N.Y. Subpoenas Bitcoin Firms in Probe on Criminal Risk

September 9, 2013 Leave a comment

N.Y. Subpoenas Bitcoin Firms in Probe on Criminal Risk

New York’s top banking regulator sent subpoenas to 22 digital-currency companies, including BitInstant LLC and Dwolla Corp., to determine whether new regulations should be adopted to govern the emerging industry, according to a person familiar with the matter. Bitcoin is a virtual currency created four years ago that can be used to buy and sell a broad array of items, from electronics to illegal narcotics, according to the agency.“If virtual currencies remain a virtual Wild West for narco-traffickers and other criminals, that would not only threaten our country’s national security, but also the very existence of the virtual currency industry as a legitimate business enterprise,” said Benjamin Lawsky, superintendent of the state’s Department of Financial Services, in a statement. DFS is “considering whether it should issue new regulatory guidelines specific to virtual currencies.”

The subpoenas, sent late last week, went to service providers as well as investors in the sector, including Winklevoss Capital Management and Andreessen Horowitz, said the person, who asked not to be identified because the matter isn’t public.

Coinsetter LLC, one of the companies issued a subpoena, according to the person, said the dialogue with the regulator will have a positive effect on the industry, according to Chief Executive Officer Jaron Lukasiewicz.

Taking Seriously

“U.S.-based Bitcoin companies are taking regulation very seriously, and each company is closely working with legal advisers to form and follow plans that adhere to it,” Lukasiewicz said in an e-mail.

The DFS inquiry began earlier this year with letters from Lawsky’s office to BitInstant and Dwolla seeking general information about the virtual currency industry, according to the person.

The subpoenas sent last week reflect the department’s interest in more granular detail. According to his statement, Lawsky is concerned with consumer complaints regarding how quickly virtual currency transactions are processed.

The regulator, who threatened to pull the banking license of Standard Chartered Plc last August over violations of currency transfer sanctions against Iran, also expressed concern with criminal abuse of virtual currency markets.

‘Money Changer’

“Serving as a money changer of choice for terrorists, drug smugglers, illegal weapons dealers, money launderers and human traffickers could expose the virtual currency industry to extraordinarily serious criminal penalties,” Lawsky said.

In addition to BitInstant, Dwolla and Coinsetter, the regulator sent subpoenas to the following service providers: BitPay, Coinabul, Coinbase Inc., CoinLab, eCoin Cashier, Payward, Inc., TrustCash Holdings Inc. and ZipZap, the person said.

Butterfly Labs, a technology company, also received a subpoena, according to the person familiar with the matter.

Christina Hirsch, a spokeswoman for Winklevoss, declined to comment. Margit Wennmachers, a spokeswoman for Andreessen Horowitz, said the firm did not receive a subpoena. Bloomberg LP is an investor in Andreessen Horowitz.

In addition to Winklevoss Capital and Andreessen Horowitz, DFS sent subpoenas to the following investor groups: Bitcoin Opportunity Fund, Boost VC Bitcoin Fund, Founders Fund, Google Ventures, Lightspeed Venture Partners, Tribeca Venture Partners, Tropos Funds and Union Square Ventures, the person said.

To contact the reporter on this story: Greg Farrell in New York at gregfarrell@bloomberg.net.

Filed under Macro Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment