US v. Faiella and Shrem – Ruling on Bitcoin as “Money” or “Funds”

It has been widely reported that bitcoin entrepreneur Charlie Shrem is going to agree to a plea deal.  Bitcoin-btcbible

There has been less coverage, however, regarding the Judge’s August 18, 2014 Order.

This Order is important to the US v. Faiella and Shrem case because the defendants lost their argument that bitcoin did not fit money laundering (AML) and bank security laws (BSA).  Likely, at that point, the defendants chose to strike a deal.

This Order is perhaps more important since it is really the first serious judicial opinion on bitcoin.  In other words, this may be the first true legal precedent regarding bitcoin regulation.  That said, it is going to be generally viewed persuasive legal authority since this is a district court order and not yet a circuit appellate opinion.  Moreover, factual situations differing from the Silk Road website may lead to differing outcomes.

As we’ve addressed before, the SEC v. Voorhees matter was really not a bitcoin case.

Likewise, while the SEC v Shavers case gets bandied about as the first bitcoin case, the order in that matter was only intended to superficially touch upon bitcoin.  It is not really legal precedent given the nature of the order (discussed here).

In the Faiella case, District Judge Rakoff held that bitcoin was “money” or “funds” and that operating a bitcoin exchange such as Silk Road was money transmitting.

First, the Court held that bitcoin fit the statutory definition of “money” or “funds” because of its ordinary use (Judge Rakoff eschewed the technical Black’s Law for the ordinary Merriam-Webster dictionary).  According to the Court, it fit the definition because “bitcoin can be easily purchased in exchange for ordinary currency, acts as a denomination of value, and is used to conduct financial transactions.”  Admittedly, the Court cites to the Shavers order but, again, that case wins the prize for being first-on-the-scene but that order remains weak precedent.  Even if there were some question as to definitions, Judge Rakoff assessed that the legislative history was supportive of his conclusion and that the statute was designed with flexibility in mind to “keep pace with such evolving threats.”

Second, the Court held that Silk Road was “transmitting money” despite the defense that the site was not selling transmitting services for profit.  The Court held that there was a transfer because the customers sent cash to Faiella, he exchanged them for bitcoin, and then he put the virtual currency in the customers’ Silk Road account, which was in third party hands (“for Silk Road customers did not have full control over the bitcoins transferred into their accounts”).  In conclusion, “the Court finds that, in sending his customers’ funds to Silk Road, Faiella ‘transferred’ them to others for a profit.”  The Order is short (6 pages) and does not provide a lot of the facts of the case; to that end, a website which is set up differently than Silk Road may have better factual arguments (both as to “transfer” and “for profit” elements).

Faiella was determined to be a “money transmitter” under the statute based upon FinCEN’s prior guidance that an administrator or exchanger of virtual currency is a money service business (MSB) and that the statutory exemptions did not apply.

Again, the Order is here.  The docket, at least as of August 28, 2014, is here.


Can a Florida Lawyer Advise a Client About Medical Marijuana?


This November, Florida voters will consider whether to legalize medical marijuana.  If so, Florida would join several states which have allowed recreational and/or medical cannabis cultivation, distribution, and use.floridamed

But it remains illegal under federal law.  Can lawyers advise their clients about a marijuana business which is legal under state law but barred by federal law?

The article, “Can a Florida Lawyer Advise a Client About Medical Marijuana?,” may provide the answer.  Published by the Palm Beach County Bar Association in its September 2014 Bar Bulletin.

For general information on Florida marijuana laws and the upcoming vote, see this post here.

For a recent (July 31, 2014) summary of the draft rules to implement the Compassionate Medical Cannabis Act, see here.

Akerman LLP has a Regulated Substances Task Force which you can find here.

Technology and iOS Apps for Mediators

Thanks to the Florida Dispute Resolution Center for inviting me to speak at the 22nd Annual Conference this year in Orlando.N

The materials from the presentation are here.

The Adobe Voice presentation about mediation is here.

One Year After Snowden: How Safe Are Your Calls and Emails?

Back in April 2014, I spoke to the Palm Beach Chamber of Commerce about the security of emails and phone communications in the business world (materials are here).large_woman_tin_foil_hat

This article, “One Year After Snowden: How Safe Are Your Calls and Emails?,” summarizes the key Snowden disclosures over the last year and provides some “best practices” for lawyers and business people.

Originally published in the July/August Palm Beach County Bar Association’s Bulletin.

Getting to Know Florida Medical Marijuana / Cannabis Laws

A Google Trend report shows that “Florida Medical Marijuana” has generated massive attention since 2013.  floridamed

I attended a recent Florida Cannabis Coalition meeting and, while the speakers were good, the attendees seemed uneducated (case in point, people literally got up and left when they heard about the $150,000 application fee and $5 millon bond).

As a baseline, to become educated on these developing legal issues in Florida, be aware of:

1.  Florida Senate Bill 1030 “Charlotte’s Web” (signed by Gov. Scott): here

2.  Florida Senate Bill 1700 Marijuana Indentity Protection Act (signed by Gov. Scott): here

3.  Amendment 2: here

4.  Cole Memo (August 2013): here

5.  Cole Memo 2 (Feb 2014): here

6.  Channel 5 WPTV-WPB: “Hundreds of entrepreneuers gather in Boca Raton tolearn how to make money from medical marijuana”: here.  (I’m there around 1:01 m into the video)

Deleting versus Deactiving Facebook

With the revelation that Facebook is tracking users across the web, even if you log off, I have deleted my Facebook account.  facebook1

Yes, deleted.  Not just deactivated.

You can “deactivate” your Facebook account and it disappears from sight but it is still there in the Facebook vault, ready for you to re-activate.

So if you want to test your separation from Facebook, this is the step (instructions).

For something hopefully more permanent, you can delete your account.

Mashable ran a good step-by-step to download your data, disconnect your apps, and locate the delete-account-page (“How to Completely Delete Facebook From Your Life”).

Mashable’s article is here.  And the elusive delete-your-Facebook-account page is here.

In Re Erik T. Voorhees (settlement): Not Really a Bitcoin Case

The hot bitcoin-related story involves the settlement between the Securities and Exchange Commission (SEC) and bitcoin-advocate, Erik T. Voorhees.

This case involves bitcoin but is not about bitcoin.  Stated differently, this case is not an attack on bitcoin.  It simply involves charges of a crime unrelated to the virtual currency itself.

Specifically, Voorhees was charged with offering securities (stock) in two different companies which were not registered with the SEC.  There were other associated alleged violations (e.g., not filing a prospectus).

Bitcoin is involved, but is not the focus of this case, only because Voorhees is a bitcoin-advocate, the stocks were sold in bitcoin, and the two businesses used bitcoin.

There is nothing in the order/settlement which criticizes or criminalizes bitcoin.

The settlement means that Voorhees disgorges $15,000 (plus interest) and pays a $35,000 civil penalty.  Stories (such as this one) that he is paying a $50,000 “fine” are not defining the terms correctly.

The settlement / order instituting cease and desist proceedings is here.

The SEC’s press release is here.  Their prior May 7, 2014 “Investor Alert: Bitcoin and other Virtual Currency-Related Investments” is here.

Voorhees’ post on Reddit about the settlement is here.

What is Bitcoin: Currency, Property or Tulips?

A strange title to an article, I know.  But it will make sense at the end:Bitcoin

Governments around the world are struggling to define, and therefore regulate or ban, virtual currency such as bitcoin.  Here in the U.S., various federal agencies have differing conclusions.  So do various states.

Meanwhile, in the press, bitcoin is incorrectly labeled as an anonymous way to transmit money (it isn’t — law enforcement appears to have no problem tracking bitcoin funds) and it is unfairly associated with alleged criminal activity.  Thus, even the judicial system is making efforts to define bitcoin under various statutes.

This article, What is Bitcoin: Currency, Property or… Tulips?, from the Palm Beach Bar Association, discusses how various federal and states agencies and courts have defined bitcoin.  The reference to tulips comes from the Netherlands — there, in an attempt to define bitcoin, they compared it to their well-known consumer export, tulips!

Of note, the “verdict” comments are my conclusions, often, and not necessarily the final word from the government agencies or courts unless indicated.  Expect changes as we go forward.

Florida Supreme Court Cautions Against “Commercially Available” Pre-Printed Legal Forms

A boring probate opinion may shed light on the problem of errors with pre-printed legal forms.Mad-Libs

The unfortunate lesson: “there’s an app for that” is not a replacement for hiring a lawyer.

You have certainly seen these kind of pre-made forms — pushed on tv ads, the internet, and by office supply stores.  These quickie forms are attractive since (a) they run anywhere from $10 – $100 and involve filling in the blanks and (b) most people don’t know a lawyer who might be able to advise at a reasonable rate.  In this age of online forms and computer programs which help with finances and taxes, it is not surprising that consumers turn to pre-printed legal forms.  But it can be a bad idea.

The March 27, 2014 opinion in James Michael Aldrich v. Laurie Basile may not garner a lot of broad public attention (here’s the one story).  The 19-page opinion from the Florida Supreme Court spills pages of ink outlining statutory analysis going back to the 1800′s — something only a law student or probate lawyer would love.  But let’s see if we can give this lesson a little more attention:

In that case, Ms. Aldrich died with a will she created using an “E-Z Legal Form.”  She left everything to her brother.  After she created the will, she inherited more property.  But the will did not include a “residuary clause” which is a typical “catch-all” which essentially says, “any other property I haven’t mentioned or may get in the future goes to [person].”  Thus, when she died, all the property which she listed in the will went to her brother.  Fine.  But there’s a catch.  The “new” property passed as if she never had a will because the E-Z Legal Form was silent about any residual / new property.  So someone else got it.  In short, people spent a ton of money litigating to the Florida Supreme Court and Ms. Aldrich’s “true intent” may not have been followed because “it was not her stated intent in the will.”

The “kicker” is in Justice Pariente’s concurrence:

“This unfortunate result stems not from this Court’s interpretation of Florida’s probate law but from the fact that Ms. Aldrich wrote her will using a commercially available form, an E-Z Legal Form, which did not adequately address her specific needs — apparently without obtaining any legal assistance.  This form, which is in the record, did not have space to include a residuary clause or pre-printed language that would allow a testator to elect to use such a clause.”

Bottom line: contracts, terms of service, and your estate planning documents are not one-size fits all.  I’m sure this sounds like lawyers trying to garner business.  More likely, it is simply a little frustrating to lawyers since it is an easy / inexpensive problem to avoid.  Life is in the details.  The law lives in the details — which sometimes change.  Make sure you get your details right.  And make sure, every once in a while, your documents are still up to date.  Turn to the Florida Bar, Avvo, or some resource to find a local lawyer in your area who can at least double check your personal or business forms.

If This Then That (IFTTT) For Lawyers

An app called “If This, Then That” or IFTTT exists to bring together your smartphones alarms, notices, social media, and other internet tools so that you can, as their tag line says, “take control of the internet.”photo

This article, “If This Then That (IFTTT” For Lawyers” explains how to combine your various internet resources into one app to bring the internet to you.

The link for the iPhone and Android versions of IFTTT are here.

NSA Mass Surveillance – How Secure Are Your Calls and Emails?

Special thanks to the Palm Beach Chamber of Commerce for hosting “NSA Mass Surveillance – How Secure Are Your Calls and Emails?eyes

If you would like to download a PDF of the presentation, it is here (also under “Materials, along the right column of this page).

NSA Surveillance – How Secure Are Your Calls & Emails @ Palm Beach Chamber of Commerce


The Palm Beach Chamber of Commerce is presenting “NSA Surveillance – How Secure Are Your Calls and Emails?” on Wednesday, April 30, 2014.Chamber-of-Commerce-of-the-Palm-Beaches

This presentation will explain NSA mass surveillance of email and phone communications and will discuss the security of your personal and business communications.

It will provide a clear summary of

- Edward Snowden disclosures

- two federal court decisions, and

- explanation of FISA/FISC.

We will explore the following issues:

- are my communications secure from the NSA?

- are my communications reasonably secure for business purposes?

- are changes in the laws expected?

Registration is here.

Tor Anonymizer for Lawyers

In the wake of the Snowden disclosures, lawyers and their clients are looking for ways to communicate, research, and generally use the internet without mass surveillance.Tor_logo1

This article from the April 2014 edition of the Palm Beach Bar Bulletin explains (a) Tor and its practical applications to use the internet anonymously and (b) two recent cases, U.S. v. Kim (Harvard bomb-threat case), and U.S. v. Post (location metadata lead to child pornography arrest).

The article also discusses: What is Tor and Is It Legal?  Why Do I Need to Be Anonymous?  Why Don’t We Use Tor as a Default?  Can’t the NSA Already Crack Tor? Lessons from Mr. Kim and Mr. Post.

Accepting E-Coupons or Liking General Mills May Require Arbitration, Waive Litigation

If you use a coupon from the internet, “like” a company on Facebook, enter contests, or otherwise connect with a company like General Mills, any dispute that arises may be forced into arbitration — waiving your right to bring a lawsuit in state or federal court.binding-arbitration

Per a report from the New York Times (“When ‘Liking’ a Brand Online Voids the Right to Sue“), General Mills has changed its Privacy Policy (here) noting that its Legal Terms now require all disputes related to the purchase or use of any General Mills product or service to be resolved through binding arbitration.”

The report points to a list of other companies (here) which have similar terms of service including banks/financial service, cable/satellite, and phone providers.

The article points to the 2011 U.S. Supreme Court decision, AT&T v. Concepcion (here), as the authority which allows companies to force consumer suits into arbitration and further permits arbitration clauses to bar class certification.


CSBS Emerging Payments Task Force: Hearing on Bitcoin / Virtual Currency

The Conference of State Bank Supervisors’ (CSBS) Emerging Payments Task Force is holding a public hearing on Friday, May 16, 2014 in Chicago in order to seek information involved in legacy payment systems, retain payment innovations, and virtual currencies (namely bitcoin).Bitcoin-btcbible

If you’re unfamiliar with CSBS, it is a nationwide organization of banking regulators from all 50 states, DC, and several territories.  These state banking departments regulate a variety of non-bank financial services providers, including mortgage providers.  Bitcoin exchange and ATM operators should be familiar with these state departments since they issue the money transmitter licenses required in most jurisdictions.

The Task Force is studying changes in payment systems (retail, electronic, and otherwise) in order to assess consumer protection and applicability of state law.  The Task Force specifically intends to “to understand how new entrants and technologies affect the stability of payment systems and the broader financial marketplace and to develop ideas for connecting the emerging payments landscape to the financial regulatory fabric.

For details the Task Force hearing notice is here and the press release is here.  Register to be a speaker here.