On June 17, 2015, the SEC settled allegations that Sand Hill Exchange illegally offered security-based swaps (SBS) to retail investors in contravention of US securities laws put in place under Title VII of the Dodd-Frank Act.

Under Title VII and the US securities laws, in order to be offered to a retail investor that is not an eligible contract participant (ECP), a SBS must:

Sand Hill began by offering a type of "fantasy league" for Silicon Valley startups, which subsequently evolved into a web-based service that allowed users to buy and sell contracts referencing pre-IPO companies using dollars or bitcoins. Sand Hill neither limited their offerings to ECPs nor offered registration statements in connection with the contracts.

The SEC found that these were offerings of SBS and that Sand Hill and its principals therefore had violated Section 5(e) of the Securities Act (15 U.S.C. § 77e(e)) and Section 6(l) of the Exchange Act (15 U.S.C. § 78f(l)). Sand Hill, without admitting or denying the findings, agreed to pay $20,000 in penalties.

This enforcement action highlights the ease with which certain activities may qualify as the prohibited offer and sale of SBS. Those that offer contracts for sale that reference existing securities, whether registered as such or not, may inadvertently offer for sale SBS swaps that are subject to extensive regulation under the Dodd-Frank Act and the US securities laws.