On December 8, 2014, the SEC announced that it had filed an administrative proceeding against a computer programmer for "operating two online venues that traded securities using virtual currencies Bitcoin or Litecoin without registering the venues as broker-dealers or stock exchanges." The programmer, Ethan Burnside, agreed to settle the case by by paying $58,387.07 in disgorgement and prejudgment interest. Burnside also agreed to be barred from the securities industry with the right to reapply after two years.
In its announcement of the case, the SEC noted that its investigation was conducted "in coordination with the agency’s Digital Currency Working Group." The reference to a "Digital Currency Working Group" at the SEC seemed to fly under the radar for a few weeks, but it was the subject of an interesting Client Alert this week by law firm Pillsbury ("Say Hello to the SEC’s Digital Currency Working Group").
In the Client Alert, Pillsbury states that the SEC’s formation of the Digital Currency Working Group may indicate that the SEC will have an increased focus on businesses that transact in digital currencies or cryptocurrencies. According to Pillsbury, while the Digital Currency Working Group appears to have been formed in 2013, the Burnside case is the first instance in which it has been linked to a specific enforcement action. Pillsbury also reports that the Digital Currency Working Group is currently comprised of approximately 50 staff members from throughout the SEC’s divisions and offices nationwide.