Never speak to an officer from a three-letter agency without a lawyer. That was something I learned after taking a phone call with half the team that nailed Goldman Sachs.

A month earlier, we were app developers with an idea. Everyone’s calling a tech bubble. Let’s make a game for crowdsourcing predictions on startups. We wanted a stock-market type of experience, where people could throw pocket change on valuation wagers.

Facebook says, “Move Fast and Break Things.” Without any outside investment, we built Sand Hill Exchange. We moved fast. And boy, did we break things.

We listed sixty pre-IPO companies and signed our friends up as beta testers. Early orders sat unmatched in the order book. Nobody wants to play in a market with zero users, we realized. So we gave participants the illusion of liquidity.

We created bots to trade against incoming orders. They were like my friends. I even named them! My favorite was the “Jesse Livermore” bot. Opportunistic to a fault.

The bots would run every day and place orders against each other so the market looked like it was exhibiting lots of price movement and volume. For added credibility, we randomly generated trading histories for each company going all the way back to last year. So we had historical price and volume in addition to streaming quotes for chart data.

We pasted descriptive text cribbed from the websites of banks and registered exchanges to make our website look like a serious business. The Sand Hill Exchange Twitter account broadcasted information about market activity and stats. Our CEO relayed this to influential accounts, including a public discourse with Mark Cuban.

Team members planted references to Sand Hill Exchange in the comments of high-profile blogs, and journalists took notice. The editor of FT Alphaville even wrote a post about us.

25 days into our experiment, activity on the site was parabolic. Users were writing their own algorithmic traders. On most days, Sand Hill Exchange saw more trading volume than the New York Stock Exchange (circa 1840). Behind the scenes, we mapped out technology infrastructure to decentralize the exchange.

That’s when we received an inquiry from the SEC. And then a subpoena demanding a court appearance and all our documents and communications since the beginning of last year.

We had less than $10,000 in the bank. We had no legal counsel to speak of.

We tried to convey how small we were. We’re just testing an app idea, we explained. Most of the users are our friends and coworkers, we said.

Another thing I learned: If you’re gonna try to make yourself look like a legitimate financial institution, you’ll be prosecuted like a legitimate financial institution. And when that happens, you sure as shit better have the legal resources of a legitimate financial institution.

The Commission accused us of acting as unregistered broker-dealers, selling security-based swaps, offering swaps on an unregistered securities exchange. Far too late, we realized we needed a lawyer.

I wish I could say that we put up a scrappy fight, persevered, came out ahead. But team members left. Many of our mentors, friends, and associates also received government subpoenas. Their counsel advised them to halt all communication with us. We had never felt so alone. I spent most of the month in the bathroom crying. I wonder if Lloyd Blankfein had months like that.

The power to investigate carries with it the power to defame and destroy. The Division of Enforcement offered to settle the case for a $20,000 fine. Without a corporate barrier to protect us, the penalty was personal. How high would the fine go if we did not settle?

We handed over our wallets so that we could move on. I guess there’s now an SEC order barring me from breaking securities laws in the future. As if it had been perfectly legal to violate them beforehand.

In Silicon Valley, we believe that any industry can be disrupted with a slick mobile app. We’re hackers, we pride ourselves in pushing the boundaries. We innovate to get around annoying rules that we think don’t make sense for our situation. Finance is a lot like that too, I’ve learned.

It just isn’t like that for the steerage class.