10 ms·

Major Bitcoin exchange shuts down, blaming regulation and loss of funds

122 points by hansbo 15y ago

SkyMarshal 15y ago
TLDR; Tradehill.com was a victim of the new CA Money Transmission Act (and the 'removal' of $100,000 from their account): https://bitcointalk.org/index.php?topic=63749.msg746954#msg746954 https://bitcointalk.org/index.php?topic=63749.msg746954#msg7... Aaron Greenspan predicted this last summer: http://www.quora.com/Aaron-Greenspan/Posts/In-Fifty-Days-Payments-Innovation-Will-Stop-In-Silicon-Valley http://www.quora.com/Aaron-Greenspan/Posts/In-Fifty-Days-Pay... TLDR: Old school money transmitters like Western Union lobbied to get a bill passed in CA that requires domestic money transmitters to get licensed (previously was international transmitters only). Now costs $500,000+ (just in CA, not including the 43+ other states with similar licensing requirements), full background checks, and possibility of jail under the PATRIOT Act if you violate any parts of the licensing.
- brador 15y ago
  Slam dunk. http://nerdr.com/bitcoin-laws-imminent-bit-coin-soon-to-be-illegal-in-us/ http://nerdr.com/bitcoin-laws-imminent-bit-coin-soon-to-be-i...
- andrewpi 15y ago
  Didn't TradeHill operate out of Chile? Kind of disturbing that the long arm of California law can shut down operations there.
  - SkyMarshal 15y ago
    It did, but the CEO Jared Kenna is a US citizen living and working in San Francisco. Not sure exactly how the law applies in this case. As a side note, Peter Schiff runs a semi-alternative currency operation with his Euro Pacific Bank, LTD., and hides the website from US IP addresses: http://europacbank.com/ http://europacbank.com/ It's a bank that stores gold, not cash, and issues a debit card that draws on it. But even that is apparently borderline illegal enough in the US that he won't even show the website to US citizens. I imagine Tradehill could have done something similar, and may have had they not also had $100,000 taken from them.
  - ew 15y ago
    They did. They worked out of Vina del Mar, where I lived for 6 months during my stint at Start-Up Chile. The TH guys are a good group, really smart, and doing progressive things. It's unfortunate that they keep getting screwed by the payment processors, who themselves have acted shadier than TH ever did. cough Dwolla cough http://tradehillblog.com/2011/07/26/why-we-are-no-longer-accepting-dwolla/ http://tradehillblog.com/2011/07/26/why-we-are-no-longer-acc...
thinkcomp 15y ago
A few points: You can follow the progress of the lawsuit against the Money Transmission Act at http://www.plainsite.org/flashlight/case.html?id=716056 http://www.plainsite.org/flashlight/case.html?id=716056. You can learn more about the companies behind the Money Transmission Act here at http://www.plainsite.org/issues/index.html?id=1 http://www.plainsite.org/issues/index.html?id=1. The unnamed payment processor in this article is Dwolla, which is itself an unlicensed money transmitter in California and most other states. Their connection to a credit union subsidiary does not render them exempt from the law. (Of course, there are thousands of other unlicensed money transmission companies as well, from lawyers to universities to escrow services to payroll processors to real estate agents to construction companies.) The most expedient way to solve this problem is to contact your state legislators whether you live in California or any other state. New Hampshire yesterday held a hearing on HB 1700 (http://www.gencourt.state.nh.us/house/committees/housebillsincommitteebillstatus.aspx?lsr=2266&code=H43#nl http://www.gencourt.state.nh.us/house/committees/housebillsi...), which will repeal New Hampshire's money transmission laws. We should be holding such hearings in every state where money transmission laws exist. They typically cost more to have on the books than they generate in revenue, and they absolutely destroy payments innovation. Call and e-mail your state legislators! (And if you don't mind, BCC help@facecash.com if and when you do!) The people to e-mail in Silicon Valley are: Jeremy Dennis - jeremy.dennis@asm.ca.gov (Assemblyman Richard Gordon, Palo Alto) Brock Winstead - brock.winstead@sen.ca.gov (Senator Joe Simitian, Palo Alto) Gibran Maciel - gibran.maciel@asm.ca.gov (Assemblyman Jerry Hill, San Mateo) Eric Dang - eric.dang@asm.ca.gov (Assemblywoman Fiona Ma, San Francisco) Other people to CC: Nick Hardeman - nick.hardeman@asm.ca.gov (Principal Assistant, Assemblywoman Fiona Ma, San Francisco) Bob Twomey - bob.twomey@asm.ca.gov (District Director, Assemblywoman Fiona Ma, San Francisco) Eileen Newhall - eileen.newhall@sen.ca.gov (Staff Director, California Senate Banking, Finance & Insurance Committee; where the MTA originated) Mark Farouk - mark.farouk@asm.ca.gov (Legislative Consultant, California General Assembly; had input on the MTA)
- DanBC 15y ago
  You've listed four people under "Other people to CC". May I ask what role those people have? Why is it a good idea to email them?
illumin8 15y ago
Personally, I sold some Bitcoins on TradeHill and was able to withdraw some cash using Dwolla, but then TradeHill complained about fraud on Dwolla, and removed that as a withdrawal option. The only way to get my cash out was to have them mail me a physical check. I put in the request about 6 months ago to have a physical check mailed to me, and it never arrived. Emails to their customer support assured me that they had mailed the check, but this is highly unlikely because I have a locked mailbox and have never had mail go missing before. They wanted to charge me a stop check fee and reissue a check. Personally, after that experience, I chose not to do business with TradeHill. They are not entirely honest with their customers, and I'm sure there is something going on behind the scenes related to fraud or perhaps the owners are skimming profits off the top. I do business only with MtGox now, who has proven to be a mostly trustworthy exchange, despite their past security flaws which allowed data loss.
- SkyMarshal 15y ago
  I wouldn't touch MtGox with a ten foot pole after their breach last year. I had created an account there but never funded it, and my account was one of the ones in the breach. I had stupidly used the same login info for my Twitter and FB accouts, and both were stolen and the password changed by the hackers (I assume they ran a script against the entire MtGox database). Fortunately they didn't bother to change the reset email address, so I got them back immediately with a password reset. Security flaws are like roaches - where there's one big fat obvious one (plaintext or weakly hashed pwd database in this case), there at least ten more behind the walls. MtGox is clearly being run by a bunch of amateurs when it comes to security.
  - freshhawk 15y ago
    I was surprised there was no mention of this in the article. Have people forgotten about this already? I immediately wrote MtGox off forever in my mind after that fiasco.
  - Jach 15y ago
    On the other hand, having a big security problem wakes everyone up to the fact that there's a problem. MtGox did hire security consultants; whether they hired good ones is another matter but it's not like they fixed the one issue and everything stayed the same. Do you touch any MS products? At least MtGox thus far hasn't allowed arbitrary code to run on your machine! MtGox is still the easiest way to deal with BTC <-> USD. I don't trust them enough that I have a lot of either currency in the account at one time but I didn't have a lot before the breach either.
smokeyj 15y ago
The internet is getting in the way of our financial industry! Quick, kill it with regulation! Edit: Anyone care to speculate which corporate interest will kill the internet first: copyright holders or financial services?
- wmf 15y ago
  The crackdown on e-Gold/Bitcoin looks a lot narrower than SOPA/PIPA/ACTA.
  - smokeyj 15y ago
    Is HN so brainwashed that criminalizing innovation sounds like a good idea? That just goes to show entrepreneurs are a minority on this site. Just a bunch of posers trying to earn geek cred. It's a pattern. Established corporate interests are threatened by disruptive innovation. Said interest then lobby for regulation to criminalize disruptive innovation. Rinse repeat. Anyone calling themselves an entrepreneur should be pissed. We ARE the disruptive force bringing about change in the marketplace. This is how we make our livelihood. When change becomes criminal - innovation and entrepreneurship become impossible.
    - wmf 15y ago
      My comment was intended as realpolitik. I want to agree with you, but when I look at activist-entrepreneurs I mostly see people who have failed at both.
    - mcherm 15y ago
      I work for a bank. We spend a LOT of time, money, and attention on satisfying various regulators. Now, I'm not complaining about that: it's part of the cost of doing business in that field, and for the most part the regulations have been put in place for good reasons. But if "entrepreneurs" are not required to follow the same regulations, then that's just not fair. Am I allowed to call MY company an "entrepreneur" and thereby not be required to submit to strict scrutiny and regulation? By the way, this comment is intended as a defense of general regulation of certain industries (like banking). I am NOT defending or endorsing California's MTA which I know very little about but what little I know is universally negative.
ew 15y ago
Trade Hill's official blog post of the matter: http://tradehillblog.com/2012/02/13/tradehill-suspending-trading-and-returning-client-funds/ http://tradehillblog.com/2012/02/13/tradehill-suspending-tra...
- rhizome 15y ago
  Well at least they're returning the funds.
ew 15y ago
This could be the partner that dropped them. Article on how a Paxum, a payment processor, stopped working with TradeHill because of the risk: http://www.betabeat.com/2012/02/13/banking-partners-force-paxum-to-drop-bitcoin-due-to-potential-risk/ http://www.betabeat.com/2012/02/13/banking-partners-force-pa... Here is a quote from Ruth Blair, a Paxum representative: “We had been in discussions with our banking partners, Mastercard and our auditors for the last couple of weeks, and on Friday our banking partners ended the discussions with us and stated that it was too much of a potential risk to continue doing business with Bitcoin and Bitcoin Exchangers and instructed us to close all Bitcoin-related accounts,” Ms. Blair wrote on Friday in the forum for adult site webmasters, GoFuckYourself. “We had no choice but to follow those instructions and therefore, all Bitcoin associations were severed on Friday.”
deleted 15y ago
[deleted]
csomar 15y ago
I'm following a little Bitcoinica, and it used to trade 5K-7K bitcoins a day. Yesterday, it traded around 120K bitcoins. That's huge. Any correlation with TradeHill shutting down?
RobertKohr 15y ago
Bitcoin Talk forum thread posted and commented on by tradehill: https://bitcointalk.org/index.php?topic=63749.0 https://bitcointalk.org/index.php?topic=63749.0
darksaga 15y ago
Am I the only one concerned with how these services can be used to funnel money to Mexican drug cartels and terrorists? American Used Car Dealers Funding Terrorists: http://abcn.ws/yGdGGv http://abcn.ws/yGdGGv How a big US bank laundered billions from Mexico's murderous drug gangs: http://bit.ly/xR3Uxa http://bit.ly/xR3Uxa I understand why everybody wants to have their privacy, but there's a reason why these services are under a lot of scrutiny by a lot of governments.
- zotz 15y ago
  > Am I the only one concerned with how these services can be used to funnel money to Mexican drug cartels and terrorists? Probably.
- deleted 15y ago
  [deleted]
- iwwr 15y ago
  Ignoring for a moment the relation between US foreign policy and terrorism, or between the drug war and drug violence... The problem here is banks and established payment processors banding together to squash their potential competition. Not only do these regulations touch upon bitcoin (a rather insignificant collateral victim), but on startups that may want to reshape the money transaction business. People who want to do evil things are not really limited in their scope by these rules. It's frighteningly easy to make explosives or to build weapons. A dedicated madman can do a lot of damage, with scarcely anything "authorities" can do against it. Curtailing fundamental freedoms and keeping dossiers on every citizen is a tool to create tyranny rather than protect the people from random murder.
- TruthElixirX 15y ago
  >but there's a reason why these services are under a lot of scrutiny by a lot of governments. To keep rich entrenched corrupt interests rich entrenched and corrupted? Yes.
- hazov 15y ago
  No, but the main problem here is that people are libertarian or/and believe in the Austrian School of economics, I would love to have full liberty for all, but I would hate to see Hizbollah sending rockets in the heads of my relatives...

122 points by hansbo 15y ago

TLDR; Tradehill.com was a victim of the new CA Money Transmission Act (and the 'removal' of $100,000 from their account): https://bitcointalk.org/index.php?topic=63749.msg746954#msg746954 https://bitcointalk.org/index.php?topic=63749.msg746954#msg7... Aaron Greenspan predicted this last summer: http://www.quora.com/Aaron-Greenspan/Posts/In-Fifty-Days-Payments-Innovation-Will-Stop-In-Silicon-Valley http://www.quora.com/Aaron-Greenspan/Posts/In-Fifty-Days-Pay... TLDR: Old school money transmitters like Western Union lobbied to get a bill passed in CA that requires domestic money transmitters to get licensed (previously was international transmitters only). Now costs $500,000+ (just in CA, not including the 43+ other states with similar licensing requirements), full background checks, and possibility of jail under the PATRIOT Act if you violate any parts of the licensing.

brador 15y ago
Slam dunk. http://nerdr.com/bitcoin-laws-imminent-bit-coin-soon-to-be-illegal-in-us/ http://nerdr.com/bitcoin-laws-imminent-bit-coin-soon-to-be-i...
andrewpi 15y ago
Didn't TradeHill operate out of Chile? Kind of disturbing that the long arm of California law can shut down operations there.
- SkyMarshal 15y ago
  It did, but the CEO Jared Kenna is a US citizen living and working in San Francisco. Not sure exactly how the law applies in this case. As a side note, Peter Schiff runs a semi-alternative currency operation with his Euro Pacific Bank, LTD., and hides the website from US IP addresses: http://europacbank.com/ http://europacbank.com/ It's a bank that stores gold, not cash, and issues a debit card that draws on it. But even that is apparently borderline illegal enough in the US that he won't even show the website to US citizens. I imagine Tradehill could have done something similar, and may have had they not also had $100,000 taken from them.
- ew 15y ago
  They did. They worked out of Vina del Mar, where I lived for 6 months during my stint at Start-Up Chile. The TH guys are a good group, really smart, and doing progressive things. It's unfortunate that they keep getting screwed by the payment processors, who themselves have acted shadier than TH ever did. cough Dwolla cough http://tradehillblog.com/2011/07/26/why-we-are-no-longer-accepting-dwolla/ http://tradehillblog.com/2011/07/26/why-we-are-no-longer-acc...

thinkcomp 15y ago

A few points: You can follow the progress of the lawsuit against the Money Transmission Act at http://www.plainsite.org/flashlight/case.html?id=716056 http://www.plainsite.org/flashlight/case.html?id=716056. You can learn more about the companies behind the Money Transmission Act here at http://www.plainsite.org/issues/index.html?id=1 http://www.plainsite.org/issues/index.html?id=1. The unnamed payment processor in this article is Dwolla, which is itself an unlicensed money transmitter in California and most other states. Their connection to a credit union subsidiary does not render them exempt from the law. (Of course, there are thousands of other unlicensed money transmission companies as well, from lawyers to universities to escrow services to payroll processors to real estate agents to construction companies.) The most expedient way to solve this problem is to contact your state legislators whether you live in California or any other state. New Hampshire yesterday held a hearing on HB 1700 (http://www.gencourt.state.nh.us/house/committees/housebillsincommitteebillstatus.aspx?lsr=2266&code=H43#nl http://www.gencourt.state.nh.us/house/committees/housebillsi...), which will repeal New Hampshire's money transmission laws. We should be holding such hearings in every state where money transmission laws exist. They typically cost more to have on the books than they generate in revenue, and they absolutely destroy payments innovation. Call and e-mail your state legislators! (And if you don't mind, BCC help@facecash.com if and when you do!) The people to e-mail in Silicon Valley are: Jeremy Dennis - jeremy.dennis@asm.ca.gov (Assemblyman Richard Gordon, Palo Alto) Brock Winstead - brock.winstead@sen.ca.gov (Senator Joe Simitian, Palo Alto) Gibran Maciel - gibran.maciel@asm.ca.gov (Assemblyman Jerry Hill, San Mateo) Eric Dang - eric.dang@asm.ca.gov (Assemblywoman Fiona Ma, San Francisco) Other people to CC: Nick Hardeman - nick.hardeman@asm.ca.gov (Principal Assistant, Assemblywoman Fiona Ma, San Francisco) Bob Twomey - bob.twomey@asm.ca.gov (District Director, Assemblywoman Fiona Ma, San Francisco) Eileen Newhall - eileen.newhall@sen.ca.gov (Staff Director, California Senate Banking, Finance & Insurance Committee; where the MTA originated) Mark Farouk - mark.farouk@asm.ca.gov (Legislative Consultant, California General Assembly; had input on the MTA)

DanBC 15y ago
You've listed four people under "Other people to CC". May I ask what role those people have? Why is it a good idea to email them?

illumin8 15y ago

Personally, I sold some Bitcoins on TradeHill and was able to withdraw some cash using Dwolla, but then TradeHill complained about fraud on Dwolla, and removed that as a withdrawal option. The only way to get my cash out was to have them mail me a physical check. I put in the request about 6 months ago to have a physical check mailed to me, and it never arrived. Emails to their customer support assured me that they had mailed the check, but this is highly unlikely because I have a locked mailbox and have never had mail go missing before. They wanted to charge me a stop check fee and reissue a check. Personally, after that experience, I chose not to do business with TradeHill. They are not entirely honest with their customers, and I'm sure there is something going on behind the scenes related to fraud or perhaps the owners are skimming profits off the top. I do business only with MtGox now, who has proven to be a mostly trustworthy exchange, despite their past security flaws which allowed data loss.

SkyMarshal 15y ago
I wouldn't touch MtGox with a ten foot pole after their breach last year. I had created an account there but never funded it, and my account was one of the ones in the breach. I had stupidly used the same login info for my Twitter and FB accouts, and both were stolen and the password changed by the hackers (I assume they ran a script against the entire MtGox database). Fortunately they didn't bother to change the reset email address, so I got them back immediately with a password reset. Security flaws are like roaches - where there's one big fat obvious one (plaintext or weakly hashed pwd database in this case), there at least ten more behind the walls. MtGox is clearly being run by a bunch of amateurs when it comes to security.
- freshhawk 15y ago
  I was surprised there was no mention of this in the article. Have people forgotten about this already? I immediately wrote MtGox off forever in my mind after that fiasco.
- Jach 15y ago
  On the other hand, having a big security problem wakes everyone up to the fact that there's a problem. MtGox did hire security consultants; whether they hired good ones is another matter but it's not like they fixed the one issue and everything stayed the same. Do you touch any MS products? At least MtGox thus far hasn't allowed arbitrary code to run on your machine! MtGox is still the easiest way to deal with BTC <-> USD. I don't trust them enough that I have a lot of either currency in the account at one time but I didn't have a lot before the breach either.

smokeyj 15y ago

The internet is getting in the way of our financial industry! Quick, kill it with regulation! Edit: Anyone care to speculate which corporate interest will kill the internet first: copyright holders or financial services?

wmf 15y ago
The crackdown on e-Gold/Bitcoin looks a lot narrower than SOPA/PIPA/ACTA.
- smokeyj 15y ago
  Is HN so brainwashed that criminalizing innovation sounds like a good idea? That just goes to show entrepreneurs are a minority on this site. Just a bunch of posers trying to earn geek cred. It's a pattern. Established corporate interests are threatened by disruptive innovation. Said interest then lobby for regulation to criminalize disruptive innovation. Rinse repeat. Anyone calling themselves an entrepreneur should be pissed. We ARE the disruptive force bringing about change in the marketplace. This is how we make our livelihood. When change becomes criminal - innovation and entrepreneurship become impossible.
  - wmf 15y ago
    My comment was intended as realpolitik. I want to agree with you, but when I look at activist-entrepreneurs I mostly see people who have failed at both.
  - mcherm 15y ago
    I work for a bank. We spend a LOT of time, money, and attention on satisfying various regulators. Now, I'm not complaining about that: it's part of the cost of doing business in that field, and for the most part the regulations have been put in place for good reasons. But if "entrepreneurs" are not required to follow the same regulations, then that's just not fair. Am I allowed to call MY company an "entrepreneur" and thereby not be required to submit to strict scrutiny and regulation? By the way, this comment is intended as a defense of general regulation of certain industries (like banking). I am NOT defending or endorsing California's MTA which I know very little about but what little I know is universally negative.

ew 15y ago

Trade Hill's official blog post of the matter: http://tradehillblog.com/2012/02/13/tradehill-suspending-trading-and-returning-client-funds/ http://tradehillblog.com/2012/02/13/tradehill-suspending-tra...

rhizome 15y ago
Well at least they're returning the funds.

ew 15y ago

This could be the partner that dropped them. Article on how a Paxum, a payment processor, stopped working with TradeHill because of the risk: http://www.betabeat.com/2012/02/13/banking-partners-force-paxum-to-drop-bitcoin-due-to-potential-risk/ http://www.betabeat.com/2012/02/13/banking-partners-force-pa... Here is a quote from Ruth Blair, a Paxum representative: “We had been in discussions with our banking partners, Mastercard and our auditors for the last couple of weeks, and on Friday our banking partners ended the discussions with us and stated that it was too much of a potential risk to continue doing business with Bitcoin and Bitcoin Exchangers and instructed us to close all Bitcoin-related accounts,” Ms. Blair wrote on Friday in the forum for adult site webmasters, GoFuckYourself. “We had no choice but to follow those instructions and therefore, all Bitcoin associations were severed on Friday.”

deleted 15y ago

[deleted]

csomar 15y ago

I'm following a little Bitcoinica, and it used to trade 5K-7K bitcoins a day. Yesterday, it traded around 120K bitcoins. That's huge. Any correlation with TradeHill shutting down?

RobertKohr 15y ago

Bitcoin Talk forum thread posted and commented on by tradehill: https://bitcointalk.org/index.php?topic=63749.0 https://bitcointalk.org/index.php?topic=63749.0

darksaga 15y ago

Am I the only one concerned with how these services can be used to funnel money to Mexican drug cartels and terrorists? American Used Car Dealers Funding Terrorists: http://abcn.ws/yGdGGv http://abcn.ws/yGdGGv How a big US bank laundered billions from Mexico's murderous drug gangs: http://bit.ly/xR3Uxa http://bit.ly/xR3Uxa I understand why everybody wants to have their privacy, but there's a reason why these services are under a lot of scrutiny by a lot of governments.

zotz 15y ago
> Am I the only one concerned with how these services can be used to funnel money to Mexican drug cartels and terrorists? Probably.
deleted 15y ago
[deleted]
iwwr 15y ago
Ignoring for a moment the relation between US foreign policy and terrorism, or between the drug war and drug violence... The problem here is banks and established payment processors banding together to squash their potential competition. Not only do these regulations touch upon bitcoin (a rather insignificant collateral victim), but on startups that may want to reshape the money transaction business. People who want to do evil things are not really limited in their scope by these rules. It's frighteningly easy to make explosives or to build weapons. A dedicated madman can do a lot of damage, with scarcely anything "authorities" can do against it. Curtailing fundamental freedoms and keeping dossiers on every citizen is a tool to create tyranny rather than protect the people from random murder.
TruthElixirX 15y ago
>but there's a reason why these services are under a lot of scrutiny by a lot of governments. To keep rich entrenched corrupt interests rich entrenched and corrupted? Yes.
hazov 15y ago
No, but the main problem here is that people are libertarian or/and believe in the Austrian School of economics, I would love to have full liberty for all, but I would hate to see Hizbollah sending rockets in the heads of my relatives...