letters going out nor the companies receiving them will not be revealed by those affected without legal consequences.

We have obtained six of these letters, each of them slightly different and each of them being sent out by a different Enforcement division attorney at various regional SEC offices. Companies that have not yet received a letter or whom do not receive on in the next two weeks should not feel they are in the clear as the agency is not yet sending out all the letters as to not tip their hand before other actions or because of international cooperation.

These letters are but a small part of an interagency, international, cooperative action that will be detailed in-depth in an upcoming feature that ultimately results in action against several large bitcoin and cryptocurrency companies that have offered unregistered securities.

Federal agencies said to be included are the SEC, Internal Revenue Service (IRS), the Department of Justice (DOJ) and we have unconfirmed reports that FinCen has also become involved recently.

Several members of the Coin Fire staff initially questioned the validity of IRS accountants being used in an SEC investigation but our executive editor Mike would later learn from an unnamed source that is familiar with the procedures used that the tactic is common.

Budget cuts have left several federal agencies unable to dedicate staff to the accounting process and that oftentimes a specific accounting team at the IRS could be called in to aid with other federal operations. We don’t have confirmation that the IRS is working with DOJ and SEC; however, it’s not uncommon. The IRS through CID has specialized talent specifically to parse through business and personal records and that oftentimes with these sort of cases with securities fraud that tax evasion often comes with the territory. The IRS employs over 2,800 special agents for these type of investigations and they are oftentimes lent to other agencies.

Each letter requests a detailed narrative on how the information requested is gathered, all corporate documents and agreements, all financial documents including all accounting books, tax information, a detailed listing of all bank accounts and information foreign and domestic, and details of all assets of the company.

“Document” shall include, but is not limited to, any written, printed, or typed matter including, but not limited to all drafts and copies bearing notations or marks not found in the original, letters and correspondence, interoffice communications, slips, tickets, records, worksheets, financial records, accounting documents, bookkeeping documents, memoranda, reports, manuals, telephone logs, telegrams, facsimiles, messages of any type, telephone messages, voice mails, tape recordings, notices, instructions, minutes, summaries, notes of meetings, file folder markings, and any other organizational indicia, purchase orders, information recorded by photographic process, including microfilm and microfiche, computer printouts, spreadsheets, and other electronically stored information, including but not limited to writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations that are stored in any medium from which information can be retrieved, obtained, manipulated, or translated.

— SEC Action Letter

The letters are being sent out to companies performing offerings on Counterparty, Cryptostocks, companies hosting offerings with colored coins, and companies who have performed unregistered securities offerings via Bitcoin Talk. In all cases the SEC is employing a team of researchers to track down the people or companies behind each offering via forum messages, domain registration information,  transfers of funds via exchanges and other means.

We’ve also learned that at least one international derivatives exchange with ties to Australia is included in potential actions as authorities from both the United States and Australia are working together to complete a case against the operators.

The expansion of the total number of letters being mailed out was a new development from our original story that we have worked on and could be seen as preparation for future action past the first eight companies that we have obtained information about.

Coin Fire will provide further information on this developing story at a later date.