
Bitcoin Foundation Receives Cease And Desist Order From California - pelle
http://www.forbes.com/sites/jonmatonis/2013/06/23/bitcoin-foundation-receives-cease-and-desist-order-from-california/
======
mchusma
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.

~~~
einhverfr
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
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?

------
javajosh
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.

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

~~~
ChuckMcM
Party A, "This Rembrandt is the best he ever painted.", Party B, "No it's not,
_this_ Rembrandt is the best he ever painted."

In these sorts of actions you aren't trying to prove a negative both parties
are proving a positive, which is to say both parties are working to create a
_consensus understanding_ of the interpretation of the law. In one view what
these folks do is legal, in one view it is not.

What generally happens though, and looking at the history of the same sex
marriage effort is really a great analog here, is that one view or another
comes up short in terms of written law, new law is written with what the
consensus is thinking _should be_ rather than perhaps what _is_.

Using same sex marriage as an analog, we started from "Homosexual activity is
illegal" to a place where the consensus view was that you couldn't really
legislate something which was innate, to "but marrying is illegal" to "well we
recognize that your partnership is in many ways like a marriage" to what I
expect tomorrow will be "You know, the state doesn't have any business
defining the sex of the two people in a marriage." [1]

In each stage of this "conversation" (and I realize that term is not perfect
but I don't have a better term for millions of people going through a process
to reach consensus) we explored particular aspects of the problem. Was it the
'sex' that was wrong? Was it the 'people' who were homosexuals that was wrong?
Is the definition of 'family' inextricably tied to offspring of mated
individuals? Or is is broader than that? Are citizens harmed by this? Helped?
How about their children? Other children? People around them? In every case
one party says "It's wrong because 'reason'." and the the other party debates
that reason or comes up with a different line of reasoning why its right.
Jurists listen, they consider what has come before and will come after, and
rule. Then we as a people consider whether or not that consensus was what we
intended or want and then we create new law and the process continues.

It's slow, its ponderous, but it does converge and it allows things to move
with the consensus as the consensus moves. FWIW this is the single most
powerful 'feature' of our form of Government.

[1] I'll know tomorrow if I'm wrong I suspect but reading about the coverage
at the Supreme Court I'm betting its going to come down on the side of same
sex marriages.

~~~
orclev
You're confusing the process of drafting or modifying laws with the process of
defining exactly what those laws mean in practice. Criminal courts only get
involved once there's reasonable suspicion that a party has committed a crime
(so far as the current legal understanding of the law), not before. You can't
just say "so and so violated law A", the courts need some evidence to back up
that claim. At best you might get a detective to go out and ask some
questions, look around, and try to figure out if there's anything there to
follow up on.

Now civil court is another matter, but the state doesn't prosecute that, so
it's not really relevant to this discussion.

The court (and particularly the supreme court) is involved in interpreting the
law, but they don't get to ask people to prove they haven't broken the law
unless they have some kind of evidence that they did in fact already break the
law. Simply claiming they "think" someone is in violation of a law based on no
evidence at all falls so far short of the legal requirements to bring a case
it's laughable. If somehow the government did prosecute based on no evidence
at all I'd imagine there's a whole horde of lawyers that would line up to get
a chunk of the wrongful prosecution lawsuit that would come of that.

------
C1D
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

~~~
angersock
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. ;)

~~~
tomjen3
Isn't Texas the state that doesn't even allow you to buy sex toys?

~~~
wyager
That law was only used a few times, and even fewer times successfully. It was
overturned in '08, but it was very rarely used even before then.

------
codex
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.

~~~
vessenes
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
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.

~~~
vessenes
Yes, this seems likely.

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

~~~
dragonwriter
> 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.

------
thinkcomp
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](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...](http://www.scribd.com/fullscreen/149335233?access_key=key-2lnhtenm4qb1mydngxac&allow_share=false&show_recommendations=false)).

"(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](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?...](http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB786)),
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](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...](http://scholar.google.com/scholar_case?case=10174094889155823351).
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](https://news.ycombinator.com/item?id=5308013)

~~~
vessenes
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
>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.

------
drcode
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.)

~~~
Nursie
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.

~~~
drcode
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.

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

------
tlrobinson
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.

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

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

~~~
anigbrowl
Nice goalpost-shift there. I never claimed that it was.

~~~
tlrobinson
Then I don't understand what point you were trying to make.

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

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

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

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

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

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

~~~
dustcoin
The Bitcoin Foundation recently organized a large bitcoin conference in
California. [http://www.bitcoin2013.com/](http://www.bitcoin2013.com/)

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

~~~
dragonwriter
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.

------
MaggieL
"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..."

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

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

------
bmmayer1
The People's Republic of California is at it again.

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

