Thomas Gounley

TGOUNLEY@NEWS-LEADER.COM

Secretary of State Jason Kander has halted investment activity associated with in a Springfield resident's Bitcoin-related businesses, saying in a news release Monday that Kenneth Slaughter used "deceptive tactics" to convince online investors to pay for the development of Bitcoin mining equipment.

Mining is the process of solving complex math problems to gain additional Bitcoins, an unregulated digital currency.

"The fact that somebody is selling investments through Bitcoin rather than traditional currency doesn't change their obligations to investors, and I encourage Missourians to call my office before making any Bitcoin investments," Kander said in the release. "Investors have a right to know the full set of facts about both an investment and its backer, including the risks, profit-generating strategy and pertinent financial history."

In early 2013, Slaughter told the News-Leader he ordered some bitcoin mining machines, created a cooperative and sold stock in his anticipated future earnings. That, he soon realized, was "a very gray area" with the U.S. Securities and Exchange Commission, 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. He has run the companies from a location in the 400 block of South Union Avenue in Springfield.

In Kander's release, he stated that Slaughter used an online forum known as "Bitcointalk" to solicit potential investors. Kander stated that Slaughter told investors they could see a two-year return on their investment as high as 2,812 percent if they purchased stock.

The offering brought in more than $200,000 in Bitcoins, according to Kander. Slaughter also told potential investors that his company had offices in London and that investors would receive 100 percent return from the "global profits" of his technology sales, Kander said.

Kander's office asserts that in each offering Slaughter took no steps to inform investors of some of the potential risks involved with his venture, including the volatility of digital currency. Instead, Slaughter allegedly said that bitcoin was "highly regulated" at both the state and federal level. In reality, as an investor alert from Kander's office noted, bitcoins are not issued by banks or the government, and various federal regulators are still assessing how to approach the digital currency.

Additionally, Kander said Slaughter should have advised investors of relevant complaints against Slaughter and his previous company, Active Internet Communications.

"I encourage Missourians to call my office at 1-800-721-7996 to check on the registration status of the person and product they are considering investing with," Kander said in the release. "If somebody isn't registered, that's a major red flag."

Slaughter told the News-Leader in February that he had received a letter from the secretary of state's Securities Division. A spokeswoman for the secretary of state's office did not respond to a request for comment at the time.

In February, Slaughter attributed the letter to a disgruntled investor and said he had sought legal counsel. He said that he believed Active Mining had not conducted any securities transactions in the state, and asserted multiple times online and in interviews with the News-Leader that he was not trying to take advantage of investors.

"I guess I could do that, but I am not going to, because what I want is for this to be successful, and walking away with the bucks would not make me feel like I was successful," he wrote on Bitcointalk on July 19. "It would make me feel the opposite."

Reached by phone Monday afternoon, Slaughter was unaware of Kander's news release but said it must have been part of a settlement his lawyers were working on with the office. He said he also expects to have to pay a fine.

"I haven't heard from my lawyer exactly how much that's going to be," he said.

"It's not a bad deal," he added.

Slaughter said Kander's actions prevent from him from selling shares, and that current investors "have a choice of whether they can stay in or get reimbursed." He said he didn't have an estimate of how many would choose to be reimbursed, and stated that the companies are in an "excellent position."

Slaughter and his companies now face the prospect of multiple penalties from Kander's office, according to Monday's release.

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