Bitcoin Foundation receives cease and desist order from California

[Loozik]

released info to the membership first,

What purpose would releasing it to Bitcoin Foundation members in advance of the public provide?  (other than a trading advantage ..., letting members digest the information and possibly make a decision to trade on it).

I hate how you're always so logical and rational. Can't you just screw up a response once. lol

I am always enjoying his responses as well 

[1714021909]

1714021909

[1714021909]

1714021909

[1714021909]

1714021909

[1714021909]

1714021909

[Spekulatius]

released info to the membership first,

What purpose would releasing it to Bitcoin Foundation members in advance of the public provide?  (other than a trading advantage ..., letting members digest the information and possibly make a decision to trade on it).

I vividly concur, dear fellow.

[Stephen Gornick]

Foundation's response to the State of CA:

The Bitcoin Foundation does not engage in any of these regulated activities.  Furthermore, even if it did engage in these activities, it does not have any business operations in California that would subject it to the Department of Financial Institution's ("DFI") jurisdiction.
-
The Bitcoin Foundation does not have business operations in California that would subject it to the DFI's jurisdiction. [...] The Bitcoin Foundation provides no direct money services to any California consumers.
-
The Bitcoin Foundation is not in the business of selling bitcoin to consumers and does not otherwise operate a bitcoin exchange.
-
Bitcoins are not written or signed notes or drafts, and therefore, are not payment instruments regulated by the California Money Transmitter Act.
-
There is no issuer of bitcoin that would be subject to licensure as a money transmitter under California law.
-
The fact that bitcoin does not fit within the definition of payment instruments or stored value does not mean it is automatically regulated by the money transmission prong.
-
The same rationale that applied to the sale of a peso should prevail under the California statute with regard to the sale of a bitcoin.
-
The Bitcoin Foundation requests that your office issue an opinion that [...] the sale of a bitcoin is not regulated under the California Money Transmitter Act.

 - http://www.scribd.com/doc/151346841/Bitcoin-Foundation-Response-to-California-DFI

[cryptoanarchist]

I've been working on the assumption that the Foundation is going to respond.  That is more or less the Foundation's reason for being.  So although ignoring it would also be a sort of message, it doesn't take a foundation to do that.  You and me can do that on our own as you wisely observed.

TBF could have simply answered with a list of questions aimed for making sure the burden of proof is on California bureaucrats for the accusation they maybe making, e.g.:

- what evidence (if any) you rely on to prove California laws apply to TBF?

- what evidence (if any) you rely on to prove that what you call ''Bitcoin'' is money?

- what evidence (if any) you rely on to prove ....

If you ask bureaucrats for facts and evidence they normally freak out and shut up. Cause they have no facts relating to the theorem they want to prove, not to mention evidences.

I see someone is familiar with Marc Stevens and the No-State-Project.

The Bitcoin Foundation does not engage in any of these regulated activities.  Furthermore, even if it did engage in these activities, it does not have any business operations in California that would subject it to the Department of Financial Institution's ("DFI") jurisdiction.
-
The Bitcoin Foundation does not have business operations in California that would subject it to the DFI's jurisdiction. [...] The Bitcoin Foundation provides no direct money services to any California consumers.
-
The Bitcoin Foundation is not in the business of selling bitcoin to consumers and does not otherwise operate a bitcoin exchange.
-
Bitcoins are not written or signed notes or drafts, and therefore, are not payment instruments regulated by the California Money Transmitter Act.
-
There is no issuer of bitcoin that would be subject to licensure as a money transmitter under California law.
-
The fact that bitcoin does not fit within the definition of payment instruments or stored value does not mean it is automatically regulated by the money transmission prong.
-
The same rationale that applied to the sale of a peso should prevail under the California statute with regard to the sale of a bitcoin.
-
The Bitcoin Foundation requests that your office issue an opinion that [...] the sale of a bitcoin is not regulated under the California Money Transmitter Act.

Pretty rational response.

[RoadStress]

Foundation's response to the State of CA:

The Bitcoin Foundation does not engage in any of these regulated activities.  Furthermore, even if it did engage in these activities, it does not have any business operations in California that would subject it to the Department of Financial Institution's ("DFI") jurisdiction.
-
The Bitcoin Foundation does not have business operations in California that would subject it to the DFI's jurisdiction. [...] The Bitcoin Foundation provides no direct money services to any California consumers.
-
The Bitcoin Foundation is not in the business of selling bitcoin to consumers and does not otherwise operate a bitcoin exchange.
-
Bitcoins are not written or signed notes or drafts, and therefore, are not payment instruments regulated by the California Money Transmitter Act.
-
There is no issuer of bitcoin that would be subject to licensure as a money transmitter under California law.
-
The fact that bitcoin does not fit within the definition of payment instruments or stored value does not mean it is automatically regulated by the money transmission prong.
-
The same rationale that applied to the sale of a peso should prevail under the California statute with regard to the sale of a bitcoin.
-
The Bitcoin Foundation requests that your office issue an opinion that [...] the sale of a bitcoin is not regulated under the California Money Transmitter Act.

 - http://www.scribd.com/doc/151346841/Bitcoin-Foundation-Response-to-California-DFI

Where do i donate? Bitcoin Foundation seems to have some great lawers behind them.

[prophetx]

Love that responce letter,  it shall be interesting to see the follow up on this.

[worldinacoin]

Yeap, well thought of letter which explains everything in detail

[sbfree]

I would like to see what MSantori opines about this response and its stance on bitcoin? MS??

[MSantori]

I would like to see what MSantori opines about this response and its stance on bitcoin? MS??

It has been (and continues to be) my prediction that the states will try to follow FinCEN's lead in regulating digital currency as broadly as possible if they are able to do so.  The question is: will they actually be able to do so?  Recall that FinCEN administers the BSA, a federal statute whose terms are quite broad.  Without getting into too much statutory analysis, the BSA defines money transmission very, very broadly.  State regulatory agencies, on the other hand, do not administer the BSA; they administer their own state's laws, each of which are different from the other.  Most of them - including California's - are not as broad as the BSA.  As such, will likely not be able to defend as broad a regulatory stance.

It has also been my argument (take a look at my thread on the legal forum) that California's DFI did not send this letter because they actually believed the foundation was engaged in money transmission.  That position would be absurd, and the regulators are not stupid people.  To the contrary, the C&D was a shot across the bough intended to engage the Foundation in a political dialogue.  If you noticed, the C&D contained no legal analysis and did not specifically cite any instance of supposed money transmission.  Instead, it forced the Foundation to do DFI's analysis for it.  It forced the Foundation to take a position on the issue.  Now the Foundation has done so, and we will have to wait and see DFI's response. The letter was competently-executed statutory analysis. But let's not all start patting ourselves on the back for our accomplishments just yet.

I will note, however, that it was nice to see the Foundation on the offensive.  The letter didn't have to specifically argue that bitcoin sales are unregulated in California, but it did so for the benefit of its members.  That puts a smile on my face

[NewLiberty]

Yes, it gave the "power of the pen" to the foundation.
So the first writing with analysis is made, and a return opinion requested.

[Loozik]

I see someone is familiar with Marc Stevens and the No-State-Project.

Of course 

[BitGo]

Foundation's response to the State of CA:

 - http://www.scribd.com/doc/151346841/Bitcoin-Foundation-Response-to-California-DFI

The real meat in this letter is under Section C for "stored value." The Bitcoin Foundation says that Bitcoin is not stored value. This directly contradicts U.S. Department of Treasury FinCEN statements which say that the reason why Bitcoin operators need money transmitter licenses (or MSB licenses) is because BTC is stored value.

The interesting thing is that the Foundation didn't need to argue that Bitcoin is not stored value. They could've just said that, even if Bitcoin is stored value, they don't sell or issue it and so they aren't subject to the license. They claim they are a not-for-profit and their activities are more political in nature. Consumers can only donate Bitcoin to the Foundation, not buy or sell Bitcoin to them.

So why are they arguing something seemingly unnecessary to their case? My thoughts are: 1) They actually have done some issuing, selling or transferring of Bitcoin, although probably in a small capacity. The Foundation actually might be giving money to people. They have grant competitions, and whoever wins the grant probably gets resources to bring the grant idea to fruition. What if, for one of those grants, they gave some BTC to someone? Well, then, that might consist of the activity of issuing BTC, which CA claims they need a license for.

2) The other possibility is that they are making a political/legal move in trying to get a case in court. Just because FinCEN or a CA Department says something, doesn't mean its statement is legally binding. If they could get a judge to adjudicate whether Bitcoin is stored value, then this would bring great clarity to the field. The Foundation argues that Bitcoin is not stored value, or any other definition under money transfer laws, and therefore no Bitcoin operator needs a money transmitter license. This is a bold argument that directly contradicts FinCEN. It's also highly appropriate for the Foundation to make this move since it's their mission to advocate Bitcoin in general.

The Foundation might be on to something. In fact, at the recent conference in DC, the European Central Bank declared that they don't think Bitcoin fits any of the three functions of money: Medium of Exchange, Unit of Account, or Store of Value (http://www.thebitcoinchannel.com/archives/13169). If they mean Store of Value in the same way that the US Department of Treasury means Stored Value, then it's possible that one day the U.S. will give into the notion that Bitcoin is not stored value and thus Bitcoin operators would not need a money transmitter license.

The Bitcoin Foundation's response to CA's cease and desist here is really exciting. The Foundation is officially requesting here for CA to make an official statement that "the sale of bitcoin is not regulated under the California Money Transmitter Act." Of course it might take a couple of years for this case to get through the court system in order to produce a final answer.

In addition, the Foundation says, "It is important, and a core aspect of the Foundation's mission, to ensure that State regulators understand the bitcoin industry, and that the bitcoin industry participants receive clarity regarding and achieve understanding of their obligations under state law." The Foundation here is suggesting that perhaps our government bodies don't quite understand the nuances of Bitcoin, and so consulting with the Foundation should help.

[please note this is not legal advice]

[NewLiberty]

Foundation's response to the State of CA:

 - http://www.scribd.com/doc/151346841/Bitcoin-Foundation-Response-to-California-DFI

The real meat in this letter is under Section C for "stored value." The Bitcoin Foundation says that Bitcoin is not stored value. This directly contradicts U.S. Department of Treasury FinCEN statements which say that the reason why Bitcoin operators need money transmitter licenses (or MSB licenses) is because BTC is stored value.

The interesting thing is that the Foundation didn't need to argue that Bitcoin is not stored value. They could've just said that, even if Bitcoin is stored value, they don't sell or issue it and so they aren't subject to the license. They claim they are a not-for-profit and their activities are more political in nature. Consumers can only donate Bitcoin to the Foundation, not buy or sell Bitcoin to them.

So why are they arguing something seemingly unnecessary to their case? My thoughts are: 1) They actually have done some issuing, selling or transferring of Bitcoin, although probably in a small capacity. The Foundation actually might be giving money to people. They have grant competitions, and whoever wins the grant probably gets resources to bring the grant idea to fruition. What if, for one of those grants, they gave some BTC to someone? Well, then, that might consist of the activity of issuing BTC, which CA claims they need a license for.

2) The other possibility is that they are making a political/legal move in trying to get a case in court. Just because FinCEN or a CA Department says something, doesn't mean its statement is legally binding. If they could get a judge to adjudicate whether Bitcoin is stored value, then this would bring great clarity to the field. The Foundation argues that Bitcoin is not stored value, or any other definition under money transfer laws, and therefore no Bitcoin operator needs a money transmitter license. This is a bold argument that directly contradicts FinCEN. It's also highly appropriate for the Foundation to make this move since it's their mission to advocate Bitcoin in general.

The Foundation might be on to something. In fact, at the recent conference in DC, the European Central Bank declared that they don't think Bitcoin fits any of the three functions of money: Medium of Exchange, Unit of Account, or Store of Value (http://www.thebitcoinchannel.com/archives/13169). If they mean Store of Value in the same way that the US Department of Treasury means Stored Value, then it's possible that one day the U.S. will give into the notion that Bitcoin is not stored value and thus Bitcoin operators would not need a money transmitter license.

The Bitcoin Foundation's response to CA's cease and desist here is really exciting. The Foundation is officially requesting here for CA to make an official statement that "the sale of bitcoin is not regulated under the California Money Transmitter Act." Of course it might take a couple of years for this case to get through the court system in order to produce a final answer.

In addition, the Foundation says, "It is important, and a core aspect of the Foundation's mission, to ensure that State regulators understand the bitcoin industry, and that the bitcoin industry participants receive clarity regarding and achieve understanding of their obligations under state law." The Foundation here is suggesting that perhaps our government bodies don't quite understand the nuances of Bitcoin, and so consulting with the Foundation should help.

[please note this is not legal advice]

This is spot on.  The next question is whether the Foundation is best suited to handle the setting of the precedent on all these points.  If you care about the outcome, it is time to help in whatever way you can.
If precedent is poorly made, then it may be State + judicial deference v You, in the State's courtroom, in years to come, amicus.

[Bitco]

It has also been my argument (take a look at my thread on the legal forum) that California's DFI did not send this letter because they actually believed the foundation was engaged in money transmission.  That position would be absurd, and the regulators are not stupid people.  To the contrary, the C&D was a shot across the bough intended to engage the Foundation in a political dialogue.  If you noticed, the C&D contained no legal analysis and did not specifically cite any instance of supposed money transmission.  Instead, it forced the Foundation to do DFI's analysis for it.  It forced the Foundation to take a position on the issue.  Now the Foundation has done so, and we will have to wait and see DFI's response. The letter was competently-executed statutory analysis. But let's not all start patting ourselves on the back for our accomplishments just yet.

I doubt there was as much thought behind it as you assume.  All they did was send out form letters to a bunch of people.  They probably figured this would be an easy way to get a bunch of businesses to sign up and pay the registration fee.  Instead, they're now going to be forced to justify their actions, or concede that it's not under their jurisdiction.

[NewLiberty]

It has also been my argument (take a look at my thread on the legal forum) that California's DFI did not send this letter because they actually believed the foundation was engaged in money transmission.  That position would be absurd, and the regulators are not stupid people.  To the contrary, the C&D was a shot across the bough intended to engage the Foundation in a political dialogue.  If you noticed, the C&D contained no legal analysis and did not specifically cite any instance of supposed money transmission.  Instead, it forced the Foundation to do DFI's analysis for it.  It forced the Foundation to take a position on the issue.  Now the Foundation has done so, and we will have to wait and see DFI's response. The letter was competently-executed statutory analysis. But let's not all start patting ourselves on the back for our accomplishments just yet.

I doubt there was as much thought behind it as you assume.  All they did was send out form letters to a bunch of people.  They probably figured this would be an easy way to get a bunch of businesses to sign up and pay the registration fee.  Instead, they're now going to be forced to justify their actions, or concede that it's not under their jurisdiction.

They can also do nothing.  There is no force acting on CA from the Foundation, just a request.

[Bitco]

The real meat in this letter is under Section C for "stored value." The Bitcoin Foundation says that Bitcoin is not stored value. This directly contradicts U.S. Department of Treasury FinCEN statements which say that the reason why Bitcoin operators need money transmitter licenses (or MSB licenses) is because BTC is stored value.

When did FinCEN state that bitcoin is stored value?  Since 2011, FinCEN regulations have referred to "prepaid access" rather than "stored value", and they have never claimed that bitcoin is prepaid access either.

In a letter to Tangible Cryptography LLC, the State of Virginia did claim that bitcoin was stored value.  However, the definition of stored value in the Virginia law is somewhat different than the California law and the former federal regulations.

[solex]

Although the BF response is very good the glaring inconsistency is arguing that Bitcoin is not a store of value, but also should be treated the same way as the Mexican peso for sales. Despite its poor track record the peso is very much a store of value while it remains a viable national currency.

[marcus_of_augustus]

Although the BF response is very good the glaring inconsistency is arguing that Bitcoin is not a store of value, but also should be treated the same way as the Mexican peso for sales. Despite its poor track record the peso is very much a store of value while it remains a viable national currency.

Yeah, I don't know but I wouldn't be storing value in pesos any time soon ....

[Syke]

Now the Foundation has done so, and we will have to wait and see DFI's response.

What are the odds that DFI will file a response? Can they just drop it without any response?

[bassjoe]

The real meat in this letter is under Section C for "stored value." The Bitcoin Foundation says that Bitcoin is not stored value. This directly contradicts U.S. Department of Treasury FinCEN statements which say that the reason why Bitcoin operators need money transmitter licenses (or MSB licenses) is because BTC is stored value.

When did FinCEN state that bitcoin is stored value?  Since 2011, FinCEN regulations have referred to "prepaid access" rather than "stored value", and they have never claimed that bitcoin is prepaid access either.

In a letter to Tangible Cryptography LLC, the State of Virginia did claim that bitcoin was stored value.  However, the definition of stored value in the Virginia law is somewhat different than the California law and the former federal regulations.

FinCEN's March 18 guidance specifically said virtual currencies are not prepaid access.