FaceCash Files Formal Complaints Against Stanford, USC, Pomona, and AAU

http://www.aarongreenspan.com/writing/brown.html

by thinkcomp • 15 years ago

158 99 15 years ago

temphn4• 15 years ago

Sure, Aaron Greenspan/thinkcomp complains too much about Facebook. But here he absolutely has the State of California dead to rights. This is about as clearcut a concrete example as you can get of how "regulatory uncertainty" kills businesses dead. The key bureaucrat involved won't even state the net worth you need to be a payment processor in CA! His name is:

  Jacob Appelsmith
  jacob.appelsmith@abc.ca.gov

A polite email asking him why it is now official CA state policy to persecute payment startups might be useful.

EDIT: Mr. Greenspan, your exhibit at the end made me laugh out loud:

http://www.aarongreenspan.com/writing/20111019.aaupacket.pdf

Awesome and very funny. You might want to make these pdfs bigger, or just make the webpage one long html file.

thinkcomp25• 15 years ago

It's not just that.

The same bureaucrats perpetuate the falsehood that high net worth requirements somehow protect consumers. They do not. The extremely expensive surety bonds put in place as insurance (since FDIC protection does not cover money transmitters) only go a very short distance, and beyond that, they only cover licensed money transmitters. This means that the whole system is pointless, because consumers are never protected from the highest-risk money transmitters: those who never bothered to apply for a license (maybe because the requirements are so high). So despite the facade of regulation and consumer protection, the system actually increases risk while protecting incumbent interests.

devs10102• 15 years ago

I don't agree with the government and hate their authoritanarianism but isn't this essentialy what the OWS protests are all about? Its become pretty well known that big finance / big banking own the government and anything that threatens them is going to be responded to very harshly. I just think you may benefit form taking your message to a larger audience as it is more indicative of the overall corruption of the government than anything else and may not be specifically related to most other tech startups.

FluidDjango• 15 years ago

> the falsehood that high net worth requirements somehow protect consumers

Perhaps they serve to protect that vulnerable segment of our population, the mega-corporation?

Once yours reaches sufficient size/influence [never to be explicitly specified] it may be able to claim such rights for itself before the U.S. Supreme Court, the supremely sympathetic arbitrator of such matters in this country. [/sarcasm]

staunch4• 15 years ago

Wow, truly breathtaking that you managed to squeeze a claim of creating Facebook in there.

Have you considered that maybe if you were more willing to break stupid bureaucratic rules you wouldn't run into these roadblocks?

It's not even clear the law applies to you and very unlikely anyone is going to care unless you're successful (at which point it would be worth fighting over).

PayPal was arguably breaking all kinds of esoteric banking laws when they started. They were getting constant threats from state attorneys. In the end they worked it all out.

thinkcomp25• 15 years ago

I don't assume that politicians know anything about me. Context can be helpful in getting a message across.

PayPal started before the USA PATRIOT Act made it a federal crime to violate state money transmission statutes. Max and Peter weren't looking at jailtime in 1999. Entrepreneurs (and investors, and directors) today in this space who break the rules are. Besides which the California law only went into effect this July, twelve years after PayPal started.

Also, it's extremely clear that the law does apply to us; that's why we were able to get an exemption order.

staunch4• 15 years ago

1. Take the risk anyway.

2. Change your idea.

3. Spend the next year trading letters with bureaucrats.

What Would Zuck Do?

temphn4• 15 years ago

While you might be willing to break stupid bureaucratic rules, your investors won't be. You also assume that these regulators are lax in their enforcement. Make no mistake, the current administration wants to regulate the heck out of everything and everyone...especially in the financial sector.

The will to enforce is most certainly there today, and the moment you get a little bit of press (not even necessarily bad press) everyone, including your competitors, will check to see if you have the necessary certificates on file. If not, they will just narc on you to the regulatory authorities...who they are on a first name basis with, as they have known them for years. And if you get bad press, you can't just ride it out. Reporters will strip away all context and ask: "why is an unlicensed payment processor allowed to do business in the State of California"?

Especially when prompted by the press or their friends, regulators can spring into action out of nowhere and levy a host of civil and criminal penalties, up to but not limited to pulling your product from the market and freezing your assets so you can't meet payroll.

So, in short, you don't want to screw around with regulators under this administration. They treat businesses a LOT more harshly than college students. Indeed, no less an authority than Peter Thiel himself has commented that it might be impossible to clone Paypal today as the bridge seems to have been pulled up behind them:

http://news.cnet.com/8301-31921_3-20114584-281/talking-tech-...

  CNET: I wrote a retrospective piece for CNET recently 
  about how significant the post-9/11 regulatory shift was, 
  especially when it comes to privacy. 

  Thiel: It's not exactly clear to me whether Paypal could 
  be built as a business today. That may be too strong.... 
  As a startup, these kinds of regulations are much more 
  onerous. Paypal was able to be built at a time that was 
  pre-9/11 on a regulatory basis. Post-9/11 it would be much 
  more difficult to build. It makes the franchise more 
  valuable. I think no competitors will ever be built.

jeffreymcmanus• 15 years ago

There are plenty of investors willing to back businesses that operate in legal grey areas. There are countless examples of this.

JoshTriplett4• 15 years ago

This seems like quite a lot of trouble to go to, rather than simply move to a state with less regulatory insanity. Startups have enough windmills to tilt at without taking on more.

thinkcomp25• 15 years ago

Moving doesn't make you exempt. Retailers want a national solution anyway.

Vivtek• 15 years ago

Moving would underscore the damage the law and its haphazard enforcement are doing to the State of California, though.

JoshTriplett4• 15 years ago

States aren't allowed to regulate inter-state commerce, as much as they'd like to think otherwise.

Worst case, you might have to say "Sorry, we can't accept customers from California, because those customers might be breaking the law in their own state", and you only need to do that if the law penalizes customers and not just the businesses serving those customers.

Now, if you do business within a state with no such laws and another state claims regulatory authority over your business, or if some federal regulation attempts to enforce this ridiculosity, then by all means I'd suggest fighting that tooth and nail. A business should only have to deal with one vertical tower of authorities above them, not all the ones sideways of them too.

nhebb• 15 years ago

If you were simply an activist, I'd applaud your tenacity to battle the state. But you're a CEO. You let go staff that were (I assume) critical to your operations. Unless those employees are just sitting by the phone waiting for you to re-hire them, you've probably lost hard gained domain expertise.

And while I admire your goal to hit it out of the park with national retailers, from your "Where can I use FaceCash?" page (http://www.facecash.com/where.html), it looks like you were trying to grow the business with small local companies anyhow. If you moved the business to another state, you could at least get on with growing your business organically.

devs10102• 15 years ago

The government is all over money transmissions now, they are putting regulations in place in the name of fighting terrorism, war on drugs, etc I don't think this is indicative of a larger problem of all startups being affected by overwhelming regulation, the FaceCash guy chose to go into a very heavily regulated field and I have a feeling he would face issues anywhere in the US, if not from the state government, then from the feds

scottshapiro• 15 years ago

tl;dr?

Do startups like WePay also face similar challenges?

thinkcomp25• 15 years ago

Yes and no.

WePay is an agent of The Bancorp Bank (because of laws like these), so they are exempt from most money transmission laws.

On the other hand, FC § 1827 makes it a crime for any entity to aid an organization that would otherwise require a license. So who knows what's going on there.

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=fin...

lisper3• 15 years ago

So why don't you work through Bancorp as well?

natrius• 15 years ago

This discussion will doubtlessly drift towards your claim of creating Facebook when it's unrelated to the rest of your solid argument. I don't understand the logic behind your decision to throw that in the mix.

rprasad• 15 years ago

I assume that it was his attempt to give himself the appearance of authority, because the lengthy rant sure as hell did not.

The guy displays shockingly poor decision-making. Why would I (as a prospective customer) want to do business with a company that didn't do basic research into the regulatory environment of its target market?

The point of the capitalization requirement is not to inhibit startups -- rather, the point is to make sure that someone who wants to launch a business handling other people's money puts at least some thought into it. In this case, the Aaron guy appears not to have put any thought into it at all, and is now blaming everyone else for his mistakes.

thinkcomp25• 15 years ago

I did basic research, and a lot more, actually. The real question is how do you research, in 2009, a law that won't be drafted until 2010? It didn't exist at the time.

In this particular case, the point of the capitalization requirement actually is to inhibit new businesses. There are much better ways to assess risk, such as taking into account the actual involvement of credit, investments, and anti-fraud measures.

malandrew• 15 years ago

AFAIK, the regulatory environment of his target market changed due to the lobbying of the Money Servies Round Table. The changes made to the law resulted in the company, which was previously legal, to fun afoul of the law.

ceejayoz• 15 years ago

> This discussion will doubtlessly drift towards your claim of creating Facebook when it's unrelated to the rest of your solid argument.

Here, and at the intended recipients as well. "I invented Facebook" being thrown in to a formal letter is likely to drop it into the crank file (as will the "this guy also filed a bunch of complaints against colleges for having meal plans").

foobarbazetc• 15 years ago

Meh.

luser001• 15 years ago

I know some are going to hate on you here, but you're a real hero man. Darwinspeed to you. You're helping all of us little guys here.

cpeterso• 15 years ago

Despite the name, FaceCash identifies purchasers with a bar code, not their face. FaceCash's face identification is the equivalent of credit cards with your photo on them. The photo is just casual security and doesn't help for online purchases.

My university's cafeteria linked student id cards with a debit system. To ensure cafeteria cashiers checked the cards' photos, "secret shoppers" would occasionally try to buy lunch with a card featuring a portrait of a friendly golden retriever. :)

thinkcomp25• 15 years ago

This is incorrect.

The photo that matters for FaceCash is the one that is downloaded from the server onto the POS. The one on the phone is just for show, and cashiers are instructed to basically ignore it. So if you're a thief, you can't just put a JPEG of your thief-face next to someone else's barcode. The correct owner's face will still show up on the register.

rfugger• 15 years ago

Question: Did the state come after Mr. Greenspan, or did he pick a fight with them because of this silly rule? If it's the latter, then I certainly sympathize, but it doesn't seem like the best approach to having your business succeed. Better to avoid attracting undue attention until you're big and well-connected enough that any bureaucrat who threatens you with an arbitrary rule is risking their own job. Until you're that big, you're likely under their radar anyway.

rhizome4• 15 years ago

And hey, if you don't wind up being under their radar, it's only prison, right?

DevX101• 15 years ago

What Aaron's trying to get accomplished here is precisely the type of work that lobbyists get paid for. And although he's right, the government can stonewall him indefinitely unless they have some kind of executive order to force a resolution. I'm sure that Paypal, VISA and friends have made campaign contributions or have had long conversations over games of golf to delay any competitive threat to their business model so he's got a steep hill to climb.

I'm assuming as a startup he can't afford to have a lobbying firm on retainer, so the best outcome would be that the Times or the Journal picks up this story and shames them into action.

But man, I admire the chutzpah and the brass balls it takes to pick this fight. Good luck!

NoPiece• 15 years ago

You are right, and it is unfortunate that a small business might need to consider lobbying as part of their funding/business plan. It's enough to steer many from even considering the financial industry, which is the outcome that the industry wants..

ditojim2• 15 years ago

we need less lobbyists, not more. they are the problem, not the solution.

ramanujan• 15 years ago

Relatively few people want to spend money on lobbyists, but when Washington or Sacramento changes the rules on you, what can you do? To remain silent might mean your business dies. To make your voice heard is to lobby. All right, then lobby it is, unfortunately.

thinkcomp25• 15 years ago

I think we need more lobbyists, actually: the lobbyists should be the people.

http://www.plainsite.org

maximusprime4• 15 years ago

Or, he could just move on and do something that doesn't require fighting the government.

Sorry, but I can't read anything by Aaron without thinking how much of an unlikable character he is. Get the chip off your shoulder! Stop complaining. Stop boasting you "Invented" facebook. No one invents websites.

Reminds me of Mugatu "Do you not know who I am? I invented the piano key necktie!"

inaequitas• 15 years ago

I find this to be somewhat of a depressing attitude. While it's not mandatory that everyone fight every fight worth fighting, I wouldn't actively discourage those willing to take a stand for the things they find worthwhile. Especially since this move is trying to resist corporate-backed bureaucracy that's arguably not helping anyone.

thinkcomp25• 15 years ago

With all due respect, and as much as I am tired of complaining, your first point is kind of absurd.

As for your second point: what or who are you quoting? My bio doesn't say that. I take great care not to say that.

For better or worse, people care about this stuff. That's why they made a movie. That's why Mark is speaking at Startup School. It's the sad truth that a politician will pay more attention to someone who demonstrates that they were involved in the creation of a widely-known enterprise. If you look around, you'll see that it's just not the politicians, either.

GFischer2• 15 years ago

I don't know who Mr. Greenspan is (Aaron not Alan :) ), but this letter starts up being respectful, mostly factual, and well written (I say starts up because I haven't read the responses through, and it starts being less so midway).

I also understand his frustration with government regulation (my first attempt at a startup was stillborn due to regulation).

Some of his complaints aren't on the same level as his main points (complaining about having to make it to a meeting in person won't win any sympathy from me).

jellicle• 15 years ago

Of course we only have one side of the story here, and considering that that side is self-evidently crazy, it's hard to take it very seriously.

I'm all in favor of regulations to prevent outright theft and fraud of a great deal of the public's money with no accountability. Gift card companies are repeatedly defrauding the public. Money transfer companies are repeatedly defrauding the public. Bitcoin gateways are repeatedly defrauding the public. I don't give a shit if you think the Man is keeping you down; you're trying to put your business risk (and perhaps your actual intent to defraud, but ABSOLUTELY your business risk) onto the public, and for some reason you think you're entitled to do so.

Your business risk ought to be borne by you, which means requiring you to get a big fat surety bond before you start handling large amounts of public money, so that when you fuck up your company (or intentionally bail with all their cash), the public isn't left holding the bag for you. Too damn bad.

rhizome4• 15 years ago

So, how much should that surety bond be?

thinkcomp25• 15 years ago

What about small amounts of public money, as startups will inevitably start with?

Surety bonds only cover the licensed companies. Consumers are still at considerable risk as long as not everyone has a license. And usually the fraudsters aren't the first in line at the DFI with all of the required forms and audits.

wging• 15 years ago

And if he can't be told how big the surety bond has to be, then how can he put up the money?

useflyer• 15 years ago

I don't mean to come off as insulting, but the problem clearly seems to be Aaron, and not California. He is overly combative, unwilling to accept olive branches (and exemptions! resolving the issue!), and stubborn. Find the path of least resistance, don't keep slamming into the same brick wall.

An entrepreneur should know how to problem-solve. MAKE IT WORK.

temphn4• 15 years ago

1. Government by waiver is not the rule of law.

2. The waiver was only issued because he was embarrassing them in front of reporters.

3. The waiver does not cover intra-state operations, which would mean he would be unable to get early adopters from the most technology friendly place in the country. He would also be unable to demo the product in front of investors.

danbmil99• 15 years ago

TIL I would not hire Aaron Greenspan as a general contractor to build an extension to my house (particularly if any zoning variances were required).

thinkcomp25• 15 years ago

That's good, because I'd be a terrible general contractor!

tzs• 15 years ago

It's not clear those schools need licensing. The California law has an exception for stored value systems used within an organization and its affiliates. It depends on whether local merchants with whom the school has made an arrangement to have the card accepted would count as affiliates.

pbreit• 15 years ago

I commend Aaron for fighting the battle but I'm afraid his scorched earth tactics are working against him. He needs friends, not enemies. Would someone like Gavin Newsom or Steve Westly would take a look at this?

The better approach probably is to use a third party to prove the concept. No one has infiltrated the point-of-sale by offering to shave a few basis points off card processing.

vsl2• 15 years ago

Aaron, I applaud your principles and enjoy reading your somewhat condescending(because the bureaucratic idiots deserve it) yet still controlled responses. Incompetence drives me mad and I can't imagine how pissed off I'd be if I were in your shoes right now.

Does FaceCash have a legal team or are you doing this all on your own? I imagine you've researched every possible legal angle regarding the situation and you certainly don't need a law degree for that, but professionals could provide some additional insights, just from work experience (e.g. what happens in situations with other similar regulations and stupidity). Having practiced tax law in the past (three years in NY), I know that how certain things work in that field that you can't pick up from reading statutes or cases.

Given that you've gotten the exemption for doing business in other states, are you back to building out your business with the exception of in California? At some point, you've got to move on and do what's best for FaceCash even if that means not completely righting the wrong - unfortunately, incompetence and bureaucracy may be able to stand much longer than you can afford to fight.

thinkcomp25• 15 years ago

I'm the legal team for now. I've talked to a number of lawyers, and most seem to think that they can't do much more than what I have been doing. It makes no sense to waste money on them in any case.

Since I only got the go-ahead to continue operating outside of CA as of October 13th, I'm starting to think about building things up again.

abalone• 15 years ago

This poor fellow has a history of blaming the world for his own business failures. Just lookback at his claims re: facebook vs his own competing site at harvard. The money transmitter regulations are a reaction to a serious problem with shady transmitters in california that prey mostly on poor people sending money back home. In this funding climate there should be little problem in raising the capital necessary to secure a bond if your payments startup is attractive to investors. The problem is that nobody wants to fund facecash.

thinkcomp25• 15 years ago

I actually thought that there had to be some horrible shady money transmission story that inspired the law, too, so I looked for it. I couldn't find it. If you find it, please let me know because I want to know what it is.

codex• 15 years ago

This letter reads like some looney Usenet rant. Between my cringing and facepalming, I began to see the beginnings of a reasonable argument here, which makes this letter all the sadder.

DanBC• 15 years ago

The quantities of CC'd addresses were kind of kook-like. There are better ways to challenge unjust laws than writing loser-length mail to people who are working lousy jobs with no power to change those laws.

kragen2• 15 years ago

I recall another online payment processor that got into conflicts with the government over opaque laws: http://www.wired.com/threatlevel/2007/04/egold_owner_cal/

Luyt• 15 years ago

And that ended thus: "In November Gold & Silver Reserve CEO Douglas Jackson was sentenced to 300 hours of community service, a $200 fine, and three years of supervision, including six months of electronically monitored home detention. He had faced a maximum sentence of 20 years in prison and a $500,000 fine. Judge Rosemary Collyer said the men deserved lenient sentences because they did not intend to engage in illegal activity. Jackson's lawyer claimed Jackson was spared the heavier fine because he is deeply in debt - the Judge said "Dr. Jackson has suffered, will continue to suffer, and may never be successful with E-Gold". Reid Jackson, Douglas Jackson's brother, and E-Gold director Barry Downey were each sentenced to three years of probation, 300 hours of community service, and ordered to pay a $2,500 fine and a $100 assessment fee each."

Source: http://en.wikipedia.org/wiki/E-gold

newchimedes• 15 years ago

I think it's awesome what you've done so far and am thoroughly impressed with your patience and tactics so far to get as far as you have. It's about time someone called out the government on their shenanigans because too many people site back and chalk it up to "that's just the way it is".

powertower• 15 years ago

Reading to the end I see that they gave him an exemption from the regulation/law? Right? So what's the issue?

plusbryan• 15 years ago

What a frustrating situation. Best of luck fighting for the cause of less regulation.

My advice - keep fighting the good fight by building and trialling your product in other states and countries. As unfair and unjust the law may be, there's no reason for you to sit "idle" when you could be building, growing and learning. If you're successful, it'll be all the easier to convince the state to license you.

jpdoctor• 15 years ago

Srsly: I think you are on the cusp of something huge Aaron, and I wish you a ton of luck, but for pete's sake: Move the company out of state already.

Contrary to conventional wisdom, you can fight city hall but is that really where you want to spend your company's energy and time?

Turn your company into something so successful that CA offers you a tax break to move back here.

thinkcomp25• 15 years ago

Moving would be a Pyrrhic victory. There would still be 46 similar laws holding us and other startups back.

Winning is to convincing Congress to pre-empt state laws with a sensible federal regulatory system.

dpe82• 15 years ago

You do not want to open that door. At least as it currently stands a fair number of states aren't yet completely owned by corporate interests and so you can at least operate in some of them. Congress is. If congress got involved you would get a uniform system for sure - your business would be uniformly banned.

latchkey• 15 years ago

I'm curious what the hebrew at the very bottom of the page says.

greyboy• 15 years ago

From the 'About' page:

"What's with the Hebrew?

I've always liked languages (especially Hebrew), and the phrase on this web site translates to a kind of personal ethos: societal longevity through truth and innovation."

mkopinsky• 15 years ago

Aha. I've found my place to add this comment.

The grammar in the Hebrew does not seem to be correct. In Hebrew, nouns often precede adjectives. "Societal longevity" should properly be אריכות ימים חברתית.

linusrus• 15 years ago

"Or, he could just move on and do something that doesn't require fighting the government."

This is exactly what not to do. But following maximusprime perspective, why not just leave the US and take your business to another more business friendly country (like it or leave it).

Aaron... don't stop complaining. Keep up the fight. It's not the government you are fighting but other humans that use the 'government' as a facade. The old folks don't understand the new kids... and they fear us for that. They fear change.

Keep fighting for us. Fight for the USER.

FaceCash Files Formal Complaints Against Stanford, USC, Pomona, and AAU

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