On May 8, the Federal Election Commission (FEC) unanimously affirmed in an advisory opinion that political committees (including candidate campaigns and political action committees) could legally accept small bitcoin donations, acknowledging that digital currencies are a form of “money or anything of value” under election laws. While the advisory permits small bitcoin-denominated donations, it forbids bitcoin contributions in amounts greater than $100. The FEC also affirmed that a political committee could buy and sell bitcoins as an investment, provided that the political committee exchanged bitcoins for dollars prior to spending. The FEC declined to answer whether political committees could spend bitcoins on goods and services.
Meanwhile, on May 7, the Securities and Exchange Commission issued an Investor Alert highlighting the risks of investments relating directly or indirectly to Bitcoin. In particular, the SEC noted that Bitcoin early adopters and Bitcoin investment forums have been targets of fraudulent or high-risk investment schemes, some of which have involved bitcoin-denominated investments. The Investor Alert further noted that if investors become victims of fraud or theft involving bitcoin-denominated investments, they may have limited recourse for recovering the stolen bitcoins.
The Investor Alert listed the following issues that could hinder recovery options:
Lack of involvement by traditional financial institutions (such as banks) impedes tracing the flow of money.
International scope of transactions may restrict the SEC’s ability to obtain information from abroad.
No central authority collects Bitcoin user information, necessitating reliance on other sources for such information.
Law enforcement may have difficulty seizing or freezing bitcoins.
The SEC also posited that risks inherent to the Bitcoin network and investments in bitcoins may pose risks to investments that are bitcoin-denominated or related to Bitcoin, even if investors do not invest directly in bitcoins. The SEC noted that proper disclosure of Bitcoin-related risks has been a problem area for certain non-fraudulent investments. The Investor Alert cited SEC v. Shavers, involving a Ponzi scheme denominated in bitcoins, as an example of Bitcoin-related fraud, and In the Matter of Balanced Energy, LLC along with the SEC’s suspension of trading of Imogo Mobile Technologies securities as examples in which an issuer’s disclosure of Bitcoin-related risks was insufficient.
With Bitcoin investments on the rise, and as Bitcoin continues to grow in popularity, the alert underscores the need to invest and conduct bitcoin transactions with companies and individuals that are well respected in the field.
The FEC opinion is available here.
The SEC Investor Alert is available here.