Sand Hill Exchange, a venture allowing investors to bet against unlisted tech startups using the blockchain, has been fined US$20,000 by the US Securities and Exchanges Commission (SEC).

The exchange, which had previously also used Bitcoin as an internal currency, confirmed it was under investigation and was reverting to a previous, free version of its service in a blog post, now deleted.

“We reached a settlement agreement with the SEC and are reverting to the uncontroversial free version of Sand Hill Exchange. Sand Hill Exchange has always been strongest as a site focused on education and community. The paper trading version of our site preserves these values while providing a safe, fun experience.”

The post added that developers had “mapped out technology infrastructure to decentralize the exchange,” which resulted in a subpoena requiring all documents to be handed over.

“We had less than $10,000 in the bank,” the post continues.

Sand Hill had attracted considerable attention prior to the SEC episode in March with the Financial Times describing it as “the chance to use Silicon Valley innovation to bet against Silicon Valley itself.”

Investors were sold so-called ‘contracts’ worth approximately one billionth of the relevant company’s assumed value, with liquidity events determining the final price.

The Times further explains that the contracts used by Sand Hill, UK-style ‘contracts for difference,’ are all but illegal in the US, where their counterpart ‘total returns swaps’ would provide “so much red tape… around their usage that they just aren’t used.”  The solution to bypass the bureaucracy using the blockchain to settle transactions could easily have piqued the SEC’s interest.

Nonetheless, reactions to the news appear lackluster; SK Ventures partner Paul Kedrosky sarcastically tweeting the SEC was “keeping us safe from… something or another”:

Reddit users have been less lenient, however, pointing to certain practices during the company’s fee-paying existence which could have alerted authorities.

Specifically, a post on Medium by Sand Hill staff, now “censored” but still available as a cached web page, includes details of bots set up to “trade against incoming orders.”

In its current version, Sand Hill explicitly states it no longer offers contracts for money, having refunded all user-generated funds, including those in bitcoin, in full in April.

Nonetheless, the company still describes itself as “the new Wall Street,” demonstrating interest in its underlying concept has not waned, even if the exchange itself is now necessarily “for entertainment purposes only.”

Sand Hill Exchange and SEC logos