It is worth pointing out that the state can put out Cease And Desist orders, and warnings on its website with no:
1) Evidence of wrongdoing
2) Communication with the accused
3) Method of reconciliation
I have my own personal example:
I received a letter ordering us to cease and desist from doing online notarization through California notaries. We were not doing so, so in effect we sent back a letter stating:
"We have not, and never have, conducted the activity you accuse us of." They basically responded saying "ok, we agree that you haven't done anything wrong but if you do anything we will prosecute you to the full extent of the law."
A few weeks later, they posted a "consumer warning" on their website saying that our company was in effect defrauding companies. Then, several other states copied that language without contact. I spoke with the government officials, I told them we were hurt by these baseless accusations, and they admitted that they really had no evidence of any wrongdoing. They basically said "we are too busy to update the website right now but we will do so shortly."
After months of effort, I was able to one by one get most of these ultimately removed or reworded to a reasonable position. California was the last holdout. I basically began the process of suing them for massive damages and that ultimately was the only thing that was able to get them to change the wording.
So overall, my learning is that it genuinely scares me what government agencies can do without any evidence or judicial process. I would guess that the Bitcoin Foundation can respond with "you are wrong, please provide evidence" and get away with it for now.
Indeed. Additionally there are questions regarding how clear a statute needs to be before you send people to prison for 5 years. Crime by analogy, once the bread and butter of Soviet justice, has unfortunately been becoming more common in the US (see the prosecution of Jeffrey Skilling for "honest services fraud" and the prosecution of Dr Hurwitz for unlawful distribution of narcotics).
This C&D demonstrates a rather alarming ignorance about Bitcoin, and an even more alarming tendency of modern enforcement agencies to halt any activity they don't understand. It is an embarrassment to Paul T. Crayton and the State of California, and this "default deny" stance on innovation has just as much chilling effect as patent trolls.
I see it a bit differently. The system is set up so that an independent interest can raise an issue, the state requests clarification, and the resulting court cases clarify the issue.
The State isn't going to take the BitCoin Foundations word that they aren't doing anything wrong, just like they don't take the credit card processors or Treasury departments word that they are doing something wrong. So party A says "They are doing it wrong!" and the state tells party B, "Please stop what you're doing, unless you can show your not doing it wrong." That is how the system evolves its understanding and codification of things.
Sure, its obvious for something things (like murder and mayhem) but when its less obvious or more subtle then its unfair to take one side's view of the matter and declare it correct by fiat. You explore the subtleties and need to decide where to draw the line.
This is a good thing for the Bitcoin folks because it is the start of the process where the government develops a collective understanding of what Bitcoin is. That, if nothing else, validates that Bitcoin is "real" in the sense that the government must "understand" it in order to work with it. People who dislike the notions will argue its evil, and supporters will argue its beneficial and once we've talked through all the legal ramifications then its future will no longer be in doubt.
It should be the State's responsibility to finance the finding-out process. If you place the burden on the innovator to educate the state (which will typically be staffed with idiots), then this is a huge tax on innovation. If the state really wants to bring its massively asymmetric power to bear against potentially wrong-doing innovators, then it should do the research itself and only involve the innovator when it has enough information to get probable cause.
Using underhanded tactics, like publishing defamatory statements (like mchusma related in a separate comment
Yes. This is where ChuckMcM's reasoning falls apart. If you accuse someone of wrongdoing, it is your responsibility to provide evidence. You can't just go to them and say, "well, if you aren't doing anything wrong, prove it!"
Party A, "This Rembrandt is the best he ever painted.", Party B, "No it's not, this Rembrandt is the best he ever painted."
In these sorts of actions you aren't trying to prove a negative both parties are proving a positive, which is to say both parties are working to create a consensus understanding of the interpretation of the law. In one view what these folks do is legal, in one view it is not.
What generally happens though, and looking at the history of the same sex marriage effort is really a great analog here, is that one view or another comes up short in terms of written law, new law is written with what the consensus is thinking should be rather than perhaps what is.
Using same sex marriage as an analog, we started from "Homosexual activity is illegal" to a place where the consensus view was that you couldn't really legislate something which was innate, to "but marrying is illegal" to "well we recognize that your partnership is in many ways like a marriage" to what I expect tomorrow will be "You know, the state doesn't have any business defining the sex of the two people in a marriage." [1]
In each stage of this "conversation" (and I realize that term is not perfect but I don't have a better term for millions of people going through a process to reach consensus) we explored particular aspects of the problem. Was it the 'sex' that was wrong? Was it the 'people' who were homosexuals that was wrong? Is the definition of 'family' inextricably tied to offspring of mated individuals? Or is is broader than that? Are citizens harmed by this? Helped? How about their children? Other children? People around them? In every case one party says "It's wrong because 'reason'." and the the other party debates that reason or comes up with a different line of reasoning why its right. Jurists listen, they consider what has come before and will come after, and rule. Then we as a people consider whether or not that consensus was what we intended or want and then we create new law and the process continues.
It's slow, its ponderous, but it does converge and it allows things to move with the consensus as the consensus moves. FWIW this is the single most powerful 'feature' of our form of Government.
[1] I'll know tomorrow if I'm wrong I suspect but reading about the coverage at the Supreme Court I'm betting its going to come down on the side of same sex marriages.
You're confusing the process of drafting or modifying laws with the process of defining exactly what those laws mean in practice. Criminal courts only get involved once there's reasonable suspicion that a party has committed a crime (so far as the current legal understanding of the law), not before. You can't just say "so and so violated law A", the courts need some evidence to back up that claim. At best you might get a detective to go out and ask some questions, look around, and try to figure out if there's anything there to follow up on.
Now civil court is another matter, but the state doesn't prosecute that, so it's not really relevant to this discussion.
The court (and particularly the supreme court) is involved in interpreting the law, but they don't get to ask people to prove they haven't broken the law unless they have some kind of evidence that they did in fact already break the law. Simply claiming they "think" someone is in violation of a law based on no evidence at all falls so far short of the legal requirements to bring a case it's laughable. If somehow the government did prosecute based on no evidence at all I'd imagine there's a whole horde of lawyers that would line up to get a chunk of the wrongful prosecution lawsuit that would come of that.
Bitcoin is not something that's self-evidently harmless. The state has legitimate interests at stake. Some legal review is inevitable and will be a good thing.
It's not self-evident to everybody, and that's why it needs to go through the courts. A legal precedent would benefit Bitcoin by removing uncertainty about litigation. And I think it would be a good thing for everybody for it to have its day in court.
This C&D demonstrates a rather alarming ignorance about Bitcoin, and an even more alarming tendency of modern enforcement agencies to halt any activity they don't understand.
Not really, The state knows what it needs to know about bitcoins in the sense that it knows it can stop them easily, which seems to be more than bitcoin supporters know.
But this statement demonstrates the ignorance and contradictions within bitcoin boosting; the idea that because bitcoin values have grown that bitcoins are a logical potential currency rather than one more speculative trend in the line with tulip is the most obvious example. There is also the confusion between whether bitcoins will succeed through the very force of encryption to end the state's control of currency or whether bitcoins will succeed because bitcoinists have a moral right create a system to destroy the state's control over its currency. But there's a further confusion - bitcoinists don't get that the dollar's value derives from the state's monopoly of force and violence. Indeed, bitcoinists somehow don't get that the dollar is ipso facto the best currency because people use it even though they want bitcoins to succeed on the same criteria. And there's the part how bitcoinist think the weakness of gold is that it can't be transmitted electronically whereas the fact is that state prevents it from being currency (even if it is still allowed as an investment). And I could on and on...
This is, at most, a bureaucratic throat clearing, or a shot across the bow, if they decide to go after BitCoin in a serious way. This is not even them trying yet.
BitCoin enthusiasts would be well advised to consider this as a chance to get themselves together and figure out how they're going to respond if it does come to that. You do not know when the last such opportunity will emerge. The BitCoin enthusiast community would find it incredibly ill-advised to think that they are in such a good position that they can be as smug as you sound.
Also, you're acting as if the bitcoin community is a single entity that could come so some kind of agreement.. it's not. Just as can be said for the "business community."
Also, the situation is a lot more complicated than you're giving it credit for.
No, it's not. I'm actually quite sympathetic to BitCoin. Skeptical, but sympathetic. I am constitutionally incapable of being "smug" about government power. It is supremely dangerous to think this is the limits of what the government can do. Assuming that I'm "one of them" and using that to discard my warning is also dangerous.
Exactly what you mean by some "complication" in relation to what I said is beyond me. I sure hope you don't think "complication" plays to anyone but the government's advantage.
This is the warning shot. They are coming. Prepare.
I'm calling you the pot simply because you smugly called someone else smug. That didn't have anything to with whose side you're on, or whatever.
> This is the warning shot. They are coming. Prepare.
This is just some incompetent corruptocrats. This is not the warning shot. This is not the crackdown.
But yeah, I fully expect the US government will, more likely than not, try to shut down Bitcoin. I think most people who are not naive teenagers do.[1]
One complication is that the US government only truly controls one country, and there are 200+ countries around the world. Bitcoin is useful, and the cat's already out of the bag.
To be clear, I'm not naively saying that it's going to be a successful currency in the long run; we just don't know.
[1] I expect it to be a legally drawn-out process that does not criminalize bitcoin overnight and may not even fully succeed. Also, it's worth noting that the Feds have been insanely pro-Bitcoin so far. Rather than making it illegal overnight, all they've done so far is to release the most pro-bitcoin regulations conceivable.
Exactly what I feel. California is known for incubating tech and embracing new methods.
This is about as disappointing as when I heard that Nevada was first to legalize automated vehicles before us and it took lobbying from Google to push the approval here.
California people are known for being innovative and resourceful. California government is known for being inept, wasteful, inefficient, incompetent, corrupt and constantly balancing on the brink of bankruptcy. It is a mystery how such wonderful people keep electing such miserable government...
You must be new here... First past the post has a lot to answer for. A largely unaccountable (by design) bureaucracy also has a rather heavy hand in the matter too.
This bureaucracy has not come from Mars, you know... I'm still at loss how people in California can invent technologies which alter the whole course of the civilization but are stuck with the government which is, by any outsider account, certifiably insane - and don't even try to do anything of effect about it. Or maybe the said people just have enough money that they don't care? After all, if things go bad you can always take your money and move to the next country which haven't go bad yet.
For a long time I've admired Silicon Valley and America as a whole. It had been my dream to work and create a sartup there but after all of this. After seeing how free Americans really are I am now unsure about moving there. Although America has great opportunities for people like me, it doesn't seem worth it especially since I've found out how some people get blacklisted for no reason.
Come to Texas--any of our major cities (Houston, Dallas, Austin, others) are great places to start doing business. We're full of friendly people and fairly permissive state government, our economy is quite strong and full of opportunities for people who want to work (startup or no), and the cost-of-living is actually reasonable compared with the coasts.
I'll personally plug Houston here (my colleague has already done the same for Austin). If you want to do energy, manufacturing, or medicine, you basically can't beat this town. We're a port city, we've got the largest medical center in the world, we've got tons of oil & gas folks, and great schools to pull talent from. Our food is also way better and cheaper than Austin. ;)
I would highly consider to the grandparent poster that they do their own due-diligence on the life in the state of Texas, particularly if they have children. Check the poverty rate, access to health care, pollution, and education rankings that all rank among the worst in the US.
I don't think it's meaningful to compare educational outcomes in states with large amounts of low-skilled immigration with the rest of the country. A quick look at education statistics will show you that outcomes are highly correlated with family income. Filter out[1] the schools in impoverished neighborhoods and you'll get a better idea of what kind of school your kids will go to.
“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” John Steinbeck
I think he's saying that their situations shouldn't be included in evaluations of how well Texas is governed. Every place is well run if you ignore the parts that don't work well.
The state is too large and diverse to research at that level and make any determination about the community/region you might move into. The diversity from city to city in the metroplex alone is vast.
There are plenty of places in the US that have lots of startup action going on, but a ton less buzz. Austin, for one (disclaimer: I live in Austin). We don't necessarily have the same expertise or even interests that SV does and there are probably other problems that would never occur in SV.
On the other hand, it's way easier to fly under the radar here, if that's your thing. Austin is a hell of a lot cheaper than SV and it's surrounds, in most ways, so you'll stretch your dollars further. I'd claim we're friendlier, but that's just a guess. We can be pretty tetchy here about some things.
Silicon Valley isn't the only game in town. It's just the noisiest. And you couldn't pay me enough to put up with that.
No offense taken from me. I believe that America is changing extremely fast, some for the good but, unfortunately far too much for the bad. Opportunity still exists but many of the "powers that be" have forgotten what truly made America great. The pursuit of their and many others agenda's have hurt many good hard-working entrepreneurs and others, intentional or not. "More government" seems to be their only answer to any "problem" and this attitude has cost Americans far too much and unfortunately has spawned the evils of "Crony Capitalism", giving the false impression that true Capitalism is bad.
Some of those entrepreneurs are creating that crony capitalism. Don't try painting entrepreneurs with a pristine brush. See Cisco CEO's meeting with Obama on how to improve the country. See what others in the meeting wanted. See which of those are coming to fruition. I bet in return we got acquiescence on rampant NSA spying. Why does Obama come to the Bay Area so often? A: To raise money. What is that money buying?
> After seeing how free Americans really are I am now unsure about moving there.
As an American currently in Indonesia, I can totally understand where you are coming from. The major thing America has going for it economically at the moment is not freedom but just money and the university system. However with globalization, I think there are plenty of good opportunities everywhere in the world.
State money transmission laws are very strict, requiring, among other things, a bond to be posted to protect the public.
Accoring to FinCEN, anyone selling units of a decentralised virtual currency to another person for real currency is a money transmitter--so, for example, if you operated a business exchanging U.S. dollars for Bitcoins, you must be licensed. I don't know if the Bitcoin Foundation did this in California; perhaps there is some other wrinkle of state law at play here.
As you might guess, we have deep expertise on-hand for the Foundation as to MTB/MSB laws, and can confidently state we do not engage in MTB or MSB activity at the Bitcoin Foundation; we're just a member organization.
The state of California is blanket C&D-ing all Bitcoin businesses.
Given the online ads included in the letter, it appears they googled for "bitcoin" and used a screen grabber to copy/paste the law text. It's sad how messed up the CA gov't has gotten.
I wouldn't be surprised if the C&D were blanket. That said, when you Google for "Bitcoin Foundation" you see an "About" section in the #1 result (your website) which begins, "Our mission is to help people exchange...". I wouldn't put it past the state not to have read any further. ;-)
The Bitcoin foundation does neither exchange or trade Bitcoins, nor does it release any Bitcoin client. Its only mission is to "standardize, protect and promote" the use of Bitcoin.
Charging the Bitcoin foundations for violations against the money transmission laws would be like charging NRA for violations against firearm laws. This would be a very alarming precedent and would basically violate your rights for free speech.
The best argument in favor of the C&D I can think of is that the Bitcoin Foundation pays a salary to the lead developer of the reference client and daemon.
If you violate money transmission laws because you pay a salary to someone (without being a licensed money transmitter) there would be lots of people violating those laws in California.
I agree, I'm just speculating on California's justification for the C&D, assuming it isn't simply a result of ignorance of how bitcoin works and the role of the Bitcoin Foundation.
Isn't a simpler explanation that they are just stupid and didn't take 5 minutes to find out exactly who they are sending the letter to and just sent it to the first google result for bitcoin?
That's a two way street. I'm guessing the Bitcoin Foundation might have overlooked some of its due diligence obligations; it looks to me like CA is 'piercing the corporate veil' if you're familiar with that legal term.
Interesting that you say that. Coinbase is verifiably registered with FinCEN, but not the states, as far as I can see. (Square, mentioned in the article, actually is registered in California.)
If you google that address, it is an old address for earth class mail, a commercial mail scanning/forwarding service. (I use them too; they rock if you move a lot, or live overseas.)
Most of the comments here are not particularly well-informed and should be ignored.
Yes, the Bitcoin Foundation (probably--I don't know anything about them other than what I've read) isn't strictly speaking a money transmitter. Yes, the California Department of Financial Institutions--which will cease to exist in 7 days when it gets merged into the California Department of Corporations--is totally ignorant of Bitcoin. But they know the law pretty well. Especially the one that they wrote. (See the name Robert Venchiarutti on the letter? He's really the one behind it. The DFI lawyers just do what they're told. They don't even like the law. Venchiarutti actually wrote it, with the help of TMSRT's lobbyists.)
"(a) Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business..."
The question then becomes whether the Bitcoin Foundation has any "control" or "direction" over its members and/or affiliates, who are most clearly in violation of the law under section (b). These words are vague. It could be argued that it does.
There is an extremely high chance that people will go to jail over this whether people here think it's stupid or not. It's too bad no one took me seriously when I pointed out that the MTA was going to cause problems two years ago. I've been doing the industry's dirty work ever since. It would have been a lot faster and easier with some help. Now we all have to hope that my constitutional challenge (http://www.plainsite.org/flashlight/case.html?id=716056) is going to save the day. And it might, but that day may be pretty far off in the future at the current rate.
Meanwhile, everyone should really be freaking out over AB 786 (http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?...), presently before the California Senate, which makes the MTA worse than it already is by giving Robert Venchiarutti even more power. I've been successful in removing the clause that created a new thought crime, but the rest is still pretty bad--unless you're a payroll company. Amazing what lobbying can do.
If you want to help, click on the "Comments to Author" tab at the link above, register with the State of California, and tell Assemblyman Dickinson that the MTA should be repealed for all of the reasons I outline at https://s.facecash.com/legal/20130225.packetnumbered.pdf: its overly broad scope, inability to sensibly regulate mobile technology, and unconstitutional nature. Money transmission takes place over the internet, which is in the domain of the federal government, not the states. See /ALA v. Pataki/, 969 F.Supp. 160 (1997), http://scholar.google.com/scholar_case?case=1017409488915582.... Also CC: Eileen Newhall <eileen.newhall@sen.ca.gov>, Mark Farouk <mark.farouk@asm.ca.gov>, Senator Jerry Hill <jerry.hill@sen.ca.gov>, Marc Hershman <marc.hershman@sen.ca.gov>, and BCC me: Aaron Greenspan <aarong@thinkcomputer.com>. If you live in California make sure to say where. Be polite.
A few notes about Aaron: while I agree with his perspective that Money Transmission should be a Federal issue, not a state issue,
A) He's not a lawyer;
B) He's (or at least Think Computer) is cheerfully suing a bunch of Bitcoin and Silicon Valley companies (including one I founded) over these laws, costing many startups litigation defense fees.
I do not consider him to be anything like a balanced commentator on these issues, and I also do not believe his approach to be one that is, on balance, helping California technology companies who wish to deal with payments.
>I do not consider him to be anything like a balanced commentator on these issues, and I also do not believe his approach to be one that is, on balance, helping California technology companies who wish to deal with payments.
Why not argue against the argument rather than the man? Or at least if we're arguing against men, follow up with "a few notes about Peter" so I can get a decent comparison of the men.
I don't think the words are vague, I think they clearly exclude the Bitcoin Foundation, just as they would exclude a company selling software to a bank.
But even if you think they're vague, that would still be the end of the matter as far as criminal law is concerned. Ambiguous statutes are construed in favor of the defendant.
Nice to see that HN is still the kind of place where a post from someone knowledgeable (whatever one may think of the details of their post) will quickly jump to the top.
"(a) Whenever the commissioner believes from evidence satisfactory to the commissioner that any person has violated or is about to violate a provision of this division, or a provision of any order, license, decision, demand, requirement, or any regulation adopted pursuant to this division, the commissioner may, in the commissioner's discretion, bring an action, or the commissioner may request the Attorney General to bring an action in the name of the people of the State of California, against that person to enjoin that person from continuing that violation or doing any act in furtherance of the violation. Upon a proper showing, a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted and other ancillary relief may be granted as appropriate."
So, all they would have needed was "evidence satisfactory to the commissioner" that you were "about to violate a provision of this division, or a provision of any order, license, decision, demand, requirement, or any regulation adopted pursuant to this division" in order to refer you to the U.S. Attorney. The California Attorney General wouldn't be involved in federal prosecution.
This section (formerly proposed Section 2155) is gone now because I threw a fit. No one else did. I find that depressing.
Well let's get our dystopias straight. That's precrime, not thoughtcrime. :)
Seriously though, I am not a lawyer - isn't that what injunctions are for? To get a judge (or in this case, the A-G) to put the brakes on something that might cause irreparable harms, in advance of a final ruling?
I wonder if Mr. Teveia Barnes (correction: Mrs) is aware of her place in history: One of the brightest minds of our generation spent years of his life developing a technology that has essentially no other purpose but to make her C&D (which we knew would come one day) completely ineffective.
(This is assuming Mrs. Teveia believes that the bitcoin foundation runs the servers that make up the bitcoin network, which I think is what this is all about.)
Just because it's technically not possible for the state of california to shut down bitcoin does not mean that the state (generic, not just cali) could not effectively kill it by outlawing businesses and individuals from dealing in it.
It would certainly end the 'bitcoin everywhere' dreams the fanatics have.
I would expect to see a lot more of this. There are a buttload of laws around money transmission and exchange, anr BTC probably breaks a lot of them.
If I were doing a Bitcoin business, it sure wouldn't be in California. Aside from the obvious startup friendly Seattle or Austin, it might make sense to pick some small state who could have favorable laws (South Dakota for credit card issuers...)
If there was a more technology & freedom enlightened state I would emigrate there. I wonder if there is enough political will for Silicon Valley to secede from California?
I suspect (although this is just speculation) that the authority is based on the fact that the Bitcoin Foundation is transmitting a lot of money to and from citizens of California. If, indeed, the Bitcoin Foundation were responsible for all bitcoin transactions (including those in California) then the legal authority would be clear. Perhaps California officials are simply mistaken and ill-informed about how bitcoin functions.
> Even if they were a money transmitter, what authority does California have over a Washington based nonprofit?
If they were a money transmitter, and operated as such in California, California's authority over them would not be affected by either the fact that they were based on Washington or the fact that they were a non-profit.
C&D notices are, in theory, courtesies and don't usually include evidence. If you aren't doing what the C&D says that the person issuing thinks you might be doing, then you have nothing to cease or desist.
The goal isn't to convince you of the facts of your action (it may be, in part, to convince you of the impact of the relevant law), so there is no purpose to include evidence.
If they decide to file a lawsuit, then evidence will become an issue.
I have my own personal example:
I received a letter ordering us to cease and desist from doing online notarization through California notaries. We were not doing so, so in effect we sent back a letter stating: "We have not, and never have, conducted the activity you accuse us of." They basically responded saying "ok, we agree that you haven't done anything wrong but if you do anything we will prosecute you to the full extent of the law."
A few weeks later, they posted a "consumer warning" on their website saying that our company was in effect defrauding companies. Then, several other states copied that language without contact. I spoke with the government officials, I told them we were hurt by these baseless accusations, and they admitted that they really had no evidence of any wrongdoing. They basically said "we are too busy to update the website right now but we will do so shortly."
After months of effort, I was able to one by one get most of these ultimately removed or reworded to a reasonable position. California was the last holdout. I basically began the process of suing them for massive damages and that ultimately was the only thing that was able to get them to change the wording.
So overall, my learning is that it genuinely scares me what government agencies can do without any evidence or judicial process. I would guess that the Bitcoin Foundation can respond with "you are wrong, please provide evidence" and get away with it for now.