Brazilian Whacks “Bitcoin Investment Group”
Yesterday the acting president of CVM, the securities regulator for Brazil, signed a decision ordering the administrator of “Grupo de Investimento Bitcoin” to suspend what the regulator describes as an investment fund.
Less than a year ago Leandro César, an IT Consultant from Belo Horizonte, Brazil posted a thread on the BitcoinTalk forum titled Grupo de Investimento Bitcoin. The post solicits investors for an “investment group”. The only funds accepted for investment are bitcoins and payments sent to investors withdrawing from the fund are sent in bitcoins as well.
The investments are made in 30-day cycles and after each cycle investors may withdraw their balance, an amount that will either have increased or decreased based on whether there were profits or losses from the round. Funds not withdrawn may be used towards subsequent investment rounds.
The most recent round, Round 8, totals 500 BTC in size. With an exchange rate of nearly $9 USD each, the total valuation of the current round is just under $4,500 USD.
A response to the decision was posted in the group’s forum thread by César in which he claims that the offering was never based in Brazil nor was it publicized to those in Brazil.
"[Grupo de Investimento Bitcoin] has no flag and no country. It is decentralized and universal" César claims.
Because Bitcoin is a pseudonymous digital currency, the investment group doesn’t necessarily know where the funds originate. Bitcoin transactions include no information that would reveal the country of origin which would give the group an idea as to which investments came from those in Brazil. Communications to and from the investors do occur via e-mail but knowing only an e-mail address doesn’t always give an indication of the account owner’s country of residence.
César asks “The group has never operated with any other currency besides bitcoins. This attack by CVM leave us with only one question: Is Bitcoin being recognized by the Brazilian government as a currency now?”
This is the first time it has been made public that a government organization anywhere has classified holdings of bitcoins as securities and it is also the first time a regulator anywhere has ordered a bitcoin-related entity to end its actions involving the digital currency.
The solicitation for the investment group describes the pursuit of profit in trading by taking advantage of bitcoin’s volatility at the exchanges which can generate returns better than other investment opportunities. [Clarification: The operator hasn’t set the group up as a formal legal structure, there has been no audit, and the source of profits is unknown. This could possibly be a HYIP, which pays earlier investors with funds from later investors, known as a Ponzi scheme.]
César shared on the forum post that investment in the group will no longer be offered in Brazil, though he also vows to continue operating. ”This has no effect on the investment group” he asserts. César first learned of the regulator’s decision after being contacted by a lawyer after various reports had run in online media. Later an e-mail from the regulator had been received with the details.
There are numerous funds and other financial activities that have a relationship to bitcoin. These range from smaller investments trading on the Global Bitcoin Stock Exchange (GLBSE) to a larger operation that is estimated to have received a million or two worth of funds (measured in USDs). These are all unincorporated, transnational voluntary associations that are registered with no regulatory authority. The funding transactions for these investments occur using bitcoins, allowing these entities to operate nearly entirely online with no interaction directly with the banking systems.
That investments can be operated in this manner must be concerning enough to Brazil’s regulator to cause them to take the time to proceed with this decision against such a relatively small-time fund. Certainly the citizens of Brazil will be thankful their government is protecting them from such dangerous financial innovation.
[Update: Mr. César has since deleted the threads where the investment group was discussed and later where the CVM decision was published.
Since that time, César has begun offering 30-day loans with no pre-determined interest rate. The wording on the details may have changed in response to the CVM’s decision but the offer made is essentially identical with the exception that there is now no capital at-risk. There is instead debt that has taken in its place. Legally, these two concepts are different. To former investors of Grupo de Investimento Bitcoin who now become lenders to Mr. César, there essentially is no difference. Since these investors were already willing to send bitcoins to an unincorporated investment group, they would likely be no less likely to send their bitcoins as a direct loan either.]
Further discussion of this topic is occurring in the Press forum thread on media reports about this.