The cash flow from Cryptonomy was ultimately short-lived compared to my side bet on BoozPops. By summertime we were embroiled in a lawsuit with the feds over practices they deemed to be illegal.
Viktor, Gavin and I were the primary defendants in the case (Cryptonomy, LLC. v The United States) but Jason was the one who gave impetus to the idea that would end in the dissolution of our company. We were tried under Section 9(a)(2) of the Securities Exchange Act for market manipulation and the US Financial Crimes Enforcement Network (FinCEN) issued a civil enforcement action against us for not filing ‘suspicious activity reports.’ Of course we didn’t file suspicious activity reports! We were a business built around keeping transactions hidden from the government.
Despite all that, we honestly had no idea that we were doing anything illegal. The fact that we qualified as a money service business under the Bank Secrecy Act, which required us to report customers’ financial information to the government, didn’t even occur to us. We did flood the Cryptonomy marketplace with the bitcoin that we mined, but our intention was never to drive up prices or manipulate the market, we simply wanted to draw in more users. The more transactions that took place on our marketplace, the more in demand membership became. At one point, we had a waitlist over 20,000 people long. Anyway, the case was a joke, considering there were no securities exchanged on our platform. The prosecutor argued that we functioned as a clearinghouse for certain goods and services, and that in bundling and mediating the transactions we were “securitizing” them. In hindsight, we should have hired a top notch attorney and made the prosecution look foolish, but we didn’t take the case seriously and chose to defend ourselves. The judge wasn’t amused by our well-publicized antics, some of which went viral online. After that, he had no choice but to make an example of us.
Thanks to the outrage shown by our supporters, we served no jail time but were forced to shutter the site. On top of that, we had to pay a hefty fine to FinCEN which forced us to liquidate all our assets.
The court unsealed many of our financials, so it’s in the public domain that each of us were clearing almost 15 grand a month from the membership and transaction fees. Luckily, we’d each put away a good amount in cold hard cash and accumulated the expected trappings of yuppie life. Nice cars, golf clubs, watches and such. We sold everything that wasn’t bolted to the walls while the case was being resolved and managed to hide a fair portion of that money. It kept the party going a little while longer.
( Publisher’s Note: It is the author’s contention that this book is inadmissible in court as it is hearsay due to the editor’s contributions and reductions from this body of writing, and it must be taken in its entirety, and therefore has the defect of being too long to present in court, and in addition it risks inflaming any jury.) The funny bit about the whole affair would come just around the publishing of this novel, the year of our lord, two thousand and twelve, when it was revealed that 16 banks were being investigated for manipulating the London Interbank Offered Rate or LIBOR. All the big names were in on it, you can look it up. The investigation is developing, but I’ll venture a guess that none of those financial institutions will be forced to close down their business. If they ever do plead guilty, the Department of Justice will probably roll out waivers and allow them to continue their profiteering ways as primary dealers and retain their other market privileges. But that’s just one example of alleged market manipulation. Allow me an opportunity to list some prime examples of recent financial crimes that prominent financial institutions have already been found guilty of: committing massive fraud both in the origination and foreclosure of mortgages; pledging mortgages to multiple buyers; charging ignorant veterans fees they were exempt from; and bribing, or when that didn’t work, bullying the ratings agencies to give assets they were selling a high rating.
And that’s still just child’s play. What will undoubtedly soon come to light is the massive manipulation of other key markets, as is already widely reported by so-called conspiracy web sites. It’s common knowledge to most experienced market participants that financial institutions manipulate precious metals and other major commodities like oil and aluminum. Most damning of all is what I’ve been told personally by several friends in the industry: that bankers collude in online chat rooms to manipulate key foreign exchange rates including the Euro-Dollar. I sincerely hope that our Justice System has the courage to convict these criminals and criminal organizations, but I won’t hold my breath.
It gets funnier still. What really makes me laugh is that the central banks are manipulating a far larger and more important market than any of these other banks. The cost of capital itself! The major central banks of the world, private institutions all, openly manipulate interest rates and currency valuations. Of course when they do it, it’s called Open Market Transactions or some other innocuous name. It is not abundantly clear what made our actions unethical and illegal, while central bank actions are lauded by politicians, market participants, and the public at large. Most unfortunate is that the maneuverings of central banks are far more detrimental to the global economy than the actions of tiny players such as ourselves. The central banks theoretically have no limits on the size of their action, which means they can push markets in a single direction much further than any other parties (anyone seen the S&P lately?).
Returning to Cryptonomy, I’ll be the first to admit there was some seriously shady shit on the site. The kind of stuff we surely couldn’t report to the bleeding hearts over at FinCEN. People were buying drugs and weapons, services from renowned hackers, and even a contract killing or two were said to have transacted through our service. These examples were presented by an expert witness early on to tarnish our image, even though we had no direct connection to them, and the media was more than happy to push the story. Once the hack-job was complete, the preposterous charges were never mentioned again. Still, I would like to address the accusations. Cryptonomy simply provided a safe platform for transaction that would have largely taken place anyway. If someone needed to get drugs, or buy a gun, they were probably going to do it. We just gave them a way to do it discreetly, from their own home, rather than in some shady back alley. It’s a worn argument, but that doesn’t make it untrue.
Anyway, within a couple months of the verdict, we had completely wound down the business. I was once again left sitting idle with an expiring lease and a case of gypsy fever. Gavin, Viktor and I sat on a decent pile of cash that we couldn’t deposit in any bank right away, so we figured we’d go spend it in style. Lucky for us, the first bitcoin ATMs were beginning to pop up around the world so we had no trouble getting our cash overseas. Upon landing in Madrid we hit up an anarchist commune that had sent us an open invite when they heard of the Cryptonomy case. After a week of raging, they directed us to Ibiza where a DJ we just had to see was playing and from there we continued along the Mediterranean coast to Monaco, where we bankrolled Gavin for eight hours of black jack. Pockets full, we ventured forth to Vienna where we finally ended the trip.