SEC-Bitcoin, Shadow Banking, N.Y. Probe: Compliance

The U.S. Securities and Exchange Commission is conducting a formal inquiry into an online gambling website’s Bitcoin-denominated stock sale after the agency signaled that such dealings may break U.S. laws.

The SEC sent a letter asking MPEx, an online exchange for Bitcoin-based trading, to provide contracts and other documents relating to, according to a copy of the request posted on the website

Mircea Popescu, the MPEx operator to whom the letter was addressed, confirmed its receipt in an e-mail to Bloomberg News and said MPEx hasn’t broken any laws. The letter lists SatoshiDice as the topic of the inquiry without specifying what rules are at issue.

Andrew Ceresney, the SEC’s enforcement director, said in January that the agency is “very focused” on whether Bitcoin-denominated stock exchanges are illegal. U.S. laws require securities-trading platforms to be licensed. The regulator’s decision to open an inquiry doesn’t mean its staff has concluded any rules were broken, according to the letter.

John Nester, a spokesman for the regulator, said he couldn’t confirm or deny the existence of any inquiry.

SatoshiDice listed shares on MPEx in August 2012, according to an MPEx-affiliated website.

Compliance Policy

Shadow Banking Deals Prompt SEC Plan to Cap Leverage for Brokers

U.S. regulators concerned that banks and brokerage firms remain too dependent on risky types of short-term funding are weighing new rules designed to reduce reliance on parts of what is often called the shadow banking system.

Now the Securities and Exchange Commission is weighing new funding rules for brokers as well as a limit on leverage similar to those used by the Federal Reserve and other regulators for banks, according to a regulatory document and SEC officials familiar with the matter.

The initiatives are aimed at financing tools such as repurchase agreements, or repos, that were relied on by Bear Stearns Cos. and Lehman Brothers Holdings Inc. until their failures accelerated the 2008 financial crisis. Fed officials have warned for years that the $4.5 trillion web of repo deals remains prone to unravel during a panic, potentially leading to a wider financial panic.

The SEC oversees broker-dealers, the largest of which are owned by big banks supervised by the Fed. The broker-dealer units of banks including JPMorgan Chase & Co. and Goldman Sachs Group Inc. would be affected by the proposal, as would firms such as Leucadia National Corp.’s Jefferies Group LLC that aren’t within Fed-regulated holding companies.

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Mt. Gox Lawsuit Judge Loosens Bitcoin Freeze to Chase Assets

A U.S. judge who froze assets belonging to the American affiliate of bankrupt Bitcoin exchange Mt. Gox Co. loosened that restraint to allow movement -- and possibly tracking -- of small amounts of the flow of the digital currency.

Mt. Gox depositor Gregory Greene sued the exchange for fraud last month. His lawyers asked for the revised order to look for assets belonging to the U.S. affiliate, its principal, Mark Karpeles, and a related company, Tibanne KK.

Mt. Gox Co. filed for bankruptcy in Tokyo on Feb. 28 after announcing earlier that it couldn’t account for 750,000 customer Bitcoins and about 100,000 of its own, about 7 percent of Bitcoins worldwide. Mt. Gox said in a statement yesterday that it had located about 200,000 Bitcoins.

The exchange, which started as a marketplace for illustrated trading cards used to play the game “Magic: The Gathering,” is under investigation by prosecutors and regulators. The Tokyo-based exchange sought protection from creditors in U.S. Bankruptcy Court in Dallas and a day later obtained an order shielding it from litigation.

The case is Greene v. Mt. Gox Inc., 14-cv-01437, U.S. District Court, Northern District of Illinois (Chicago). The U.S. bankruptcy is In re MtGox Co., 14-bk-31229, U.S. Bankruptcy Court, Northern District of Texas (Dallas).


Levitt Says High-Frequency Trading Is Domain of SEC, Not N.Y. AG

Arthur Levitt, former head of the Securities and Exchange Commission, said New York Attorney General Eric Schneiderman is overstepping his bounds by calling for tougher regulations on high-frequency trading. Levitt talked with Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

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SEC Chief Plans Outreach ‘Soon’ on Disclosure Rules

Securities and Exchange Commission Chairman Mary Jo White, speaking at the Chamber of Commerce’s Capital Markets Summit in Washington, said she intends to have more to say on disclosure regulations soon.

White, who has asked staff to make recommendations on how to proceed, said she looks at disclosures in terms of making them more meaningful for investors, not just a means of reducing overload.

She also said that while institutional investors tend to want as much information as possible, there is a risk that when retail investors are given too many details they may “seize” on unimportant data. Distilling data is helpful to all investors, she said.

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