UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No.
9592 / June 3, 2014
ADMINISTRATIVE PROCEEDING
File No.
3
-
15902
In the
Matter of
Erik T. Voorhees,
Respondent.
ORDER INSTITUTING CEASE
-
AND
-
DESIST
PROCEEDINGS
PURSUANT TO
SECTION
8A OF THE SECURITIES ACT OF 1933,
MAKING FINDINGS, AND IMPOSING A
CEASE
-
AND
-
DESIST ORDER
I.
The Securities and Exchange Commission (“Commission”) deems it appropriate that public
cease
-
and
-
desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities
Act of 1933 (“Securities Act”) against
Erik T. Voorhees
(“Respondent
”).
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brough
t by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over him and the subject matter of these
proceedings
,
which are admitted, Responden
t consents to the entry of this Order Instituting Cease
-
and
-
Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings,
and Imposing a Cease
-
and
-
Desist Order (“Order”), as set forth below.
2
III.
On the basis of this Orde
r and Respondent’s Offer, the Commission finds that
:
Summary
These proceedings arise out of
unregistered offerings
of shares of
FeedZeBirds and
SatoshiDICE,
two
separate
entities
co
-
owned
by Voorhees and
others.
Voorhees is
a well
-
known
Bitcoin
proponent,
and
t
he
shares were
offered and sold in exchange for bitcoins
, commonly
referred to as
“virtual currency
.
”
1
Bitcoin
is a
decentralized
pee
r
-
to
-
peer payment
network
; bitcoin
t
ransactions are
recorded
by the network
o
n a
n electronic
public ledge
r
known as the “block chain.”
Bitcoins
can be used to purchase real
-
world goods and services and
can be exchanged for fiat
currencies on certain
online
exchanges. From May 201
2
, the time of the first offering, to the
present, the exchange rate
of
U.S. dollars (“USD”)
to b
itcoin
s
has fluctuated between
a low of
approximately
$5 per bitcoin and
a high of
approximately
$1,20
0
per bitcoin.
In May 201
2
,
FeedZeBirds
offered and sold 30,000 shares
,
and
raised 2,600 bitcoin
s
in
connection with
that
unregi
stered offer and sale
.
At the time of the
FeedZeBirds
offering, the USD
value of the
bitcoin
s
raised was
approximately
$15,000
.
From August 2012 through February
2013,
in two separate offerings,
SatoshiDICE
offered and sold 13
million
shares
,
and raised
50,600
bitcoin
s in
connection with
those
unregistered offers and sales
.
At the time of the
SatoshiDICE
offerings, the USD value of the total
bitcoin
s
raised was
approximately
$
7
22,659
.
In July 2013,
SatoshiDICE
bought back all outstanding SatoshiDICE sha
res from investors at a price of 0.0035
bitcoins per share
,
for a total of 45,500 bitcoins
.
D
ue to the significant rise in the exchange rate of
b
itcoin, the total USD amount paid to investors in the SatoshiDICE buy
-
back transaction
(approximately $3.8 mil
lion) exceeded the total USD amount raised.
Respondent
and Relevant Entities
1.
Voorhees
, age 29
,
is a U.S. citizen
who, a
t the time of the
FeedZeBirds
and
SatoshiDICE offerings, was living in
the United States
.
2.
FeedZeBirds
is not a registered
corporation
.
FeedZeBirds
purports to pay
individuals who use Twitter, an online text messaging service
, a
fee in bitcoin
s
in exchange
for
1
For purposes of this Order, a “virtual currency” is a digital representation of value that can be
digitally traded and functions as a medium of exchange; a unit of account; and/or a store of
value, but does not have legal tender status (i.e., when tender
ed to a creditor, is a valid and legal
offer of payment) in any jurisdiction. It is not issued or guaranteed by any jurisdiction, and
fulfills the above functions only by agreement within the community of users of the virtual
currency. Virtual currency i
s distinct from fiat currency, which is the coin and paper money of a
country that is designated as its legal tender; circulates; and is customarily used and accepted as a
medium of exchange in the issuing country. It also is distinct from e
-
money, which
is a digital
representation of fiat currency used to electronically transfer value denominated in fiat currency,
i.e., e
-
money electronically transfers value that has legal tender status.
3
forwarding sponsored text messages.
During the relevant time period,
Voorhees
co
-
own
ed
FeedZeBirds
, which had a
webs
ite (feedzebirds.com)
that launched
in November 2011.
3.
SatoshiDICE
is not a registered
corporation
. SatoshiDICE purports to be a
gambling
website that takes
bets
and pays
out winnings in bitcoin
s
.
Voorhees launched
the
SatoshiDICE website (satoshidice.
com)
in April 2012
,
and
co
-
owned the company until July 2013,
when he and
the other co
-
owners
sold it.
Offering of FeedZeBirds Shares
4.
On May 24, 201
2
,
FeedZeBirds
offered 30,000 shares
,
representing 30% of the
company
,
priced at
0.08667 bitcoin
s
per share.
2
The share
s
were listed
on
an entity known as
the
Global Bitcoin Stock Exchange
(“GLBSE”)
,
which purported to run
a
B
itcoin stock exchange
.
3
5.
Voorhees
published
a
prospectus for the
FeedZeBirds
offering, which
he made
publicly
available on t
he Internet. The prospe
ctus
w
as
never filed with the Commission. In
addition, Voorhees made general solicitations
to sell
FeedZeBirds
shares
over the Internet, which
included posts on
an internet website dedicated to Bitcoin known as the
Bitcoin Forum
(bitcointalk.org)
,
on
Facebook.com, and
on
other
B
itcoin
-
related websites.
6.
For example, p
rior to the offering, o
n May 21, 2012, Voorhees posted on the
Bitcoin Forum the following:
“FeedZeBirds.com (
http://FeedZeBirds.com
), the Bitcoin Twitter
advertisin
g platform with nearly 3,000 users and over 40,000,000 ad impressions served thus far, is
launching shares on
Thursday, May
24, at 15:30 EST via GLBSE.com
.”
(
Emphasis
removed
from
original
.)
7.
Also o
n May
21, 2012
,
the website FreedomsPhoeni
x
.com posted the following
announcement
titled
“
FeedZeBirds IPO
”
:
FeedZeBirds is proud to announce that you can now own a piece of feedzebirds.com. On
Thursday, May 24, at 15:30 EST FeedZeBirds will release 30% of the company as 30,000
shares on GLBS
E, t
he Bitcoin stock exchange ....
A share will be sold at 0.08667 BTC
each.
”
8.
The FeedZeBirds offering
raised 2,600 bitcoin
s
. At the time of the offering, 2,600
bit
coin
s
w
ere
worth approximately $15
,000.
2
One bitcoin is divisible into 100,000,000 units,
with the smallest
unit (0.0000001 bitcoin)
called
a
“Satoshi.”
3
In October 2012, GLBSE ceased operations.
4
Offering
s
of SatoshiDICE Shares
9.
In a first
SatoshiDICE
offering, which took place f
rom August 2012 through
January 2013,
SatoshiDICE
offered and sold 10 million shares, which represented a 10% interest
in the company.
SatoshiDICE
offered the
se
shares in three separate tranches
at prices between
0.
0032
and
0.0037 bitcoins per share. The shares of SatoshiDICE were listed on MPEx, a
purported Bitcoin trading platform based in Romania.
10.
Voorhees
published
a
prospectus
for th
is
first SatoshiDICE offering
, which
he
made
widely available on the Internet.
According to
a summary
prospectus, SatoshiDICE sought
to “raise IPO capital through an equity offering on the MPEx platform by releasing 10% of its
100,000,000 shares. Starting from the first full calendar
month
after the IPO, shares will pay
dividends
equal to 100% of SatoshiDICE net profits ....”
The
prospectus was never filed with the
Commission.
11.
In addition, Voorhees made general solicitations over the Internet, which included
posts on the Bitcoin Forum,
on
Facebook.com,
and
on
other
B
itcoin
-
related websites.
12.
According to the prospectus
and statements made by Voorhees, 10% of the funds
raised in the offering would be used on a “high profile print marketing campaign in European
gaming publications.”
Voorhees also posted
on the Bitcoin Forum
t
hat
he
planned to
use
the
remaining
proceeds
to fund two undisclosed startups.
Finally, t
he
prospectus
included
statistics
about SatoshiDICE’s
earnings and expenses
.
13.
T
he first SatoshiDICE o
ffering
raised 34,500 bitcoin
s
. At the time of the offering,
34,500 bitcoin
s
were
worth
approximately
$
371
,
910
.
14.
In a second
SatoshiDICE
offering, which took place i
n February 2013,
SatoshiDICE
offered and sold an additional 3
million
of its
shares
at price
s
between 0.0044 and
0.0062 bitcoin
s
per share
, which
raised 16,100 bitcoin
s
. At the time of th
is second
offering, 16,100
bit
coin
s were
worth
approximately
$
337,827
.
15.
On
July
17,
2013,
Voorhees announced on the Bitcoin Forum that SatoshiDICE
was being sold and that in anticipation of the sale, SatoshiDICE
would buy back all outstanding
shares from investors. Voorhees posted that SatoshiDICE would buy the shares at 0.0035 bitcoins
per share, which was at a 277% premium over the per share price that SatoshiDICE received in the
sale of the company and roughl
y a 175% premium over the current market price of the
SatoshiDICE shares listed on MPEx.
16.
Just prior to the sale
,
SatoshiDICE
bought back
all
13
million
outstanding
SatoshiDICE shares from investor
s
at a price of
0.0035 bitcoin
s
per share
,
for a total of 4
5,500
bitcoin
s
.
D
ue to the significant rise in t
he
exchange rate
of
b
itcoin, the
total
USD
amount paid to
investors
in the buy
-
back transaction
(approximately $3.8 million)
exceeded the total
USD
amount
raised
(
approximately
$722,659)
.