Regina bitcoin startup denies wrongdoing

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The chairman of a tiny bitcoin startup in Regina that is facing a cease-trade order from Saskatchewan's securities regulator says his company has done nothing wrong and denies it was even selling shares.

Jason Dearborn, a former Saskatchewan Party MLA, says his fledgling company, Dominion Bitcoin Mining Ltd., has no investors other than its three founders, a group that includes its president, Peter Voldeng, a former president of the Saskatchewan Party.

"Is there a likely misunderstanding around this? Absolutely," Mr. Dearborn said in a phone interview. "We were very surprised by this."

This week, Saskatchewan's Financial and Consumer Affairs Authority announced that it had levelled a temporary cease-trade order against Dominion, alleging that the company "appears" to be soliciting investors and trading securities without the proper registration or paperwork. The order expires on May 15, but could be extended.

The move was seen by some as the latest sign that securities regulators are increasingly taking notice of bitcoin, an Internet-based currency that proponents say makes international transactions easier and cheaper but that detractors say is a boon to money launderers. Its volatility has also made it popular with speculators.

Mr. Dearborn, a farmer and an entrepreneur who says he has helped raised capital before, accused the Saskatchewan regulator of "looking for turf protection and coming out publicly to try to show relevance" by singling out a company dealing with the controversial Internet currency.

Before the cease-trade order, Mr. Dearborn said the company first heard from the regulator about its concerns on April 17. He said Mr. Voldeng responded that Dominion was not signing up any investors and that if it started to, it would "do it properly." (Mr. Dearborn did acknowledge the company had approached a small number of people in "discussions.") The company's lawyer is now preparing another response for the regulator, Mr. Dearborn said.

However, Saskatchewan officials have zeroed in on the language on the company's website, which invites "sophisticated investors" to peruse it and compares bitcoin mining to "purchasing shares in a gold mine."

Mr. Dearborn argues there is nothing wrong his website's wording, and says his company has legal advice to back that up.

"'Investors' in some ways can be looked at as a marketing term," he said. "We want to sell the mining services and the only thing that would come out of it is going to be a bitcoin."

Not only that, but if the company did start soliciting investors, Mr. Dearborn argued, investments made in bitcoins would not be even subject to securities rules.

"We would take investment directly in bitcoins, as well, which we don't think falls under the purview of the securities commission. If you look at the website, we've never asked for Canadian dollars," he said, later adding that he feels regulators need to begin discussing how to deal with virtual currencies.

The company says its plan is to go into business as a bitcoin "miner" and offer a service that would allow people to pay a fee in order to receive bitcoins. Bitcoin transactions are performed and logged by a decentralized global network of computers. As a reward for maintaining the network, the owners of those computers, known as "miners," receive new bitcoins.

While Dominion now has some computers doing a very small amount of bitcoin mining, Mr. Dearborn said the company was awaiting a shipment of more powerful computers from Switzerland before getting started in earnest. On Mr. Voldeng's LinkedIn page, he boasts that Dominion plans to operate "the largest bitcoin mine in Canada."