5 ms·

Bitcoin Foundation's Response to California Cease & Desist

116 points by dustcoin 13y ago

anigbrowl 13y ago
May I say how much I appreciate you linking to the actual document expounding the legal argument, instead of some blog post attempting to summarize it.
- ukoto 13y ago
  I agree, but for anyone who wants the summary: The Bitcoin Foundation is not in the business of selling bitcoin to consumers and does not otherwise operate a bitcoin exchange. Even if it did sell bitcoin to consumers, however, the Foundation believes it would not be regulated as a seller or issuer of payment instruments because a bitcoin is not a payment instrument under California law.
  - scoot 13y ago
    Indeed, but either the DFI knew this, in which case the threat was malicious, or they didn't know this, and the threat was incompetent. Either way, it's not a good position to start from.
    - anigbrowl 13y ago
      There's a third possibility, which is that the BF argument is flawed and the DFI is actually correct. I'm not at all sure about this and have yet to check, but I have my doubts about whether BTC/$ exchange can truly be called a Foreign Exchange transaction as BTW are not issued by a sovereign entity and thus may not be considered a Foreign Currency for the purposes of this law.
      - Dylan16807 13y ago
        They're still wrong because the foundation is not an exchange in the first place.
        anigbrowl 13y ago
        Maybe, maybe not. It depends what sort of agency relationship exists between the Foundation and its members, whether the members are considered beneficial owners and so on. It's not obvious from the website what corporate structure the Bitcoin Foundation has, for example. If it's a nonprofit, it has yet to file a 990 tax form. I find it understandable the the CA regulator wants to know what sort of entity it is dealing with.
        JoshTriplett 13y ago
        > I find it understandable the the CA regulator wants to know what sort of entity it is dealing with. That's the kind of thing a regulator should figure out before making legal threats.
        anigbrowl 13y ago
        I could argue that this is the sort of thing a non-profit ought to figure out before soliciting donations. At present I can find no record of the Bitcoin Foundation having filed for nonprofit status, and they don't explain their corporate structure on their website. You can't just say you're a nonprofit entity, there are rules about how you must apply for that status and what sort of public declarations you must make. How do you know, for example, that it's not a scam? According to the letter, BF it is incorporated in DC and has offices in Seattle, but good luck finding the address or any other information. Regulators are not psychic, and they're well within their rights to say 'stop soliciting money from the general public until you've made the requisite declarations,' because entities that solicit money without having their paperwork in order often turn out to be operating illegally.
        nullc 13y ago
        It's a 501(c)(6)— the fact that they are a non-profit is something you should have known in an instant if you bothered looking. Even their bylaws are online: (https://github.com/pmlaw/The-Bitcoin-Foundation-Legal-Repo/blob/master/Bylaws/Bylaws_of_The_Bitcoin_Foundation.md https://github.com/pmlaw/The-Bitcoin-Foundation-Legal-Repo/b...).
  - anigbrowl 13y ago
    I don't mean to offend, but this is what is wrong with the typical tl;dr summary; you've excerpted a core part of the argument, but you haven't explained the assertion made therein. To follow on (in my own words): As Bitcoin is a separate currency from the USD, the kind of transactions that Bitcoin Foundation members are engaged in are in effect foreign exchange (forex) transactions, and Forex is not considered subject to money transmission regulations by the state of California. I'm not sure I buy this argument, but haven't studied the legal background enough to form a proper opinion yet. the reason I was so pleased to see a link to a document with primary sources is that it makes it a lot easier to research the arguments therein, inviting good-faith attempts at falsification.
    - bigiain 13y ago
      Hmmmm, I wonder how strategic this claim is? Perhaps they're just waiting for the state of California to declare in a legally binding way that Bitcoin is not a "separate currency from the USD". That'd be something a _lot_ of people would love to be able to promote and quote prominently…
  - biot 13y ago
    For those too lazy to read ukoto's post, here's the TL;DR summary: We don't sell bitcoin; not like it matters anyways. If that was too long, here's the TL;DR of the Bitcoin Foundation's response to California's Department of Financial Institutions: You're wrong. Of course, my point is that if someone is actually interested in bitcoin and learning the legal arguments behind it, don't waste your time with incomplete summaries; just read the actual letter. It only takes a few minutes.
lucb1e 13y ago
It's nice to see they defend Bitcoin itself as well as themselves. But then this nice thing might happen that governments can do when they're said to be unjustified in a request: they just change the law and then close you down instead of warn. Might be interesting to try and see them seize Bitcoin itself, but the Bitcoin Foundation is a legal entity that _can_ be shut down.
- zero_intp 13y ago
  But, as stipulated quiet extensively, not under the jurisdiction of the California legal system.
  - anigbrowl 13y ago
    'Stipulated' means that both parties have already agreed about this (in a matter which is before a court), which I doubt to be the case. Here, that claim is argued, not stipulated. Bear in mind that the Bitcoin Foundation already organized a conference in San Jose, CA, and solicits donations from a website accessible in CA. As I understand it, that is quite sufficient for the state of CA to assert some jurisdiction over its activities: http://en.wikipedia.org/wiki/Minimum_contacts#Activities_as_a_basis_for_jurisdiction http://en.wikipedia.org/wiki/Minimum_contacts#Activities_as_...
Torgo 13y ago
tl;dr 1. We are a foundation that promotes bitcoin use, we do not accept or remit or transmit money. 2. We are not incorporated in nor doing money transmittal in California are therefore are not under your jurisdiction. 3. Bitcoin does not seem to fit California's legal definition of money, unit of exchange, or store of value. 4. "Currency Exchanges" do not seem to meet California's legal criteria of "Money Transmitters", cites recent court case. really really tl;dr: bitcoin's not money; bitcoin exchanges aren't money transmitters; even if they were, we don't do that; even if we did that, we're not subject to California's jurisdiction.
- anigbrowl 13y ago
  we do not accept or remit or transmit money But they do accept donations, and acknowledge as much (page 2). If you're going to tl;dr please do so accurately.
  - Torgo 13y ago
    I didn't think I had to clarify that a nonprofit taking donations in USD would count as money transmittal since that would apply to all nonprofits accepting donations. But I take your point, my statement was all-encompassing.
thinkcomp 13y ago
Interesting hand-waving going on here. For some reason they're citing the California Commercial Code when they know full well than FinCEN Guidance FIN-2013-G001 (http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001....) takes precedence. Of course Bitcoin is a "payment instrument," that's the whole point, and the Department of the Treasury has already deemed that it is within the bounds of state regulators. Any semantic argument to the contrary is just ridiculous. Also surprising that a reputable law firm wouldn't have known that as of July 1, 2013, the DFI no longer exists, and has been merged into the California Department of Business Oversight. I'll be interested to see how the DBO responds, or if this comes up at the AB 786 hearing tomorrow.
- Torgo 13y ago
  Does federal law take precedence for state regulation? It just seems like California has a narrower definition of "money transmitter" for the purposes of regulation inside their own borders above and beyond the federal one. Also, if a business is in compliance by state law but out of compliance federally, is California obligated to do anything about that? They allow medical marijuana dispensaries to operate despite being illegal at the federal level. Not insinuating you're wrong, just legitimately curious since IANAL.
  - thinkcomp 13y ago
    Federal law definitely would preempt state regulation. Here, FinCEN has issued a guidance with what I believe is the weight of federal regulation however. California typically ignores FinCEN rulings (except this one), but generally shouldn't. Preemption is a complex business. Also, I'm not a lawyer, but this is one of the reasons why the issue is in federal court. The rules are so complex and contradictory as to be more of a burden on society than a help.
- Terretta 13y ago
  > Of course Bitcoin is a "payment instrument," that's the whole point On the contrary, I found myself having an "a ha" moment when they pointed out that nobody, anywhere, is obligated to give a holder of bitcoin anything. Reminds me of when Bernanke told Ron Paul that gold is not money. (Presumably for similar reason: it represents stored confidence, not an entity backed guarantee of payment.)
quackerhacker 13y ago
As I've said before, it's disappointing this C&D came from California, especially when I view our state as one that embraces tech. I speculate that the purpose of this publicized cease and desist letter was just to send a message about DFI's disapproval of Bitcoin and ward off adopters of the awesome crypto.
csense 13y ago
This site sucks. It requires an account or Facebook login to access the PDF. I refuse to do this. Dissecting it with web developer tools, apparently they parse the PDF content server-side and rewrite it as HTML. So you can't just view source and find the link to the PDF file, or intercept the download with a proxy -- you really do have to log in to get the PDF from them, AFAICT. Can anyone provide a direct link?
- quackerhacker 13y ago
  There's a link right under the blue FB login [Sign up without Facebook] that should allow you to download the pdf, that's worth a try.
  - csense 13y ago
    I object in principle to giving them an email address, Facebook login or establishing any sort of account. I just want to anonymously download the PDF over HTTP. Because this doesn't seem to be possible, I'm probably going to stop clicking on links to them altogether.
    - coingig 13y ago
      here you go :) https://dl.dropboxusercontent.com/u/2877271/Bitcoin-Foundation-Response-to-California-DFI.pdf https://dl.dropboxusercontent.com/u/2877271/Bitcoin-Foundati...
marco_salvatori 13y ago
I'm not sure I understand what advantages incorporating offers to the Bitcoin Foundation, when (a) it facilitates legal targeting by the government and (b) does not further their stated purpose beyond what they could achieve as an informal working body. If Bitcoin becomes successful, that success will threaten governments and they will seek to suppress or control the currency and its associated organizations. If the Bitcoin Foundation is in this for the long term, then, like bitcoin itself, they should be focused on establishing their legitimacy outside of the governmental sphere. You didnt really think 'the government' was going to leave you alone, did you?

116 points by dustcoin 13y ago

May I say how much I appreciate you linking to the actual document expounding the legal argument, instead of some blog post attempting to summarize it.

ukoto 13y ago
I agree, but for anyone who wants the summary: The Bitcoin Foundation is not in the business of selling bitcoin to consumers and does not otherwise operate a bitcoin exchange. Even if it did sell bitcoin to consumers, however, the Foundation believes it would not be regulated as a seller or issuer of payment instruments because a bitcoin is not a payment instrument under California law.
- scoot 13y ago
  Indeed, but either the DFI knew this, in which case the threat was malicious, or they didn't know this, and the threat was incompetent. Either way, it's not a good position to start from.
  - anigbrowl 13y ago
    There's a third possibility, which is that the BF argument is flawed and the DFI is actually correct. I'm not at all sure about this and have yet to check, but I have my doubts about whether BTC/$ exchange can truly be called a Foreign Exchange transaction as BTW are not issued by a sovereign entity and thus may not be considered a Foreign Currency for the purposes of this law.
    - Dylan16807 13y ago
      They're still wrong because the foundation is not an exchange in the first place.
      - anigbrowl 13y ago
        Maybe, maybe not. It depends what sort of agency relationship exists between the Foundation and its members, whether the members are considered beneficial owners and so on. It's not obvious from the website what corporate structure the Bitcoin Foundation has, for example. If it's a nonprofit, it has yet to file a 990 tax form. I find it understandable the the CA regulator wants to know what sort of entity it is dealing with.
        JoshTriplett 13y ago
        > I find it understandable the the CA regulator wants to know what sort of entity it is dealing with. That's the kind of thing a regulator should figure out before making legal threats.
        anigbrowl 13y ago
        I could argue that this is the sort of thing a non-profit ought to figure out before soliciting donations. At present I can find no record of the Bitcoin Foundation having filed for nonprofit status, and they don't explain their corporate structure on their website. You can't just say you're a nonprofit entity, there are rules about how you must apply for that status and what sort of public declarations you must make. How do you know, for example, that it's not a scam? According to the letter, BF it is incorporated in DC and has offices in Seattle, but good luck finding the address or any other information. Regulators are not psychic, and they're well within their rights to say 'stop soliciting money from the general public until you've made the requisite declarations,' because entities that solicit money without having their paperwork in order often turn out to be operating illegally.
        nullc 13y ago
        It's a 501(c)(6)— the fact that they are a non-profit is something you should have known in an instant if you bothered looking. Even their bylaws are online: (https://github.com/pmlaw/The-Bitcoin-Foundation-Legal-Repo/blob/master/Bylaws/Bylaws_of_The_Bitcoin_Foundation.md https://github.com/pmlaw/The-Bitcoin-Foundation-Legal-Repo/b...).
- anigbrowl 13y ago
  I don't mean to offend, but this is what is wrong with the typical tl;dr summary; you've excerpted a core part of the argument, but you haven't explained the assertion made therein. To follow on (in my own words): As Bitcoin is a separate currency from the USD, the kind of transactions that Bitcoin Foundation members are engaged in are in effect foreign exchange (forex) transactions, and Forex is not considered subject to money transmission regulations by the state of California. I'm not sure I buy this argument, but haven't studied the legal background enough to form a proper opinion yet. the reason I was so pleased to see a link to a document with primary sources is that it makes it a lot easier to research the arguments therein, inviting good-faith attempts at falsification.
  - bigiain 13y ago
    Hmmmm, I wonder how strategic this claim is? Perhaps they're just waiting for the state of California to declare in a legally binding way that Bitcoin is not a "separate currency from the USD". That'd be something a _lot_ of people would love to be able to promote and quote prominently…
- biot 13y ago
  For those too lazy to read ukoto's post, here's the TL;DR summary: We don't sell bitcoin; not like it matters anyways. If that was too long, here's the TL;DR of the Bitcoin Foundation's response to California's Department of Financial Institutions: You're wrong. Of course, my point is that if someone is actually interested in bitcoin and learning the legal arguments behind it, don't waste your time with incomplete summaries; just read the actual letter. It only takes a few minutes.

lucb1e 13y ago

It's nice to see they defend Bitcoin itself as well as themselves. But then this nice thing might happen that governments can do when they're said to be unjustified in a request: they just change the law and then close you down instead of warn. Might be interesting to try and see them seize Bitcoin itself, but the Bitcoin Foundation is a legal entity that _can_ be shut down.

zero_intp 13y ago
But, as stipulated quiet extensively, not under the jurisdiction of the California legal system.
- anigbrowl 13y ago
  'Stipulated' means that both parties have already agreed about this (in a matter which is before a court), which I doubt to be the case. Here, that claim is argued, not stipulated. Bear in mind that the Bitcoin Foundation already organized a conference in San Jose, CA, and solicits donations from a website accessible in CA. As I understand it, that is quite sufficient for the state of CA to assert some jurisdiction over its activities: http://en.wikipedia.org/wiki/Minimum_contacts#Activities_as_a_basis_for_jurisdiction http://en.wikipedia.org/wiki/Minimum_contacts#Activities_as_...

Torgo 13y ago

tl;dr 1. We are a foundation that promotes bitcoin use, we do not accept or remit or transmit money. 2. We are not incorporated in nor doing money transmittal in California are therefore are not under your jurisdiction. 3. Bitcoin does not seem to fit California's legal definition of money, unit of exchange, or store of value. 4. "Currency Exchanges" do not seem to meet California's legal criteria of "Money Transmitters", cites recent court case. really really tl;dr: bitcoin's not money; bitcoin exchanges aren't money transmitters; even if they were, we don't do that; even if we did that, we're not subject to California's jurisdiction.

anigbrowl 13y ago
we do not accept or remit or transmit money But they do accept donations, and acknowledge as much (page 2). If you're going to tl;dr please do so accurately.
- Torgo 13y ago
  I didn't think I had to clarify that a nonprofit taking donations in USD would count as money transmittal since that would apply to all nonprofits accepting donations. But I take your point, my statement was all-encompassing.

thinkcomp 13y ago

Interesting hand-waving going on here. For some reason they're citing the California Commercial Code when they know full well than FinCEN Guidance FIN-2013-G001 (http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001....) takes precedence. Of course Bitcoin is a "payment instrument," that's the whole point, and the Department of the Treasury has already deemed that it is within the bounds of state regulators. Any semantic argument to the contrary is just ridiculous. Also surprising that a reputable law firm wouldn't have known that as of July 1, 2013, the DFI no longer exists, and has been merged into the California Department of Business Oversight. I'll be interested to see how the DBO responds, or if this comes up at the AB 786 hearing tomorrow.

Torgo 13y ago
Does federal law take precedence for state regulation? It just seems like California has a narrower definition of "money transmitter" for the purposes of regulation inside their own borders above and beyond the federal one. Also, if a business is in compliance by state law but out of compliance federally, is California obligated to do anything about that? They allow medical marijuana dispensaries to operate despite being illegal at the federal level. Not insinuating you're wrong, just legitimately curious since IANAL.
- thinkcomp 13y ago
  Federal law definitely would preempt state regulation. Here, FinCEN has issued a guidance with what I believe is the weight of federal regulation however. California typically ignores FinCEN rulings (except this one), but generally shouldn't. Preemption is a complex business. Also, I'm not a lawyer, but this is one of the reasons why the issue is in federal court. The rules are so complex and contradictory as to be more of a burden on society than a help.
Terretta 13y ago
> Of course Bitcoin is a "payment instrument," that's the whole point On the contrary, I found myself having an "a ha" moment when they pointed out that nobody, anywhere, is obligated to give a holder of bitcoin anything. Reminds me of when Bernanke told Ron Paul that gold is not money. (Presumably for similar reason: it represents stored confidence, not an entity backed guarantee of payment.)

quackerhacker 13y ago

As I've said before, it's disappointing this C&D came from California, especially when I view our state as one that embraces tech. I speculate that the purpose of this publicized cease and desist letter was just to send a message about DFI's disapproval of Bitcoin and ward off adopters of the awesome crypto.

csense 13y ago

This site sucks. It requires an account or Facebook login to access the PDF. I refuse to do this. Dissecting it with web developer tools, apparently they parse the PDF content server-side and rewrite it as HTML. So you can't just view source and find the link to the PDF file, or intercept the download with a proxy -- you really do have to log in to get the PDF from them, AFAICT. Can anyone provide a direct link?

quackerhacker 13y ago
There's a link right under the blue FB login [Sign up without Facebook] that should allow you to download the pdf, that's worth a try.
- csense 13y ago
  I object in principle to giving them an email address, Facebook login or establishing any sort of account. I just want to anonymously download the PDF over HTTP. Because this doesn't seem to be possible, I'm probably going to stop clicking on links to them altogether.
  - coingig 13y ago
    here you go :) https://dl.dropboxusercontent.com/u/2877271/Bitcoin-Foundation-Response-to-California-DFI.pdf https://dl.dropboxusercontent.com/u/2877271/Bitcoin-Foundati...

marco_salvatori 13y ago

I'm not sure I understand what advantages incorporating offers to the Bitcoin Foundation, when (a) it facilitates legal targeting by the government and (b) does not further their stated purpose beyond what they could achieve as an informal working body. If Bitcoin becomes successful, that success will threaten governments and they will seek to suppress or control the currency and its associated organizations. If the Bitcoin Foundation is in this for the long term, then, like bitcoin itself, they should be focused on establishing their legitimacy outside of the governmental sphere. You didnt really think 'the government' was going to leave you alone, did you?