Sand Hill Exchange – Response to SEC Enforcement Action
My name is Gerrit Hall, serial entrepreneur and creator of Sand Hill Exchange. We recently settled with the SEC, and I’d like to tell you all the story of what we were trying to build, why I got in trouble, and what we can all learn from this.
First off, what is Sand Hill Exchange?
We were pioneering the concept of “Fantasy VC” – except where fantasy sports lets you draft your favorite players onto a team, Sand Hill Exchange would let you draft your favorite startups into a portfolio for competition.
Our amazing team moved quickly to realize this concept. Within the span of six months we tested four different iterations of the rules of our game, making rapid changes as we gathered feedback from our users.
So how did I get in trouble?
In March I stepped over a line when I set out to test our users’ willingness to pay. While we kept the general public on a waitlist, I opened a private beta for 55 friends, family, and power users to test our newest iteration. I accepted deposits, primarily in Bitcoin, worth about $3000, an average of $60 per participant. This attracted the scrutiny of SEC regulators.
I believed the 2006 UIGEA provided a carve-out for skill-based competitions with parimutuel outcomes. The SEC found otherwise, determining this constitutes a securities-based swap. We have complied with their cease and desist order, terminated our beta and refunded our friends.
I personally accept all responsibility for any and all wrongdoing throughout the entirety of Sand Hill Exchange. In particular, while trying to grow our waitlist, I utilized aggressive marketing tactics and I misused words that are highly charged in the financial sector. I should have been less sloppy in my execution and more deliberate in my language. Please accept my sincerest regrets.
So, what can we all learn from this?
As a serial entrepreneur, the concept of Fantasy VC is very personal. When I first started launching tech startups a decade ago, the world was a much lonelier place to start a company. It warms my heart to see how popular support for startups is at a fever pitch. It’s for these reasons I continue to operate Sand Hill Exchange without any real currency, so we may realize its full potential as an educational community.
I have a great deal of empathy for government regulators. The world is changing very fast, particularly with the advent of blockchain technologies. They are under incredible pressure to adapt to the future and are necessarily moving fast to make it happen. If I may be so presumptuous as to offer some feedback, I would suggest that the enforcement tactics necessary to subdue criminal activity at large banks are not congruent with the enforcement tactics necessary to regulate innovation at small scale startups.
To this end, I join the call for the creation of financial innovation sandboxes. This would allow small opt-in communities with an understanding of the risks to try out new FinTech products in a regulated environment. This would be a win for regulators and also would keep top innovators from fleeing the United States.
I’m thankful America has allowed me considerable freedom to create great innovations which have helped millions of people. The principles of honest entrepreneurship are my most cherished values, and I aspire to pay it forward to the next generation of entrepreneurs by building you something incredible. Please support us by joining our newest iteration of Sand Hill Exchange.