Garrett Keirns was a college student when he made a public offering of the Bitcoin Emerging Market Fund, a kind of mutual fund for very risky early-stage bitcoin investments.

This was in late July 2012—when the bitcoin digital currency was still an underground technology—and he didn't think to file any paperwork with regulators such as the U.S. Securities and Exchange Commission. But he eventually sold about 150,000 shares of his fund on the Global Bitcoin Stock Exchange—a home brew stock exchange that would abruptly cease operations just three months later.

In the wild west of crypto currencies, Keirns was doing what came naturally. He had a business idea, and he created a fund. But now the law is starting to clean up this wild west. In early September, David Benson, a lawyer with the SEC, wrote Keirns a letter. Benson said he was investigating whether "violations of the federal securities laws have occurred," and he asked for financial records and more information related to the fund.

Garrett Keirns isn't the only bitcoin entrepreneur to come within the sights of the SEC, and some worry that his case may mark the beginning of a larger crackdown into the technically interesting and freewheeling world of crypto currency pre-sales—a crackdown that could affect promising Bitcoin 2.0 projects such as Ethereum, MaidSafe, and Counterparty.

Keirns, who doesn't have a lawyer, says he took in lass than "five figures" in U.S. dollars from the Bitcoin fund, which is still being traded. He's doing his best to comply with the SEC's request, which he calls an "invasion of privacy," but he feels that bitcoin-dominated trades are a gray area. "I believe that the SEC doesn't really have a jurisdiction when it comes to bitcoin. This is not US dollars or euros."

But SEC Chair Mary Jo White doesn't see it that way. In a letter she wrote to the Senate Homeland Security Committee committee last year, she said that "interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies likely would be securities and therefore subject to our regulation." That language could ensnare not only Keirns but many others.

'The Ponzi Scheme'

In September, following an SEC prosecution, a Texas court ordered Trendon Shavers to pay a penalty of over 40 million for operating a bitcoin investment vehicle called Bitcoin Savings and Trust. The court ruled that it was a ponzi scheme. And in June the SEC settled with well-known bitcoin entrepreneur Erik Voorhees for his involvement in two unregistered IPOs. Voorhees had sold shares in his companies without filing any SEC paperwork. He paid $50,000 in his settlement.

Benson and the SEC won't confirm or deny that they're investigating bitcoin companies, but last week, a blogger named Mike Johnson caused some anxiety when he claimed that the agency was conducting a probe of hundreds of bitcoin businesses. In a telephone interview, Johnson told WIRED that he had been sent the documents from a source within the SEC, and that the bulk of these letters have yet to be sent out. But he was unable to back up his claims. Last Thursday, Johnson said he'd send WIRED copies of some of the SEC inquiry letters he'd received. On Friday, before he'd sent anything, he abruptly stopped answering our messages.

But it's not difficult to find eyebrow raising activity within the crypto currency world. From overt pump-and-dump schemes to offshore bitcoin mining investments, to questionable crypto-currency pre-sales.

The Year of the Second Crackdown

To a certain extent a crackdown makes sense. If 2013 was the year that Federal agencies locked horns with bitcoin, the currency, 2014 is the year that they're learning about bitcoin the fundraising mechanism. The current, technically interesting, bitcoin fundraising bubble, began late last year when a new Mastercoin built kind of bitcoin 2.0 system—a way of extending bitcoin's blockchain so it can do a whole range of new things such as issuing brand new currencies and registering bets or contracts.

Mastercoin led to a range of imitators: Ethereum, MaidSafe, and Counterparty. Like Mastercoin, Ethereum and MaidSafe are essentially software startups that are pre-funded by selling their new digital currencies in advance. Ethereum raised the equivalent of $15 million via its presale this year. They say that they are not selling equities, though, but rather newfangled digital tokens that will be used to power a new generation of computing applications, whenever their new systems get off the ground.

"In our viewpoint, we're pre-selling access to the network in the same way that a computer game is pre-sold to users," says Nick Lambert, MaidSafe's chief operating officer, adding, "but I think, clearly, guidance is required." MaidSafe raised the equivalent of $8 million during its April pre-sale, Lambert says.

The question is whether federal regulators—the SEC in particular—will see this as an equity offering or instead something like the pre-sale of a video game. If the SEC decides that Ethers or Safecoins are equities, or if commodities regulators such as the Commodity Futures Trading Commission get involved, it could pop the bubble of the burgeoning crypto pre-sale movement.

Bitcoin As Asset

Like others in the bitcoin community, Patrick Murck, would like to get a clearer picture of how federal regulators see these novel mechanisms. "Bitcoin as money came first. Everybody was unsure where it fell. While we're still working out the finer points, I think everybody got a rough understanding of the regulatory framework," says Murck, the executive director of the Bitcoin Foundation. "Now we're entering this new world where bitcoin is an asset, really. And we're starting this process all over again. I imagine it will unfold in a similar fashion."

Other than Garrett Keirns, none of the companies that WIRED reached out to this week have received SEC letters. But some of them also also want to work with the SEC to make these technologies more widely available.

Overstock.com CEO Patrick Byrne recently hired two of the founders of Counterparty to build a bitcoin-like stock exchange, where anyone could issue and trade stock without going through third-parties such as NASDAQ. He wants to work with the SEC to make this happen. But he also acknowledges that there are some grey areas. "At some point, there is a very blurry line between crowd-funding and an IPO," he says. "I think the SEC has a legitimate interest in regulating IPOs"

Cade Metz contributed to this story.