Springfield man ordered to pay civil penalties in Bitcoin case

A Springfield man has been ordered by the Office of the Missouri Secretary of State to pay civil penalties of more than $30,000 in connection with actions taken while leading two Bitcoin-related companies.

The website for the Active Mining Corporation and Virtual Mining Corporation — which Kenneth E. Slaughter said sold more than $6 million worth of Bitcoin mining hardware, in addition to stock worth hundreds of thousands of dollars — is no longer active.

In an order finalized last month, the secretary of state's office found that Slaughter and/or the companies committed multiple violations of offering and selling unregistered, non-exempt securities; transacting business as an unregistered agent; employing or associating with an unregistered agent and making an untrue statement and omitting to state material facts in connection with the offer or sale of a security. The office had halted investment activity associated with the companies in June.

In addition to the civil penalties, Slaughter and the companies have been ordered to "disgorge any profits" arising from the violations.

Office spokeswoman Stephanie Fleming said Slaughter failed to pay the assessed penalties within the required 30 days and that another notice of collections will be sent before the penalties are turned over to the Office of the Missouri Attorney General. Slaughter has asked the commissioner of the secretary of state's Securities Division to reconsider the order, she said.

The phone number and email previously used by the News-Leader to contact Slaughter were no longer active this week. Slaughter used to communicate about the businesses semi-regularly on the Web forum Bitcointalk but hasn't made a post there since June.

Springfield attorney Chip Sheppard, who spoke in defense of Slaughter's operation following the secretary of state's announcement, withdrew as counsel for him in November after receiving no response from Slaughter for weeks, the order says. The order approving Sheppard's withdrawal also noted Slaughter's "seeming lack of participation in this administrative process." Slaughter failed to appear for proceedings on multiple occasions, the order says.

Slaughter and his companies were the focus of a March 2014 News-Leader story, in which he acknowledged that the secretary of state had begun an inquiry into his operations. He said at the time he didn't believe his companies had conducted any securities transactions in the state and stated that Bitcoin was "an entrepreneur's dream situation."

Bitcoin is an unregulated-peer-to-peer digital currency, and bitcoins are generated through a process known as "mining." Miners, which are essentially specialized computers, solve complex software problems and are awarded bitcoins each time they find the solution.

Slaughter told the News-Leader last spring that he ordered bitcoin mining machines online in early 2013, created a cooperative and sold stock in his anticipated future earnings. He soon realized that was "a very gray area" with the U.S. Securities and Exchange Commission, he said, so he incorporated a company in Belize known as Active Mining Corporation.

He then founded Virtual Mining Corporation, incorporated in Delaware, to develop bitcoin mining machines to be used by Active Mining — and to be sold to consumers. Bitcoin had exploded in popularity as its value went up, and in the fall of 2013, Slaughter posted online that he had sold $6.3 million in pre-orders. In an October 2014 Bloomberg story, Slaughter was quoted saying one purchase was for more than $140,000. Virtual Mining has never announced the delivery of any mining machines; some customers have reported getting refunds.