( 26th - November - 2019 )
On November 2014, the FBI, "as part of a coordinated international law enforcement action", seized dozens of "dark markets", including Silk Road II operating on the anonymous Tor network. These markets accepted payment in Bitcoins or similar crypto-currencies, and operated both domestically and internationally. [43] Although the FBI was successful in cracking through the anonymous Tor network and discovering the origin of the illegal Bitcoin markets Silkroad I and II and similar illegal markets, the methods the FBI used may not be legal or available, in every case, under the U.S. Constitution's prohibition against unreasonable searches and seizures.
October 2014, the court decided the fate of the defendant regarding his role in the first Silkroad, but the court refused to decide whether his Fourth Amendment rights were violated because he never pleaded that he had a right to privacy in the server that was searched. The Court claimed that the defendant did not plead a violation of his Fourth Amendment rights because either "he in fact has no personal privacy interest in the Icelandic server, or because he has made a tactical decision not to reveal that he does" thus claiming that Ulbricht "therefore has no basis to challenge". This is significant because the Court did not decide if the techniques the FBI used to locate the defendant IP address violated the Fourth Amendment.
Operating behind the anonymous Tor network might give a subjective expectation of privacy, but this may not be reasonable expectation of privacy that would survive the Katz test because the Tor software explicitly states that it "can't solve all anonymity problems". Under Warshak, the defendant had a "reasonable expectation of privacy" in the content of his email; however, unlike an email, an IP address is generally visible to everyone, The FBI claimed they found Silkroad's IP address by "typing in miscellaneous entries into the username, password, and CAPTCHA fields contained in the interface" to find an IP address associated with an application misconfigured to the Tor network.
Securities fraud
The Securities and Exchange Commission (SEC) treats securities crimes committed with Bitcoin and VCs as money, and it is likely that anti-gambling regulations will be enforced with the same reasoning. On July 2013, Trendon T. Shavers was charged by the SEC for "defrauding investors in a Ponzi scheme involving Bitcoin" that amounted to over 700,000 Bitcoin or $4.5 million based on the average price of Bitcoin in 2011 and 2012 when the investments were offered and sold. [49] Shavers implemented the scheme through Bitcoin Savings and Trust (BTCST), "an unincorporated online investment scheme" that was not registered with the SEC. "The collective loss to BTCST investors who suffered net losses (there were also net winners) was 265,678 bitcoins, or more than $149 million at current exchange rates" from September 2014.
Shavers attempted to argue the investments were not securities because Bitcoin is not money. However, in a precedent determining decision, the magistrate judge determined that Bitcoin is money, and thus the investments were securities. The magistrate judge stated, "[i]t is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money." This decision paved the way for other regulators to treat Bitcoin and VCs as money, so it is likely this decision will be cited if regulators decide to prosecute VC transactions under the UIGEA, Illegal Gambling Business Act, Wire Act, or any other regulation involving financial transactions.
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