SEC Settles Charges with Silicon Valley based Sand Hill Exchange. Company Sold Contracts Referencing Pre-IPO Startups using Dollars & Bitcoin

Sand Hill Oh SnapThe SEC has announced the conclusion of an investigation regarding Silicon Valley based Sand Hill Exchange, a firm that was apparently selling security based swaps to retail investors without a necessary registration statement and outside a national exchange.

Sand Hill Exchange settled without admitting or denying the findings and agreed to cease and desist from committing or causing any future violations of the securities laws.  Sand Hill agreed to pay a $20,000 penalty.

Sand Hill Exchange was co-founded by Elaine Ou and Gerrit Hall. The young company boasts several prominent investors, according to its AngelList page, including Tim Draper, Rough Draft Ventures and Boost VC.

According to the SEC, the violations were detected shortly after the offering process began, and with cooperation from the company the platform was shut down before any investor harm occurred.

“The Dodd-Frank Act prohibits security-based swaps from being offered in the darkness to retail investors, and we were able to act quickly before any losses materialized in this offering that occurred outside the proper regulatory framework,” said Reid A. Muoio, Deputy Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.  “We will continue to scrutinize this space for companies circumventing the law to offer security-based swaps without the safeguards provided to retail investors.”

Sand Hill ExchangeThe SEC settled administrative proceedings against both the company and Gerrit Hall and Elaine Ou.  The SEC provided an itemized list of infractions:

  • Sand Hill began as two Silicon Valley entrepreneurs creating an online business involving the valuation of private startup companies in the region along the lines of a fantasy sports league.  But Gerrit Hall and Elaine Ou changed their business model multiple times, and earlier this year Sand Hill evolved to invite web users to use real money to buy and sell contracts referencing pre-IPO companies and their value.
  • Sand Hill sought people to fund accounts using dollars or bitcoins.  Hall and Ou did not ask users about their financial holdings or limit the offering to users with any specific amount of assets.  In fact, they wrote on the Sand Hill website: “We accept everybody regardless of accreditation status.”  Hall and Ou intended to pay users who profited from their contracts.
  • Hall and Ou understood that they were buying and selling derivatives linked to the value of private companies, and Ou falsely claimed that they were in the process of seeking regulatory approval for Sand Hill’s contracts.
  • For about seven weeks, Sand Hill offered, bought, and sold contracts through the website in violation of the Dodd-Frank provisions that limit security-based swaps transactions with people who don’t meet the definition of an eligible contract participant.  Hall and SEC Securities and Exchange Commission GreenOu exaggerated Sand Hill’s trading, operations, controls, and financial backing.
  • Sand Hill, Hall, and Ou ceased offering and selling security-based swaps following inquiries from the SEC in early April.

Sand Hill had published a statement earlier this month stating they “never had any intention of operating in a regulated industry”.  The post has since been removed.


The SEC stated that its Complex Financial Instruments Unit will continue to scrutinize the “retail market for conduct that may violate the Dodd-Frank Act’s swaps provisions, including online competitions creatively monetizing what actually constitute security-based swaps transactions”.


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