Wednesday, April 23, 2014

Bitcoin Investment Pioneer

On March 10, the Texas State Securities Board (TSSB) issued an Emergency Cease and Desist Order against Balanced Energy LLC, a Southlake, Texas-based oil and gas exploration company.  The company claims to be the first in the oil and gas industry to accept Bitcoin from investors rather than cash.  A copy of the TSSB press release is available here.

Based on a review of the Cease and Desist Order available here, it appears the TSSB objected to the company's unregistered sales of securities to unaccredited investors and the lack of adequate disclosure of, among other things, the risks of using Bitcoin as a currency.

Putting aside those objections for the purposes of this blog, it will be interesting to see if other oil and gas companies or other companies seeking to raise capital will consider accepting investments in Bitcoin.  Bitcoin is a virtual, digital currency that allows users to send money over the Internet without using a credit card or bank account.  Privacy hawks and anti-government zealots love that Bitcoin is a money supply free from government regulation.  On the other hand, the unregulated nature of Bitcoin has contributed to its reputation for having highly volatile pricing.    

Regardless of whether or not Bitcoin takes off as an investment currency, the TSSB's Cease and Desist Order is a reminder to all companies issuing securities of the timeless requirements of US securities laws:  Every issuance of securities, such as working interests in oil and gas wells, (whether for Bitcoin, US dollars or any other currency) must be registered with the SEC and applicable state securities regulators or must be made in compliance with an applicable exemption from those registration requirements.


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