Bitcoin Foundation Receives Cease And Desist Order From California

http://www.forbes.com/sites/jonmatonis/2013/06/23/bitcoin-foundation-receives-cease-and-desist-order-from-california/

by pelle • 13 years ago

287 105 13 years ago

codex2• 13 years ago

State money transmission laws are very strict, requiring, among other things, a bond to be posted to protect the public.

Accoring to FinCEN, anyone selling units of a decentralised virtual currency to another person for real currency is a money transmitter--so, for example, if you operated a business exchanging U.S. dollars for Bitcoins, you must be licensed. I don't know if the Bitcoin Foundation did this in California; perhaps there is some other wrinkle of state law at play here.

pelle2• 13 years ago

Yet the Bitcoin foundation is neither a operator of a virtual currency service or an exchanger according to FinCEN rules.

Tradehill and Coinbase are based out of California and are following all federal and state rules.

quackerhacker2• 13 years ago

I thought Coinbase was based out of SF and even backed by YC?

Not sure though, seeing on the privacy page an Oregon address.

https://coinbase.com/about

jeremyw• 13 years ago

Interesting that you say that. Coinbase is verifiably registered with FinCEN, but not the states, as far as I can see. (Square, mentioned in the article, actually is registered in California.)

http://www.fincen.gov/financial_institutions/msb/msbstatesel...

http://www.dfi.ca.gov/directory/money_transmitters.html

vessenes4• 13 years ago

As you might guess, we have deep expertise on-hand for the Foundation as to MTB/MSB laws, and can confidently state we do not engage in MTB or MSB activity at the Bitcoin Foundation; we're just a member organization.

The state of California is blanket C&D-ing all Bitcoin businesses.

genwin• 13 years ago

Given the online ads included in the letter, it appears they googled for "bitcoin" and used a screen grabber to copy/paste the law text. It's sad how messed up the CA gov't has gotten.

codex2• 13 years ago

I wouldn't be surprised if the C&D were blanket. That said, when you Google for "Bitcoin Foundation" you see an "About" section in the #1 result (your website) which begins, "Our mission is to help people exchange...". I wouldn't put it past the state not to have read any further. ;-)

anigbrowl6• 13 years ago

OK, but isn't it a fact that the Bitcoin Foundation's membership is made up of MTB/MSB firms?

https://bitcoinfoundation.org/members

mtgx• 13 years ago

That's okay, but what does that have to do with the Bitcoin Foundation? I hope they take them to Court.

gst2• 13 years ago

The Bitcoin foundation does neither exchange or trade Bitcoins, nor does it release any Bitcoin client. Its only mission is to "standardize, protect and promote" the use of Bitcoin.

Charging the Bitcoin foundations for violations against the money transmission laws would be like charging NRA for violations against firearm laws. This would be a very alarming precedent and would basically violate your rights for free speech.

dustcoin3• 13 years ago

The best argument in favor of the C&D I can think of is that the Bitcoin Foundation pays a salary to the lead developer of the reference client and daemon.

pelle2• 13 years ago

This is the equivalent of suing the American Bankers Association for a lack of a banking license.

dragonwriter3• 13 years ago

This is the equivalent of suing the American Bankers Association for a lack of a banking license.

Not really; the most obvious difference is that a C&D isn't equivalent to a suit.

stevewilhelm• 13 years ago

The Bitcoin Foundation site [1] accepts donations via Bitcoin. Whose server are they using?

[1] https://bitcoinfoundation.org/donate

andrewpi• 13 years ago

That's irrelevant -- accepting donations isn't providing money transmission services to the public.

vessenes4• 13 years ago

There is no need to use a server to accept donations via Bitcoin.

Havoc• 13 years ago

Good luck with that. Nobody is putting that genie back into the bottle any time soon....

javajosh2• 13 years ago

This C&D demonstrates a rather alarming ignorance about Bitcoin, and an even more alarming tendency of modern enforcement agencies to halt any activity they don't understand. It is an embarrassment to Paul T. Crayton and the State of California, and this "default deny" stance on innovation has just as much chilling effect as patent trolls.

quackerhacker2• 13 years ago

Exactly what I feel. California is known for incubating tech and embracing new methods.

This is about as disappointing as when I heard that Nevada was first to legalize automated vehicles before us and it took lobbying from Google to push the approval here.

smsm422• 13 years ago

California people are known for being innovative and resourceful. California government is known for being inept, wasteful, inefficient, incompetent, corrupt and constantly balancing on the brink of bankruptcy. It is a mystery how such wonderful people keep electing such miserable government...

javert3• 13 years ago

It is an embarrassment to Paul T. Crayton and the State of California

Actually, it's completely consistent with the way California behaves and works. Corrupt and anti-freedom.

ChuckMcM2• 13 years ago

I see it a bit differently. The system is set up so that an independent interest can raise an issue, the state requests clarification, and the resulting court cases clarify the issue.

The State isn't going to take the BitCoin Foundations word that they aren't doing anything wrong, just like they don't take the credit card processors or Treasury departments word that they are doing something wrong. So party A says "They are doing it wrong!" and the state tells party B, "Please stop what you're doing, unless you can show your not doing it wrong." That is how the system evolves its understanding and codification of things.

Sure, its obvious for something things (like murder and mayhem) but when its less obvious or more subtle then its unfair to take one side's view of the matter and declare it correct by fiat. You explore the subtleties and need to decide where to draw the line.

This is a good thing for the Bitcoin folks because it is the start of the process where the government develops a collective understanding of what Bitcoin is. That, if nothing else, validates that Bitcoin is "real" in the sense that the government must "understand" it in order to work with it. People who dislike the notions will argue its evil, and supporters will argue its beneficial and once we've talked through all the legal ramifications then its future will no longer be in doubt.

jdc• 13 years ago

Shouldn't the burden of proof be on party A?

jessriedel• 13 years ago

It should be the State's responsibility to finance the finding-out process. If you place the burden on the innovator to educate the state (which will typically be staffed with idiots), then this is a huge tax on innovation. If the state really wants to bring its massively asymmetric power to bear against potentially wrong-doing innovators, then it should do the research itself and only involve the innovator when it has enough information to get probable cause.

Using underhanded tactics, like publishing defamatory statements (like mchusma related in a separate comment

https://news.ycombinator.com/item?id=5928751

) or threatening expense-incurring legal action unless the innovator provides free education, is just as bad even if it's legal.

mtdewcmu2• 13 years ago

Bitcoin is not something that's self-evidently harmless. The state has legitimate interests at stake. Some legal review is inevitable and will be a good thing.

threeseed• 13 years ago

Pretty sure they understand it. They just don't like it.

joe_the_user• 13 years ago

This C&D demonstrates a rather alarming ignorance about Bitcoin, and an even more alarming tendency of modern enforcement agencies to halt any activity they don't understand.

Not really, The state knows what it needs to know about bitcoins in the sense that it knows it can stop them easily, which seems to be more than bitcoin supporters know.

But this statement demonstrates the ignorance and contradictions within bitcoin boosting; the idea that because bitcoin values have grown that bitcoins are a logical potential currency rather than one more speculative trend in the line with tulip is the most obvious example. There is also the confusion between whether bitcoins will succeed through the very force of encryption to end the state's control of currency or whether bitcoins will succeed because bitcoinists have a moral right create a system to destroy the state's control over its currency. But there's a further confusion - bitcoinists don't get that the dollar's value derives from the state's monopoly of force and violence. Indeed, bitcoinists somehow don't get that the dollar is ipso facto the best currency because people use it even though they want bitcoins to succeed on the same criteria. And there's the part how bitcoinist think the weakness of gold is that it can't be transmitted electronically whereas the fact is that state prevents it from being currency (even if it is still allowed as an investment). And I could on and on...

wyager2• 13 years ago

The state knows what it needs to know about bitcoins in the sense that it knows it can stop them easily

Really? Because whatever they're doing doesn't seem to be working very well.

flyinRyan• 13 years ago

Alarming? The lack of understanding from the government is all that has kept the internet relatively safe so far.

ISL• 13 years ago

Does the letter advance any evidence that the Foundation is acting as a money transmitter?

dragonwriter3• 13 years ago

C&D notices are, in theory, courtesies and don't usually include evidence. If you aren't doing what the C&D says that the person issuing thinks you might be doing, then you have nothing to cease or desist.

The goal isn't to convince you of the facts of your action (it may be, in part, to convince you of the impact of the relevant law), so there is no purpose to include evidence.

If they decide to file a lawsuit, then evidence will become an issue.

drcode3• 13 years ago

I wonder if Mr. Teveia Barnes (correction: Mrs) is aware of her place in history: One of the brightest minds of our generation spent years of his life developing a technology that has essentially no other purpose but to make her C&D (which we knew would come one day) completely ineffective.

(This is assuming Mrs. Teveia believes that the bitcoin foundation runs the servers that make up the bitcoin network, which I think is what this is all about.)

thinkcomp3• 13 years ago

Commissioner Teveia Barnes is female. So it's "Commissioner Barnes," not "Mr. Teveia."

You can see what she thinks here:

https://www.youtube.com/watch?v=gmiY35brih0

Nursie• 13 years ago

Just because it's technically not possible for the state of california to shut down bitcoin does not mean that the state (generic, not just cali) could not effectively kill it by outlawing businesses and individuals from dealing in it.

It would certainly end the 'bitcoin everywhere' dreams the fanatics have.

I would expect to see a lot more of this. There are a buttload of laws around money transmission and exchange, anr BTC probably breaks a lot of them.

drcode3• 13 years ago

They could certainly limit bitcoin's appeal, but that is kind of beside the point: I'm sure the automobile broke plenty of horse carriage laws, too.

If enough people find bitcoins useful (big if) they will somehow become normalized with respect to the law.

C1D• 13 years ago

For a long time I've admired Silicon Valley and America as a whole. It had been my dream to work and create a sartup there but after all of this. After seeing how free Americans really are I am now unsure about moving there. Although America has great opportunities for people like me, it doesn't seem worth it especially since I've found out how some people get blacklisted for no reason.

PS. I hope I didn't offend anyone

shabe• 13 years ago

No offense taken from me. I believe that America is changing extremely fast, some for the good but, unfortunately far too much for the bad. Opportunity still exists but many of the "powers that be" have forgotten what truly made America great. The pursuit of their and many others agenda's have hurt many good hard-working entrepreneurs and others, intentional or not. "More government" seems to be their only answer to any "problem" and this attitude has cost Americans far too much and unfortunately has spawned the evils of "Crony Capitalism", giving the false impression that true Capitalism is bad.

babesh• 13 years ago

Some of those entrepreneurs are creating that crony capitalism. Don't try painting entrepreneurs with a pristine brush. See Cisco CEO's meeting with Obama on how to improve the country. See what others in the meeting wanted. See which of those are coming to fruition. I bet in return we got acquiescence on rampant NSA spying. Why does Obama come to the Bay Area so often? A: To raise money. What is that money buying?

drivingmenuts• 13 years ago

There are plenty of places in the US that have lots of startup action going on, but a ton less buzz. Austin, for one (disclaimer: I live in Austin). We don't necessarily have the same expertise or even interests that SV does and there are probably other problems that would never occur in SV.

On the other hand, it's way easier to fly under the radar here, if that's your thing. Austin is a hell of a lot cheaper than SV and it's surrounds, in most ways, so you'll stretch your dollars further. I'd claim we're friendlier, but that's just a guess. We can be pretty tetchy here about some things.

Silicon Valley isn't the only game in town. It's just the noisiest. And you couldn't pay me enough to put up with that.

angersock2• 13 years ago

Come to Texas--any of our major cities (Houston, Dallas, Austin, others) are great places to start doing business. We're full of friendly people and fairly permissive state government, our economy is quite strong and full of opportunities for people who want to work (startup or no), and the cost-of-living is actually reasonable compared with the coasts.

I'll personally plug Houston here (my colleague has already done the same for Austin). If you want to do energy, manufacturing, or medicine, you basically can't beat this town. We're a port city, we've got the largest medical center in the world, we've got tons of oil & gas folks, and great schools to pull talent from. Our food is also way better and cheaper than Austin. ;)

throwaway9848• 13 years ago

I would highly consider to the grandparent poster that they do their own due-diligence on the life in the state of Texas, particularly if they have children. Check the poverty rate, access to health care, pollution, and education rankings that all rank among the worst in the US.

tomjen3• 13 years ago

Isn't Texas the state that doesn't even allow you to buy sex toys?

krichman2• 13 years ago

And when you are hit with the inevitable software patent lawsuit your travel fees will be lower ;)

Is Texas as employee-friendly as California?

einhverfr2• 13 years ago

After seeing how free Americans really are I am now unsure about moving there.

As an American currently in Indonesia, I can totally understand where you are coming from. The major thing America has going for it economically at the moment is not freedom but just money and the university system. However with globalization, I think there are plenty of good opportunities everywhere in the world.

MichaelGG• 13 years ago

Even if they were a money transmitter, what authority does California have over a Washington based nonprofit?

dustcoin3• 13 years ago

The Bitcoin Foundation recently organized a large bitcoin conference in California. http://www.bitcoin2013.com/

mcherm• 13 years ago

I suspect (although this is just speculation) that the authority is based on the fact that the Bitcoin Foundation is transmitting a lot of money to and from citizens of California. If, indeed, the Bitcoin Foundation were responsible for all bitcoin transactions (including those in California) then the legal authority would be clear. Perhaps California officials are simply mistaken and ill-informed about how bitcoin functions.

dragonwriter3• 13 years ago

Even if they were a money transmitter, what authority does California have over a Washington based nonprofit?

If they were a money transmitter, and operated as such in California, California's authority over them would not be affected by either the fact that they were based on Washington or the fact that they were a non-profit.

thinkcomp3• 13 years ago

Most of the comments here are not particularly well-informed and should be ignored.

Yes, the Bitcoin Foundation (probably--I don't know anything about them other than what I've read) isn't strictly speaking a money transmitter. Yes, the California Department of Financial Institutions--which will cease to exist in 7 days when it gets merged into the California Department of Corporations--is totally ignorant of Bitcoin. But they know the law pretty well. Especially the one that they wrote. (See the name Robert Venchiarutti on the letter? He's really the one behind it. The DFI lawyers just do what they're told. They don't even like the law. Venchiarutti actually wrote it, with the help of TMSRT's lobbyists.)

That being said, the law to worry about here isn't even the one cited. It is, as I've stated quite frequently, 18 U.S.C. § 1960 (http://www.plainsite.org/laws/index.html?id=14426). And that law says that you don't have to be a money transmitter to get a letter such as the one received by the Bitcoin Foundation (http://www.scribd.com/fullscreen/149335233?access_key=key-2l...).

"(a) Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business..."

The question then becomes whether the Bitcoin Foundation has any "control" or "direction" over its members and/or affiliates, who are most clearly in violation of the law under section (b). These words are vague. It could be argued that it does.

There is an extremely high chance that people will go to jail over this whether people here think it's stupid or not. It's too bad no one took me seriously when I pointed out that the MTA was going to cause problems two years ago. I've been doing the industry's dirty work ever since. It would have been a lot faster and easier with some help. Now we all have to hope that my constitutional challenge (http://www.plainsite.org/flashlight/case.html?id=716056) is going to save the day. And it might, but that day may be pretty far off in the future at the current rate.

Meanwhile, everyone should really be freaking out over AB 786 (http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?...), presently before the California Senate, which makes the MTA worse than it already is by giving Robert Venchiarutti even more power. I've been successful in removing the clause that created a new thought crime, but the rest is still pretty bad--unless you're a payroll company. Amazing what lobbying can do.

If you want to help, click on the "Comments to Author" tab at the link above, register with the State of California, and tell Assemblyman Dickinson that the MTA should be repealed for all of the reasons I outline at https://s.facecash.com/legal/20130225.packetnumbered.pdf: its overly broad scope, inability to sensibly regulate mobile technology, and unconstitutional nature. Money transmission takes place over the internet, which is in the domain of the federal government, not the states. See /ALA v. Pataki/, 969 F.Supp. 160 (1997), http://scholar.google.com/scholar_case?case=1017409488915582.... Also CC: Eileen Newhall <eileen.newhall@sen.ca.gov>, Mark Farouk <mark.farouk@asm.ca.gov>, Senator Jerry Hill <jerry.hill@sen.ca.gov>, Marc Hershman <marc.hershman@sen.ca.gov>, and BCC me: Aaron Greenspan <aarong@thinkcomputer.com>. If you live in California make sure to say where. Be polite.

Reading material:

https://news.ycombinator.com/item?id=5308013

neilk2• 13 years ago

Thought crime?

thinkcomp3• 13 years ago

See http://www.aarongreenspan.com/writing/essay.html?id=86.

"(a) Whenever the commissioner believes from evidence satisfactory to the commissioner that any person has violated or is about to violate a provision of this division, or a provision of any order, license, decision, demand, requirement, or any regulation adopted pursuant to this division, the commissioner may, in the commissioner's discretion, bring an action, or the commissioner may request the Attorney General to bring an action in the name of the people of the State of California, against that person to enjoin that person from continuing that violation or doing any act in furtherance of the violation. Upon a proper showing, a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted and other ancillary relief may be granted as appropriate."

So, all they would have needed was "evidence satisfactory to the commissioner" that you were "about to violate a provision of this division, or a provision of any order, license, decision, demand, requirement, or any regulation adopted pursuant to this division" in order to refer you to the U.S. Attorney. The California Attorney General wouldn't be involved in federal prosecution.

This section (formerly proposed Section 2155) is gone now because I threw a fit. No one else did. I find that depressing.

drcode3• 13 years ago

Nice to see that HN is still the kind of place where a post from someone knowledgeable (whatever one may think of the details of their post) will quickly jump to the top.

nknighthb• 13 years ago

I don't think the words are vague, I think they clearly exclude the Bitcoin Foundation, just as they would exclude a company selling software to a bank.

But even if you think they're vague, that would still be the end of the matter as far as criminal law is concerned. Ambiguous statutes are construed in favor of the defendant.

vessenes4• 13 years ago

A few notes about Aaron: while I agree with his perspective that Money Transmission should be a Federal issue, not a state issue,

A) He's not a lawyer;

B) He's (or at least Think Computer) is cheerfully suing a bunch of Bitcoin and Silicon Valley companies (including one I founded) over these laws, costing many startups litigation defense fees.

I do not consider him to be anything like a balanced commentator on these issues, and I also do not believe his approach to be one that is, on balance, helping California technology companies who wish to deal with payments.

pessimizer• 13 years ago

I do not consider him to be anything like a balanced commentator on these issues, and I also do not believe his approach to be one that is, on balance, helping California technology companies who wish to deal with payments.

Why not argue against the argument rather than the man? Or at least if we're arguing against men, follow up with "a few notes about Peter" so I can get a decent comparison of the men.

mrerrormessage• 13 years ago

Only the state of California may issue phony currency, apparently.

jahewson• 13 years ago

Freedom of choice in currencies is probably the most important free speech issue of our time.

That sentence requires some serious mental gymnastics to agree with, which I find beyond me.

gasull• 13 years ago

When money is just information, it's indistinguishable from speech.

mchusma• 13 years ago

It is worth pointing out that the state can put out Cease And Desist orders, and warnings on its website with no: 1) Evidence of wrongdoing 2) Communication with the accused 3) Method of reconciliation

I have my own personal example:

I received a letter ordering us to cease and desist from doing online notarization through California notaries. We were not doing so, so in effect we sent back a letter stating: "We have not, and never have, conducted the activity you accuse us of." They basically responded saying "ok, we agree that you haven't done anything wrong but if you do anything we will prosecute you to the full extent of the law."

A few weeks later, they posted a "consumer warning" on their website saying that our company was in effect defrauding companies. Then, several other states copied that language without contact. I spoke with the government officials, I told them we were hurt by these baseless accusations, and they admitted that they really had no evidence of any wrongdoing. They basically said "we are too busy to update the website right now but we will do so shortly."

After months of effort, I was able to one by one get most of these ultimately removed or reworded to a reasonable position. California was the last holdout. I basically began the process of suing them for massive damages and that ultimately was the only thing that was able to get them to change the wording.

So overall, my learning is that it genuinely scares me what government agencies can do without any evidence or judicial process. I would guess that the Bitcoin Foundation can respond with "you are wrong, please provide evidence" and get away with it for now.

einhverfr2• 13 years ago

Indeed. Additionally there are questions regarding how clear a statute needs to be before you send people to prison for 5 years. Crime by analogy, once the bread and butter of Soviet justice, has unfortunately been becoming more common in the US (see the prosecution of Jeffrey Skilling for "honest services fraud" and the prosecution of Dr Hurwitz for unlawful distribution of narcotics).

messick• 13 years ago

Are you really offering up the CEO of Enron and a doctor who prescribed up to 1.6k pills per day to a single patient as victims of the big bad US Gov?

notdrunkatall2• 13 years ago

Can you explain 'crime by analogy' a little bit? A google search yields surprisingly little.

MaggieL• 13 years ago

"Sorry, you can't do this until we figure out how to tax it. And it took us 18 years to figure out how to tax Amazon..."

tlrobinson3• 13 years ago

It's hard for me to reconcile how much I like living in California with how much I dislike the state and local governments here.

javajosh2• 13 years ago

If there was a more technology & freedom enlightened state I would emigrate there. I wonder if there is enough political will for Silicon Valley to secede from California?

rdl2• 13 years ago

If I were doing a Bitcoin business, it sure wouldn't be in California. Aside from the obvious startup friendly Seattle or Austin, it might make sense to pick some small state who could have favorable laws (South Dakota for credit card issuers...)

anigbrowl6• 13 years ago

I know, it's like you want all the benefits and none of the costs.

tlrobinson3• 13 years ago

I seriously doubt the government is responsible for most of the reasons I enjoy living in California vs. other areas.

ciokan• 13 years ago

Seriously!? Did you really thought you can send and receive untraceable money without lovely U.S. putting an end to it?

lowglow• 13 years ago

Here is an interview we did at Techendo with Constance Choi of Payward (They are building http://kraken.com) regarding the current legalities and regulatory landscape of virtual currencies: http://www.techendo.co/posts/techendo-episode-8-legalities-o...

tekromancr• 13 years ago

Wow, a government that fails to understand technology. Shocker, that.

bmmayer1• 13 years ago

The People's Republic of California is at it again.

Bitcoin Foundation Receives Cease And Desist Order From California

Related Stories