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Author Topic: Dwolla's Response to TradeHill | Lies and Defamation?  (Read 3914 times)
Yankee (BitInstant)
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March 07, 2012, 03:41:52 AM
 #1

EDIT: I have nothing against Dwolla, just pointing out the facts. We use Dwolla and work with their staff on a daily basis to eliminate fraud, and from what I gather, they are cleaning up their act.

As most of you know, TradeHill served Dwolla with a $2m lawsuit (http://www.betabeat.com/2012/03/06/dwolla-was-just-sued-by-bitcoiners-for-2-m/)

A few minutes ago, Dwolla responded with a release: http://www.betabeat.com/2012/03/06/dwolla-releases-statement-on-that-bitcoin-lawsuit/

Quote, Dwolla CEO Be Milne
Quote
A necessary byproduct of this kind of fraud is bank-level reversals, “chargebacks” issued by the institutions on behalf of the victim, not Dwolla. With that said, we will not play accomplice to sources of ongoing fraud. In such cases, we move quickly and act appropriately to facilitate restitution on behalf of the financial institution and its members (the victims).
Most all merchants are well aware of the problem, which is why we’ve always had something in our terms of service about chargebacks since Day One.

Since Day One you say?

Let's take a look at Dwolla's Current Terms of Service:
https://www.dwolla.com/tos?nolayout=true

Quote
Returns
The receiving party of a transaction may be subject to chargebacks occurring within the account if claims are made by the sending party or by the financial institution. When you receive a payment, you are liable to Veridian for the full amount of the payment sent to you plus any Fees if the payment is later invalidated for any reason. This means that, in addition to any other liability, you will be responsible for the amount of the payment sent by the sender, plus the applicable Fees if you lose a Claim or a Chargeback, or if there is a Reversal of the payment. You agree to allow Veridian/Dwolla to recover any amounts due to Veridian by debiting your Balance. If you do not have a Balance that is sufficient to cover your liability, your remaining Balance (if any) will be removed, your Account will be suspended, and you will be required to immediately make arrangements to eliminate the negative Balance. If you do not do so, Verididan in conjunction with Dwolla may, debit your attached financial institution account or engage in collection efforts to recover such amounts from you.

Oh? Your claiming this was here all along? I think NOT! (Thanks to Patrick of Intersango for the tip)

Let's use the Wayback Machine to see Dwolla's TOS on July 3rd, 2011
http://web.archive.org/web/20100730001213/http://www.dwolla.org/help/terms-of-use/

No reference to chargebacks whatsoever

Furthermore, Dwolla CEO Ben Milne puts a nice touch on his response claiming TradeHill CEO Jered Kenna is just wanting 'publicity'
Quote
It is also noteworthy that a party making unfounded allegations would likely notify the media of litigation prior to advising the party that it says caused it harm.
What we will not do is provide specific comment on specious allegations made by those who have a self-serving interest in seeking publicity.

Lies Lies and more Lies.



Charlie

EDIT: Furthermore....



Just for anyone who might be new or who might have missed the controversy between TradeHill and Dwolla last summer, this should give you an idea.  According to the datestamp, I made it on July 27th 2011.  That was after reading this thread posted by TradeHill, explaining their side of things.

"In a free society, private payments should be covered by merchant-customer privilege just as attorney-client privilege covers confidential legal communication." - Jon Matonis, Director, Bitcoin Foundation
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March 07, 2012, 03:50:45 AM
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Has TH served the court paper to Dwolla in person?  Not sure about the process, but it would be interesting to post this paper on Dwolla's post.

LOL@ the TOS on Wayback machine, they didn't think of checking there first, did they.
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March 07, 2012, 04:00:41 AM
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no question; they had nothing about chargebacks back then, that i remember.

i also remember they having a small staff unable to answer basic phone calls and being unable to handle new deposits any sooner than 4d.  the poor guy who answered the phone was overwhelmed by new Bitcoin accts being setup en masse after Bruce Wagner highlighted them on one of his shows.

they grew initially b/c of Bitcoin.
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March 07, 2012, 04:01:52 AM
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Old Dwolla news articles are neat.

Quote
As Dwolla grows, one of the areas in which the company will have to invest is conflict resolution, or what happens if merchant A fails to ship a product to customer B, who refuses to pay. To date, Milne said that this hasn't been a problem, in part because the small number of customers itself restricts the number of potential problems.

"There have been a lot of discussions with a third party who would assure transactions," Milne said. "Right now we go to the authorities" and let them investigate any disputes, he said.
http://www.pcmag.com/article2/0,2817,2362282,00.asp


Quote
Dwolla has applications for brick-and-mortar businesses, too: a Des Moines restaurant called Mars Café is using the program as part of a new in-store payment system. Customers can pay by logging into their Dwolla account on their smart phone and sending the money instantly to the merchant—all from their phone, and all without cash, checks or credit cards.
http://www.creditcardguide.com/creditcards/credit-cards-general/credit-card-alternative-online-purchases-dwolla-418/
I'm sure someone here will be contacting the Mars Cafe to turn them to Bitcoin now


Quote
Why could Dwolla be BIG?
There is no internet version of cash like there is a retail environment. There is no unified way to electronically exchange funds for consumers/businesses that bypass the traditional interchange fee. We built a solution to a $40B+ dollar problem.
http://www.discoveringstartups.com/dwolla-com-paypal-without-the-fees/


Quote
Native Iowan Ben Milne thought the financial and banking industry needed a little disrupting. “I was sick of feeling like they were taking a percentage of my money without deserving it,
http://thenextweb.com/apps/2011/01/24/move-over-paypal-online-payments-just-got-social-with-dwolla/

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March 07, 2012, 04:05:58 AM
 #5

this fiasco is a damn shame. it sure seems like dwolla is pulling something seriously shady, but what exactly? how could there possibly have been $100,000 in chargebacks all around the same time? are they just trying to straight up steal TH's deposits?

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March 07, 2012, 04:08:06 AM
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this fiasco is a damn shame. it sure seems like dwolla is pulling something seriously shady, but what exactly? how could there possibly have been $100,000 in chargebacks all around the same time? are they just trying to straight up steal TH's deposits?
Doubt it. Venture firm invested $5m in them about a month ago. Too much at risk to throw away a business for $100k. Seems like the chargebacks were of incompetence, the latest BS of panic.

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Yankee (BitInstant)
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March 07, 2012, 04:08:46 AM
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this fiasco is a damn shame. it sure seems like dwolla is pulling something seriously shady, but what exactly? how could there possibly have been $100,000 in chargebacks all around the same time? are they just trying to straight up steal TH's deposits?

Your right, it really sucks.

I like Dwolla, and we use their services. In fact, they do in fact work with merchant and we are friends with their staff.

The issue is what they did to TradeHill, and they have to pay.

"In a free society, private payments should be covered by merchant-customer privilege just as attorney-client privilege covers confidential legal communication." - Jon Matonis, Director, Bitcoin Foundation
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March 07, 2012, 04:11:27 AM
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http://www.siliconprairienews.com/2011/07/as-bitcoin-exchanges-drop-dwolla-milne-says-company-stays-focused

This news concerning TradeHill, one of the top two Bitcoin exchanges — Mt. Gox is the other — comes less than one week after Dwolla reached its $1 million in transactions per day milestone, a portion of which can be credited to Dwolla's use in the Bitcoin market. "Given Bitcoin’s recent explosion," The Next Web's Brad McCarty wrote on Thursday, "it would stand to reason that at least part of Dwolla’s explosive growth is being caused by the ease of compatibility between it and the Bitcoin currency system."

According to a TradeHill blog post on Tuesday, TradeHill was one Dwolla's top two customers (Dwolla declined to comment on this fact), but now it is no longer.
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March 07, 2012, 04:13:18 AM
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...
Let's use the Wayback Machine to see Dwolla's TOS on July 3rd, 2011
http://web.archive.org/web/20100730001213/http://www.dwolla.org/help/terms-of-use/
...

Now my question is this. How many members of the bitcoin community are going to save a copy of the above archived TOS onto their own computers around the world just in case Dwolla manages to pressure archive.org to remove said archive?

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March 07, 2012, 04:14:16 AM
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this fiasco is a damn shame. it sure seems like dwolla is pulling something seriously shady, but what exactly? how could there possibly have been $100,000 in chargebacks all around the same time? are they just trying to straight up steal TH's deposits?

Actually I believe the chargebacks are real.  Criminals found a weakness in DWOLLLA'S account verification system that allowed them to link a (possibly fake) name and address to a real and unrelated REAL bank account.  This is in my opinion a Dwolla security problem, not a Tradehill security problem.  At that point the criminals simply moved stolen Dwolla money into Tradehill, bought BTC, moved them to another exchange and sold em.  Later the real owners of the bank account saw the charges and disputed them.  

Of course the above is my opinion but I am pretty sure it is spot on.  

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March 07, 2012, 04:14:55 AM
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Not only did they change their TOS, they specifically advertised "absolutely no chargebacks" at the time.


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March 07, 2012, 04:15:31 AM
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http://www.siliconprairienews.com/2011/06/bitcoin-what-is-it-and-how-is-dwolla-involved-in-its-marketplace


SPN: As a follow up the previous question, is the traffic from Mt. Gox due credit for Dwolla's recent uptick in traffic and usage, including the hitting of a $1 million a week mark?
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March 07, 2012, 04:18:21 AM
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I agree with the assessment that Dwolla didn't assume responsibility for people scamming their system and instead placed the blame on the customer, this is something one accepts if they accept credit cards but the sole reason many in the community use Dwolla and one cannot fund Dwolla with credit cards is the risk a merchant assumes, in addition to the fees of course.

I currently use Dwolla to move money between Mt. Gox and my accounts but as of today I'm going to pull back, primarily because I think Dwolla did some underhanded things to try and cover up what happened. In the end they might have done it for survival reasons but it demonstrates a real lack of character and integrity.

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March 07, 2012, 04:22:19 AM
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March 07, 2012, 04:24:58 AM
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We made these people.

Can you guys believe what you are seeing?

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March 07, 2012, 04:27:13 AM
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https://bitcointalk.org/index.php?topic=30762.msg387567#msg387567

"We got in June a total of $6,824,168.53 of funds moving around (16640 transactions in both deposits and withdraws) over Dwolla, equivalent of $227,472.28 per day, or $1,592,305.99 per week. Should be noted that the site was closed on June 20th, so in reality amount per day/week is higher."
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March 07, 2012, 04:36:07 AM
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http://www.siliconprairienews.com/2011/06/guest-post-the-virtual-currency-debate-exchange-and-hysteria
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March 07, 2012, 04:36:51 AM
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The issue is what they did to TradeHill, and they have to pay.

the amount for damages requested in the suit don't correlate with the losses that can be attributed to dwolla though.  dwolla can change their policy at any time.  maybe dwolla should be on the hook for the reversals and the funds they still have held (total under $100k) but blowing that total into a two million lawsuit reeks.

it is like if a retail business launches to sell this widget that it can buy at a discount from a certain supplier and then that supplier stops carrying that widget.  it isn't the supplier that is responsible if the retailer then incurs losses and eventually goes out of business as the result.

plus, we saw what happened at paxum.  this gives banks and competitors even more reason to keep their distance from bitcoin.  this isn't france.  we are not guaranteed a bank account.  if a bank suspects a customer will be a risk for litigation, they'll opt for not establishing or severing any banking relationship with that customer.
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March 07, 2012, 04:38:39 AM
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I said it before and I'll say it again, Dwolla simply forgot to consider how they would cover fraud losses. At 25 cents a transaction, you can't pay for them yourself. So you have to pass them on to your customers. There is no other way. The problem is, Dwolla specifically said they wouldn't do that. Then when the losses piled up, they realized their business plan was fundamentally fatally flawed. Rather than doing the honest thing, covering the losses and changing the business so it could move forward, they instead just passed the costs of their mistake onto their customers and began spreading lies (we always said we would charge back ...) and smears (when a merchant is a constant source of fraud ...) to cover their tracks.

I am an employee of Ripple Labs, the company behind the Ripple payment network.
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March 07, 2012, 04:45:14 AM
 #20

why was mt gox seemingly unaffected by this?

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