On March 10, the Securities Commissioner of the State of Texas issued an emergency order against Balanced Energy, LLC (“BE”), ordering it to immediately cease and desist its sale of working interests in oil wells (“C&D”). The primary basis for the C&D appeared to be that the working interests constituted unregistered securities, and that by offering them for sale without a qualified exemption, BE was violating both state and federal securities laws. However, the C&D also noted BE’s claims that it is the first company in the oil and gas exploration and production industry to accept bitcoin as payment for its prospects. The C&D concluded that BE’s failure to disclose the risks associated with using bitcoin to purchase unregistered working interests constituted fraud and materially misleading conduct in connection with the offer for sale of securities – activity that threatened immediate and irreparable public harm. The C&D specifically focused on perceived risks inherent to the use of bitcoin and the risk that fluctuation in the price of bitcoin may affect business operations. These findings regarding BE’s use of bitcoin follow the Securities Commissioner’s previous issuance of a press release addressing the risks associated with investments tied to digital currencies.
Given the regulatory environment in Texas, virtual currency firms conducting transactions with Texas consumers should ensure that they are compliant with Texas financial and consumer protection laws. Further, virtual currency firms conducting transactions in Texas should provide appropriate disclosure to their customers of any risk associated with virtual currency transactions.