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  1.  
  2. UNITED STATES OF AMERICA
  3. Before the
  4. SECURITIES AND EXCHANGE COMMISSION
  5. SECURITIES ACT OF 1933
  6. Release No.
  7. 9592 / June 3, 2014
  8. ADMINISTRATIVE PROCEEDING
  9. File No.
  10. 3
  11. -
  12. 15902
  13. In the
  14. Matter of
  15. Erik T. Voorhees,
  16. Respondent.
  17. ORDER INSTITUTING CEASE
  18. -
  19. AND
  20. -
  21. DESIST
  22. PROCEEDINGS
  23. PURSUANT TO
  24. SECTION
  25. 8A OF THE SECURITIES ACT OF 1933,
  26. MAKING FINDINGS, AND IMPOSING A
  27. CEASE
  28. -
  29. AND
  30. -
  31. DESIST ORDER
  32. I.
  33. The Securities and Exchange Commission (“Commission”) deems it appropriate that public
  34. cease
  35. -
  36. and
  37. -
  38. desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities
  39. Act of 1933 (“Securities Act”) against
  40. Erik T. Voorhees
  41. (“Respondent
  42. ”).
  43. II.
  44. In anticipation of the institution of these proceedings, Respondent has submitted an Offer
  45. of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the
  46. purpose of these proceedings and any other proceedings brough
  47. t by or on behalf of the
  48. Commission, or to which the Commission is a party, and without admitting or denying the findings
  49. herein, except as to the Commission’s jurisdiction over him and the subject matter of these
  50. proceedings
  51. ,
  52. which are admitted, Responden
  53. t consents to the entry of this Order Instituting Cease
  54. -
  55. and
  56. -
  57. Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings,
  58. and Imposing a Cease
  59. -
  60. and
  61. -
  62. Desist Order (“Order”), as set forth below.
  63. 2
  64. III.
  65. On the basis of this Orde
  66. r and Respondent’s Offer, the Commission finds that
  67. :
  68. Summary
  69. These proceedings arise out of
  70. unregistered offerings
  71. of shares of
  72. FeedZeBirds and
  73. SatoshiDICE,
  74. two
  75. separate
  76. entities
  77. co
  78. -
  79. owned
  80. by Voorhees and
  81. others.
  82. Voorhees is
  83. a well
  84. -
  85. known
  86. Bitcoin
  87. proponent,
  88. and
  89. t
  90. he
  91. shares were
  92. offered and sold in exchange for bitcoins
  93. , commonly
  94. referred to as
  95. “virtual currency
  96. .
  97. 1
  98. Bitcoin
  99. is a
  100. decentralized
  101. pee
  102. r
  103. -
  104. to
  105. -
  106. peer payment
  107. network
  108. ; bitcoin
  109. t
  110. ransactions are
  111. recorded
  112. by the network
  113. o
  114. n a
  115. n electronic
  116. public ledge
  117. r
  118. known as the “block chain.”
  119. Bitcoins
  120. can be used to purchase real
  121. -
  122. world goods and services and
  123. can be exchanged for fiat
  124. currencies on certain
  125. online
  126. exchanges. From May 201
  127. 2
  128. , the time of the first offering, to the
  129. present, the exchange rate
  130. of
  131. U.S. dollars (“USD”)
  132. to b
  133. itcoin
  134. s
  135. has fluctuated between
  136. a low of
  137. approximately
  138. $5 per bitcoin and
  139. a high of
  140. approximately
  141. $1,20
  142. 0
  143. per bitcoin.
  144. In May 201
  145. 2
  146. ,
  147. FeedZeBirds
  148. offered and sold 30,000 shares
  149. ,
  150. and
  151. raised 2,600 bitcoin
  152. s
  153. in
  154. connection with
  155. that
  156. unregi
  157. stered offer and sale
  158. .
  159. At the time of the
  160. FeedZeBirds
  161. offering, the USD
  162. value of the
  163. bitcoin
  164. s
  165. raised was
  166. approximately
  167. $15,000
  168. .
  169. From August 2012 through February
  170. 2013,
  171. in two separate offerings,
  172. SatoshiDICE
  173. offered and sold 13
  174. million
  175. shares
  176. ,
  177. and raised
  178. 50,600
  179. bitcoin
  180. s in
  181. connection with
  182. those
  183. unregistered offers and sales
  184. .
  185. At the time of the
  186. SatoshiDICE
  187. offerings, the USD value of the total
  188. bitcoin
  189. s
  190. raised was
  191. approximately
  192. $
  193. 7
  194. 22,659
  195. .
  196. In July 2013,
  197. SatoshiDICE
  198. bought back all outstanding SatoshiDICE sha
  199. res from investors at a price of 0.0035
  200. bitcoins per share
  201. ,
  202. for a total of 45,500 bitcoins
  203. .
  204. D
  205. ue to the significant rise in the exchange rate of
  206. b
  207. itcoin, the total USD amount paid to investors in the SatoshiDICE buy
  208. -
  209. back transaction
  210. (approximately $3.8 mil
  211. lion) exceeded the total USD amount raised.
  212. Respondent
  213. and Relevant Entities
  214. 1.
  215. Voorhees
  216. , age 29
  217. ,
  218. is a U.S. citizen
  219. who, a
  220. t the time of the
  221. FeedZeBirds
  222. and
  223. SatoshiDICE offerings, was living in
  224. the United States
  225. .
  226. 2.
  227. FeedZeBirds
  228. is not a registered
  229. corporation
  230. .
  231. FeedZeBirds
  232. purports to pay
  233. individuals who use Twitter, an online text messaging service
  234. , a
  235. fee in bitcoin
  236. s
  237. in exchange
  238. for
  239. 1
  240. For purposes of this Order, a “virtual currency” is a digital representation of value that can be
  241. digitally traded and functions as a medium of exchange; a unit of account; and/or a store of
  242. value, but does not have legal tender status (i.e., when tender
  243. ed to a creditor, is a valid and legal
  244. offer of payment) in any jurisdiction. It is not issued or guaranteed by any jurisdiction, and
  245. fulfills the above functions only by agreement within the community of users of the virtual
  246. currency. Virtual currency i
  247. s distinct from fiat currency, which is the coin and paper money of a
  248. country that is designated as its legal tender; circulates; and is customarily used and accepted as a
  249. medium of exchange in the issuing country. It also is distinct from e
  250. -
  251. money, which
  252. is a digital
  253. representation of fiat currency used to electronically transfer value denominated in fiat currency,
  254. i.e., e
  255. -
  256. money electronically transfers value that has legal tender status.
  257. 3
  258. forwarding sponsored text messages.
  259. During the relevant time period,
  260. Voorhees
  261. co
  262. -
  263. own
  264. ed
  265. FeedZeBirds
  266. , which had a
  267. webs
  268. ite (feedzebirds.com)
  269. that launched
  270. in November 2011.
  271. 3.
  272. SatoshiDICE
  273. is not a registered
  274. corporation
  275. . SatoshiDICE purports to be a
  276. gambling
  277. website that takes
  278. bets
  279. and pays
  280. out winnings in bitcoin
  281. s
  282. .
  283. Voorhees launched
  284. the
  285. SatoshiDICE website (satoshidice.
  286. com)
  287. in April 2012
  288. ,
  289. and
  290. co
  291. -
  292. owned the company until July 2013,
  293. when he and
  294. the other co
  295. -
  296. owners
  297. sold it.
  298. Offering of FeedZeBirds Shares
  299. 4.
  300. On May 24, 201
  301. 2
  302. ,
  303. FeedZeBirds
  304. offered 30,000 shares
  305. ,
  306. representing 30% of the
  307. company
  308. ,
  309. priced at
  310. 0.08667 bitcoin
  311. s
  312. per share.
  313. 2
  314. The share
  315. s
  316. were listed
  317. on
  318. an entity known as
  319. the
  320. Global Bitcoin Stock Exchange
  321. (“GLBSE”)
  322. ,
  323. which purported to run
  324. a
  325. B
  326. itcoin stock exchange
  327. .
  328. 3
  329. 5.
  330. Voorhees
  331. published
  332. a
  333. prospectus for the
  334. FeedZeBirds
  335. offering, which
  336. he made
  337. publicly
  338. available on t
  339. he Internet. The prospe
  340. ctus
  341. w
  342. as
  343. never filed with the Commission. In
  344. addition, Voorhees made general solicitations
  345. to sell
  346. FeedZeBirds
  347. shares
  348. over the Internet, which
  349. included posts on
  350. an internet website dedicated to Bitcoin known as the
  351. Bitcoin Forum
  352. (bitcointalk.org)
  353. ,
  354. on
  355. Facebook.com, and
  356. on
  357. other
  358. B
  359. itcoin
  360. -
  361. related websites.
  362. 6.
  363. For example, p
  364. rior to the offering, o
  365. n May 21, 2012, Voorhees posted on the
  366. Bitcoin Forum the following:
  367. “FeedZeBirds.com (
  368. http://FeedZeBirds.com
  369. ), the Bitcoin Twitter
  370. advertisin
  371. g platform with nearly 3,000 users and over 40,000,000 ad impressions served thus far, is
  372. launching shares on
  373. Thursday, May
  374. 24, at 15:30 EST via GLBSE.com
  375. .”
  376. (
  377. Emphasis
  378. removed
  379. from
  380. original
  381. .)
  382. 7.
  383. Also o
  384. n May
  385. 21, 2012
  386. ,
  387. the website FreedomsPhoeni
  388. x
  389. .com posted the following
  390. announcement
  391. titled
  392. FeedZeBirds IPO
  393. :
  394. FeedZeBirds is proud to announce that you can now own a piece of feedzebirds.com. On
  395. Thursday, May 24, at 15:30 EST FeedZeBirds will release 30% of the company as 30,000
  396. shares on GLBS
  397. E, t
  398. he Bitcoin stock exchange ....
  399. A share will be sold at 0.08667 BTC
  400. each.
  401. 8.
  402. The FeedZeBirds offering
  403. raised 2,600 bitcoin
  404. s
  405. . At the time of the offering, 2,600
  406. bit
  407. coin
  408. s
  409. w
  410. ere
  411. worth approximately $15
  412. ,000.
  413. 2
  414. One bitcoin is divisible into 100,000,000 units,
  415. with the smallest
  416. unit (0.0000001 bitcoin)
  417. called
  418. a
  419. “Satoshi.”
  420. 3
  421. In October 2012, GLBSE ceased operations.
  422. 4
  423. Offering
  424. s
  425. of SatoshiDICE Shares
  426. 9.
  427. In a first
  428. SatoshiDICE
  429. offering, which took place f
  430. rom August 2012 through
  431. January 2013,
  432. SatoshiDICE
  433. offered and sold 10 million shares, which represented a 10% interest
  434. in the company.
  435. SatoshiDICE
  436. offered the
  437. se
  438. shares in three separate tranches
  439. at prices between
  440. 0.
  441. 0032
  442. and
  443. 0.0037 bitcoins per share. The shares of SatoshiDICE were listed on MPEx, a
  444. purported Bitcoin trading platform based in Romania.
  445. 10.
  446. Voorhees
  447. published
  448. a
  449. prospectus
  450. for th
  451. is
  452. first SatoshiDICE offering
  453. , which
  454. he
  455. made
  456. widely available on the Internet.
  457. According to
  458. a summary
  459. prospectus, SatoshiDICE sought
  460. to “raise IPO capital through an equity offering on the MPEx platform by releasing 10% of its
  461. 100,000,000 shares. Starting from the first full calendar
  462. month
  463. after the IPO, shares will pay
  464. dividends
  465. equal to 100% of SatoshiDICE net profits ....”
  466. The
  467. prospectus was never filed with the
  468. Commission.
  469. 11.
  470. In addition, Voorhees made general solicitations over the Internet, which included
  471. posts on the Bitcoin Forum,
  472. on
  473. Facebook.com,
  474. and
  475. on
  476. other
  477. B
  478. itcoin
  479. -
  480. related websites.
  481. 12.
  482. According to the prospectus
  483. and statements made by Voorhees, 10% of the funds
  484. raised in the offering would be used on a “high profile print marketing campaign in European
  485. gaming publications.”
  486. Voorhees also posted
  487. on the Bitcoin Forum
  488. t
  489. hat
  490. he
  491. planned to
  492. use
  493. the
  494. remaining
  495. proceeds
  496. to fund two undisclosed startups.
  497. Finally, t
  498. he
  499. prospectus
  500. included
  501. statistics
  502. about SatoshiDICE’s
  503. earnings and expenses
  504. .
  505. 13.
  506. T
  507. he first SatoshiDICE o
  508. ffering
  509. raised 34,500 bitcoin
  510. s
  511. . At the time of the offering,
  512. 34,500 bitcoin
  513. s
  514. were
  515. worth
  516. approximately
  517. $
  518. 371
  519. ,
  520. 910
  521. .
  522. 14.
  523. In a second
  524. SatoshiDICE
  525. offering, which took place i
  526. n February 2013,
  527. SatoshiDICE
  528. offered and sold an additional 3
  529. million
  530. of its
  531. shares
  532. at price
  533. s
  534. between 0.0044 and
  535. 0.0062 bitcoin
  536. s
  537. per share
  538. , which
  539. raised 16,100 bitcoin
  540. s
  541. . At the time of th
  542. is second
  543. offering, 16,100
  544. bit
  545. coin
  546. s were
  547. worth
  548. approximately
  549. $
  550. 337,827
  551. .
  552. 15.
  553. On
  554. July
  555. 17,
  556. 2013,
  557. Voorhees announced on the Bitcoin Forum that SatoshiDICE
  558. was being sold and that in anticipation of the sale, SatoshiDICE
  559. would buy back all outstanding
  560. shares from investors. Voorhees posted that SatoshiDICE would buy the shares at 0.0035 bitcoins
  561. per share, which was at a 277% premium over the per share price that SatoshiDICE received in the
  562. sale of the company and roughl
  563. y a 175% premium over the current market price of the
  564. SatoshiDICE shares listed on MPEx.
  565. 16.
  566. Just prior to the sale
  567. ,
  568. SatoshiDICE
  569. bought back
  570. all
  571. 13
  572. million
  573. outstanding
  574. SatoshiDICE shares from investor
  575. s
  576. at a price of
  577. 0.0035 bitcoin
  578. s
  579. per share
  580. ,
  581. for a total of 4
  582. 5,500
  583. bitcoin
  584. s
  585. .
  586. D
  587. ue to the significant rise in t
  588. he
  589. exchange rate
  590. of
  591. b
  592. itcoin, the
  593. total
  594. USD
  595. amount paid to
  596. investors
  597. in the buy
  598. -
  599. back transaction
  600. (approximately $3.8 million)
  601. exceeded the total
  602. USD
  603. amount
  604. raised
  605. (
  606. approximately
  607. $722,659)
  608. .
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