Did Karpeles lie?

[davout]

(A) Provides the delivery, communication, or network access services used by a money transmitter to support money transmission services

Could have been true, but only if funds were going in and out *only* through Dwolla. It wasn't the case.

(F) Accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds."

That would have been true if mtgox sold you Bitcoins directly, which wasn't the case since they aren't counterparty to the transactions (see their ToS, it's also plain common sense)

you are not a money transmitter service, I think that's where Gox falls in? Bitcoin is just the goods/service Gox sells, not too different from apples actually.

So no, gox doesn't fall in either category, for the reasons outlined.

What mtgox sells is the service of matching buyers with sellers, they do not sell, nor buy Bitcoins.

I think oakpacific may have a point. The issue here is what MtGox profits from, and they profit from the sale of bitcoins, nothing else.

Like I said this is wrong, mtgox makes its money from selling you an intermediation service, not Bitcoins.

Karpeles has actually always been quite serious with legal affairs

You can't possibly be serious. Look up the 'CIC v MACARAJA' French case.
In this particular case, MtGox got in trouble for the exact same reasons.
Apparently no lesson was learned, because they're getting in trouble in the US for the same reasons, and will eventually get in trouble in Poland, again, for the very same reasons.

it's naive to believe that he did think he can blatantly lie and get away, he must have had reasons to believe that Gox is not a money service business and he should not need to register.

What is even more naive is to believe that rules don't get bent over multi-million dollar market shares. Especially if MK had the intention to sell his US activity to coinlab. You can get away if you lie, but you need to have an exit strategy. Obviously the exit strategy failed.
What do you think this coinlab deal was about ? Yes that's right, it was good for coinlab because they'd have bought a good source of revenue, and it would have been excellent for mtgox because it would have allowed them to move out of the US market and this legal nightmare.

As I wrote here:

Mutum Sigillum LLC wasn't accepting money from customers and they weren't sending money to customers. It might be the reason why they involved Dwolla instead of making people to deposit directly to Mutum Sigillum LLC. If they were only transferring money between one company and another company, they might not fall into the money transmitter category.

This is probably more complex that we think, but when at first sight it seemed that their US LLC lied in the application, at the second sight it seems that they might wrote the truth. They never accepted money from customers and they never sent money to customers. They used Dwolla for that, probably explicitly because they didn't want to be a money transmitter.

It wouldn't be that hard to accept directly wire transfers from customers to their US LLC, but they didn't do it. They accepted money transfers directly to Japan, so you could send an international wire, and their Japan company probably has it legally covered. And they used a 3rd party registered money transmitter to accept deposits in the US.

Edit: of course it's for lawyers to decide who's right and wrong here and I have no qualifications for that, so this is just a loose speculation from me.

Whether you use a stick or a gun to hurt someone makes little difference, you're hurting someone.
Whether you intermediate through Dwolla or not doesn't change anything. EXCEPT if everything goes through Dwolla and mtgox only moves funds between Dwolla accounts as part of the trade settlement process.

The reason why they didn't accept wires directly to their US account is (I assume) that it would have raised a shitload of AML red-flags at their bank.

Presumably the seizure is agenda-driven. If we can figure out the (exact) agenda, we can more accurately predict process and outcomes.

I don't think it is. The prediction is quite simple : if you break the law you'll eventually get in trouble.

http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

"An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency."

A guidance is not a piece of law.

Yup, and it's not even relevant to this cases.

[oakpacific]

(F) Accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds."

That would have been true if mtgox sold you Bitcoins directly, which wasn't the case since they aren't counterparty to the transactions (see their ToS, it's also plain common sense)

Okay, it's a platform providing service of buying/selling bitcoins, still would have fallen in the category.

What is even more naive is to believe that rules don't get bent over multi-million dollar market shares. Especially if MK had the intention to sell his US activity to coinlab. You can get away if you lie, but you need to have an exit strategy. Obviously the exit strategy failed.
What do you think this coinlab deal was about ? Yes that's right, it was good for coinlab because they'd have bought a good source of revenue, and it would have been excellent for mtgox because it would have allowed them to move out of the US market and this legal nightmare.

None of this he could have planned back in May 2011. Back then Dwolla was probably Gox's greatest payment service provider, if the same thing had happened then Gox would have been finished.

[davout]

(F) Accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds."

That would have been true if mtgox sold you Bitcoins directly, which wasn't the case since they aren't counterparty to the transactions (see their ToS, it's also plain common sense)

Okay, it's a platform providing service of buying/selling bitcoins, still would have fallen in the category.

Still not. Dwolla is MtGox's financial services provider, not the other way around. The proper way would have been :
 - All US customer funds held at Dwolla,
 - Your MtGox USD balance being merely a simple display of your personal Dwolla balance
 - MtGox moving USD around *among Dwolla accounts*

If not it doesn't fall in the "simple technical provider of a licensed financial entity" category.

And again MtGox wasn't transferring funds in order to sell Bitcoins directly, but to intermediate the sale and purchase of Bitcoins. And no, the fact that the money transmission was relevant to a sale doesn't apply here, re-read what you quoted and see the little detail : "by the person who is accepting and transmitting the funds."

Is it clearer this way ?

What is even more naive is to believe that rules don't get bent over multi-million dollar market shares. Especially if MK had the intention to sell his US activity to coinlab. You can get away if you lie, but you need to have an exit strategy. Obviously the exit strategy failed.
What do you think this coinlab deal was about ? Yes that's right, it was good for coinlab because they'd have bought a good source of revenue, and it would have been excellent for mtgox because it would have allowed them to move out of the US market and this legal nightmare.

None of this he could have planned back in May 2011.

Guess what, it could perfectly have been planned. Because for one you just need to use your brain to figure it out, and oh, I also discussed this very topic with Mark in... wait for it... July 2011.

Any questions ?

[Terk]

Whether you use a stick or a gun to hurt someone makes little difference, you're hurting someone.

This is a totally wrong comparison, as it's clear that authorities don't have any problem with the action that was performed (transferring customers money is legal) but with the tool that was used (wether the company was money transmitter or not). So the whole mess is actually about wether a stick or a gun was used, one of which would make it legal and the other illegal.

Whether you intermediate through Dwolla or not doesn't change anything. EXCEPT if everything goes through Dwolla and mtgox only moves funds between Dwolla accounts as part of the trade settlement process.

Of course intermediating through Dwolla might change everything. It's what money transmitters are for, to intermediate through them and don't need to get involved in certain actions by yourself. The question which they were asked in the application was “Does your business accept funds from customers and send the funds based on customers' instructions (Money Transmitter)?”. But this is exactly what Dwolla does. Mutum Sigillum LLC wasn't accepting funds from customers, it was accepting funds from Dwolla (which isn't their customer). They might used that intermediary to have someone to accept funds from customers and not need to deal with it themselves (because that would require registering as money transmitter). Of course as I wrote before, this is a thing for lawyers to argue and I'm not one of them so I can only speculate using a common sense (and I'm aware of how actual laws might be very far from common sense sometimes).

[oakpacific]

(F) Accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds."

That would have been true if mtgox sold you Bitcoins directly, which wasn't the case since they aren't counterparty to the transactions (see their ToS, it's also plain common sense)

Okay, it's a platform providing service of buying/selling bitcoins, still would have fallen in the category.

Still not. Dwolla is MtGox's financial services provider, not the other way around. The proper way would have been :
 - All US customer funds held at Dwolla,
 - Your MtGox USD balance being merely a simple display of your personal Dwolla balance
 - MtGox moving USD around *among Dwolla accounts*

If not it doesn't fall in the "simple technical provider of a licensed financial entity" category.

And again MtGox wasn't transferring funds in order to sell Bitcoins directly, but to intermediate the sale and purchase of Bitcoins. And no, the fact that the money transmission was relevant to a sale doesn't apply here, re-read what you quoted and see the little detail : "by the person who is accepting and transmitting the funds."

Is it clearer this way ?

Not really relevant, it's the person who accepts and transmits the funds provides a service, for which the acceptance and transmission of funds is integral, and that's why they have to specifically exclude "money transmission service" from the service that can be provided.

Guess what, it could perfectly have been planned. Because for one you just need to use your brain to figure it out, and oh, I also discussed this very topic with Mark in... wait for it... July 2011.

Any questions ?

Yes, it's in French.

And you are a bit over yourself, Gox could have eaten dirts a long time ago(it's quite a surprise that the authorities did wait for 2 years), have he really planned that, I could only say Mark is a bit....overoptimistic.

[davout]

Whether you use a stick or a gun to hurt someone makes little difference, you're hurting someone.

This is a totally wrong comparison, as it's clear that authorities don't have any problem with the action that was performed (transferring customers money is legal) but with the tool that was used (wether the company was money transmitter or not). So the whole mess is actually about wether a stick or a gun was used, one of which would make it legal and the other illegal.

The example is badly chosen, but the gist is right, it does not matter whether Dwolla was involved, it would have been the same with bank wires, with whatever. They transmitted money, without being licensed and that's the problem. Whether or not Mark Karpeles lied is largely irrelevant, it's not the bank that's going after him, it's the DHS, and not for lying, for doing things that require a license without having said license. And trust me, MK knows exactly what he's doing and the risks involved.

And of course transferring money is legal, but you need a license if you're a corporation doing it for clients...

Of course intermediating through Dwolla might change everything. It's what money transmitters are for, to intermediate through them and don't need to get involved in certain actions by yourself. The question which they were asked in the application was “Does your business accept funds from customers and send the funds based on customers' instructions (Money Transmitter)?”. But this is exactly what Dwolla does. Mutum Sigillum LLC wasn't accepting funds from customers, it was accepting funds from Dwolla (which isn't their customer). They might used that intermediary to have someone to accept funds from customers and not need to deal with it themselves (because that would require registering as money transmitter). Of course as I wrote before, this is a thing for lawyers to argue and I'm not one of them so I can only speculate using a common sense (and I'm aware of how actual laws might be very far from common sense sometimes).

It doesn't change anything. Had MtGox gone through an american bank instead and accept wires directly it would have been the exact same. Just because the entry point is licensed doesn't make the whole thing licensed. If they wanted to do things properly they should have had Dwolla itself hold the funds. Again, whether MK lied or not is not really relevant here, if he had he answered "Yes" instead of "No" (and assuming for the sake of the argument that the bank would still have granted the account) he would have been in trouble the exact same way today.

Just because you put a proxy between yourself and the customer doesn't change anything. Look at it this way, had Dwolla been a bank it would have been the same, had Dwolla been instead multiple banks sending wires around, each one proxying the other, it would have been the same.

And after all Dwolla was accepting funds on an account in Mutum Sigillum's name. Which means that Mutum Sigillum was accepting funds.

Not really relevant, it's the person who accepts and transmits the funds provides a service, for which the acceptance and transmission of funds is integral, and that's why they have to specifically exclude "money transmission service" from the service that can be provided.

You don't make sense. Re-read what I wrote, it'll sink in.

Yes, it's in French.

So what? I just explained to you what I discussed with MK, there's really nothing more to it. The rest of the discussion was about Yubikeys and other unrelated stuff.

And you are a bit over yourself, Gox could have eaten dirts a long time ago(it's quite a surprise that the authorities did wait for 2 years), have he really planned that, I could only say Mark is a bit....overoptimistic.

Like I said, mtgox did in fact eat some dirt in France in 2011. Like I said for the exact same reasons.
Do your homework, google it.

[oakpacific]

Not really relevant, it's the person who accepts and transmits the funds provides a service, for which the acceptance and transmission of funds is integral, and that's why they have to specifically exclude "money transmission service" from the service that can be provided.

You don't make sense. Re-read what I wrote, it'll sink in.

To help a stupid guy understand better, can you confirm to me using my analogy: would you consider a multi-currency platform buying/selling(matching orders between different customers) apples, with the apples possible to be delivered at any time by the instruction of the customer, to be a money transmission service? If not, what's the difference?

And you are a bit over yourself, Gox could have eaten dirts a long time ago(it's quite a surprise that the authorities did wait for 2 years), have he really planned that, I could only say Mark is a bit....overoptimistic.

Like I said, mtgox did in fact eat some dirt in France in 2011. Like I said for the exact same reasons.
Do your homework, google it.

About the only thing showed up for "CIC v MACARAJA" is the Bitcoin talk post in which MK tried to explain why they have done nothing wrong.

[Terk]

Just because you put a proxy between yourself and the customer doesn't change anything.

Yup, I agree here. It probably depends on what they've been doing with that money. If each transfer from Dwolla was sent to MtGox Japan and then each user withdrawal request was send to Dwolla from Japan, then it's probably money transmitting.

But that's also very ineffective. So they probably just kept a balance at Dwolla and/or US bank which served as a pool for transactions with US customers. So customer A deposited to Dwolla but the money didn't went any further and contributed to the balance. And when customer B wanted to withdraw, it was served from the balance. And the transfers between Mutum Sigillum LLC and MtGox were only once in a time to rebalance amount of money kept, as a whole balance available in the US. The question is wether such practice is considered as money transmitting. But even if not, the practice I described looks like some kind of financial operations, so that would probable require some license anyway.

I'm curious how it will resolve.  Unlike many people here, I like the company and I wish them the best (except for holding their domination in exchanges market, as it's healthy to have more distributed market). I really appreciate their AML/KYC efforts. Even if it was much easier for me to deposit to Bitstamp (I had my money deposited there without any hassle just 24 hours after registerning and it cost me only a fixed €1.2 regardless of amount, deposited via SEPA transfer) than to MtGox (I've been waiting in the verification queue for two weeks before I was able to send SEPA transfer), I understand that just because of this process, Bitstamp is probably more risky. On the other hand, it didn't prevent MtGox to have their US operations stopped. And their EU deposits are also handled by a local, Poland-registered LLC so if they didn't follow rules in the US, they might also cut some shortcuts in the EU and the story may repeat here.

For now, it seems that MtGox screwed their US operations at every possible point. They failed when they tried to do it alone (the Dwolla drama) and they failed when they tried to do it with an US-based partner (the CoinLab drama). Well, I am purchasing some more popcorn and going to watch what happens next.

[davout]

To help a stupid guy understand better, can you confirm to me using my analogy: would you consider a multi-currency platform buying/selling(matching orders between different customers) apples, with the apples possible to be delivered at any time by the instruction of the customer, to be a money transmission service? If not, what's the difference?

Yes, if it worked like mtgox (escrowing the funds in the middle) it would qualify as a money transmission business.
It's not specific to Bitcoin at all. It could have been the exact same with Magic the Gathering playing cards.

Keep in mind that this issue is more specific than that, it targets only the US subsidiary, not MtGox itself.

About the only thing showed up for "CIC v MACARAJA" is the Bitcoin talk post in which MK tried to explain why they have done nothing wrong.

There are other resources, mostly in French though
 - http://www.fs-reboot.eu/static/2011/09/Ordonnance-de-Référé-31-août-2011.pdf

If you find a way to read French I'll help you find the other available documents.

That time they got out of it OK because the plaintiff was the bank, not the government, and they simply ended up kicked out, not with funds seized/frozen.

And it was exactly for the same reasons, like really exactly, Macaraja argued that they were simply an "intermédiaire commercial" and not a money transmitter which the judge found to be nonsense according to the facts presented.

[oakpacific]

To help a stupid guy understand better, can you confirm to me using my analogy: would you consider a multi-currency platform buying/selling(matching orders between different customers) apples, with the apples possible to be delivered at any time by the instruction of the customer, to be a money transmission service? If not, what's the difference?

Yes, if it worked like mtgox (escrowing the funds in the middle) it would qualify as a money transmission business.
It's not specific to Bitcoin at all. It could have been the exact same with Magic the Gathering playing cards.

Keep in mind that this issue is more specific than that, it targets only the US subsidiary, not MtGox itself.

About the only thing showed up for "CIC v MACARAJA" is the Bitcoin talk post in which MK tried to explain why they have done nothing wrong.

There are other resources, mostly in French though
 - http://www.fs-reboot.eu/static/2011/09/Ordonnance-de-Référé-31-août-2011.pdf

If you find a way to read French I'll help you find the other available documents.

That time they got out of it OK because the plaintiff was the bank, not the government, and they simply ended up kicked out, not with funds seized/frozen.

And it was exactly for the same reasons, like really exactly, Macaraja argued that they were simply an "intermédiaire commercial" and not a money transmitter which the judge found to be nonsense according to the facts presented.

Thanks, I can read French a bit, but not listen.

It does seem to me Mark somehow believe what he said though, but since you know him...

[davout]

And their EU deposits are also handled by a local, Poland-registered LLC so if they didn't follow rules in the US, they might also cut some shortcuts in the EU and the story may repeat here.

The story *will* repeat in Poland, and in Slovenia as a matter of fact.
It's not that they're doing anything that I'd find morally wrong, it's that they let themselves be completely vulnerable from a regulatory PoV.
It's not in anyone's interest. I wish them the best too, because the more people share the Bitcoin pie, the bigger and tastier it becomes.

[davout]

Thanks, I can read French a bit, but not listen.

Yeah, the document I linked basically says "we'll settle it on September 13th", can't seem to find the document for that though, I had it at some point, if you want I'll have a look.

[Terk]

The story *will* repeat in Poland, and in Slovenia as a matter of fact.

Probably yes. Well, there's more and more professional people and companies getting involved with bitcoin and while many see e.g. Silicon Valley funds as bad, I'm happy they're jumping in. We may want bitcoin to be disruptive, but it has to play by the rules which adult world is running on. Either that or it will remain a niche bohemian oddity (and while it's nothing wrong with that, I'd like it to be something more).

[oakpacific]

Thanks, I can read French a bit, but not listen.

Yeah, the document I linked basically says "we'll settle it on September 13th", can't seem to find the document for that though, I had it at some point, if you want I'll have a look.

Thanks, if its not too much trouble(a serious "if").

So based on your personal understanding of MK, it appears to you that it is possible that this is not entirely due to bad foresight?

[oakpacific]

So the way Coinlab operates is perfectly acceptable I guess? Just buying a large amount of bitcoins from a variety of sources, then sell to customers at whatever price they deem to be profitable?

[davout]

Thanks, if its not too much trouble(a serious "if").

So based on your personal understanding of MK, it appears to you that it is possible that this is not entirely due to bad foresight?

Here you go, all the documents I have related to this case :
https://dl.dropboxusercontent.com/u/52452135/MACARAJA_DOCS.zip

You'll want to look at the last one if you want the conclusions.

What do you mean by your last question?

[davout]

So the way Coinlab operates is perfectly acceptable I guess? Just buying a large amount of bitcoins from a variety of sources, then sell to customers at whatever price they deem to be profitable?

That isn't a MSB, it is a company that sells something that falls in the default category of goods/services.
To be specific, what they sell is the service of digitally signing chunks of data that have some mutually-agreed-upon properties.

[nebulus]

Technically the account of an intermediary company were seized not that of mtgox. You are analyzing the wrong thing.

[davout]

Technically the account of an intermediary company were seized not that of mtgox. You are analyzing the wrong thing.

You just decreased the signal/noise ratio.
I'm analyzing the exact right thing.

[melon]

I think the case is more about skirting past international wire clearing and using mutum sigilum as a domestic proxy to keep the fees at the domestic level by accounting methods in essence  being their own international clearing house rather than the automated clearing house(ach). they  wanted their cut. this is how fees were so cheap w/out that international fee of 50 dollars otherwise small amounts less 500 to 1000 would be unprofitable to even send by users of btc. was probably wiring large sums monthly( 12 times a year rather than each transaction) from profits to keep the domestic account balanced right and mitigating fees at every transaction...seems like a good accounting method but bad business decision by law...fine probably