Addressing legal issues with the latest technological developments and social media trends.
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In comments on October 14, 2014, Ben Lawsky commented on changes to the proposed bitlicense regulations. The main points he made were these:

  • Regarding who will be required to obtain a bitlicense, he said the focus will be financial intermediaries, not software developers or individual users.
  • To the extent that company may need both money transmitter and virtual currency licenses, for example – which is possible – the process will be streamlined to avoid duplication.
  • Regarding concerns that banks were exempted, he said that is untrue. Banks cannot start providing virtual currency services without prior approval from DFS, and they will have to comply with any requirements that are otherwise imposed on virtual currency businesses.
  • Mining, per se, will not be regulated. To the extent a miner engages in other virtual currency services, however – for example, hosting wallets or exchanging virtual currency – a license may be required for those activities.
  • Consideration is being given to how to avoid excessive regulatory costs for startups – but no specific proposal was provided. He said the goal is not to stifle technological innovation, but if a software company is also taking on the responsibility of actually safeguarding customer money, it is a much more difficult calculation.
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On August 1, 2014, the Food and Drug Administration (FDA) released draft guidance that would exempt from premarket 510(k) review many low-risk medical devices–including certain mobile applications that can convert a cell phone into a medical device, such as a thermometer or a stethoscope. Although the guidance is not yet legally enforceable, the FDA also announced its intention not to enforce compliance with premarket review requirements for these devices and noted that it did not expect manufacturers to submit 510(k)s for these devices prior to adoption of a final rule or order. The FDA’s recognition that these devices are sufficiently well understood and do not present risks that require premarket review to ensure their safety and effectiveness–and its corollary decision to exercise enforcement discretion as to these devices–eases the regulatory burden on medical application developers and expands opportunities for continued development and dissemination of important mobile tools for improving patient care and physician practice.

For more information, check out the Client Alert.

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On Friday, Michael Dell, CEO of Austin-based Dell Inc., announced on twitter that Dell.com is now accepting Bitcoin as a direct payment option for consumers and small businesses in the U.S.  Other major companies, such as Overstock and Expedia, began accepting Bitcoin earlier this year and have reported favorable results, including that a majority of Bitcoin purchases were made by brand new customers.  To offer Bitcoin as a payment option,
Dell partnered with Coinbase,
a U.S.-based Bitcoin exchange and payment processor.  Dell’s terms and conditions highlight one of Bitcoin’s unique characteristics,
i.e., that once you initiate a Bitcoin transaction, you cannot change or cancel it.  Dell does, however, offer a limited refund process that requires a Coinbase account or remittance of a check in U.S. dollars, depending on the circumstances.

Austin has become a hub of Bitcoin activity.  Several emerging Bitcoin-focused companies, such as CoinTerra
and Cloudhashing, are located in Austin, and, in February, Robocoin installed the first U.S.-based Bitcoin ATM in a popular bar in downtown Austin.

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The Federal Communications Commission’s Accessibility and Innovation Initiative will host an “Accessing Social Media” event on Thursday, July 17, 2014 from 9 a.m. to 4 p.m. in the Commission Meeting Room in its headquarters located at 445 12th Street, S.W., Washington, D.C.  The event will be webcast without open captioning.   The event is open to the public, however, RSVPing for in-person attendance is encouraged. 

The FCC’s stated purpose of the event is “to facilitate a collaborative, cross-sector exchange of information about making social media tools and content accessible to people with disabilities, including information about authoring tools, client apps and best practices.”  The event will include panels of industry, consumer and government representatives and feature technology demonstrations in an exhibit area.

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Today, we, along with our colleague Michael Heuga, published our client advisory titled New Canadian Anti-Spam Rules to Take Effect July 1, 2014.
If your business uses “commercial electronic messages” to market to your customers and prospective customers in Canada, please be aware of Canada’s new anti-spam rules, which require, among other things, the sender of the electronic message to obtain consent from the recipient before sending the message and the message itself to identify the sender and provide instructions enabling the recipient of the message to withdraw consent to receive such messages.

Additional Source:  Canada’s Anti-Spam Law

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Bitcoin mining firm GHash is reportedly
consistently attaining over 51% of all of the hashing power of all Bitcoin miners.  As a decentralized currency, Bitcoin depends on an open ledger called the “block chain” to track every transaction using the Bitcoin protocol.  The integrity of the block chain is generally maintained because many different entities are competing to summarize the entire block chain as quickly as possible.  When many entities agree on the state of the block chain, that agreed upon state becomes for all intents and purposes, fact.
When a miner is able to consistently control 51% of the “votes” in the mining pool, it can theoretically control the state of the block chain.
GHash has released a press release stating that it will not attempt to use its hashing power to manipulate the market, but the Bitcoin community remains cautious of how GHash will wield its market share in the coming weeks.

For advice on how this development may impact you, contact us.

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As reported in our earlier post,
the U.S. Government has begun its first ever auction of Bitcoins.  The Bitcoins to be auctioned were seized in connection with the shutdown of the Silk Road – the “dark net” site that served as a marketplace for illegal goods.  The U.S. Marshals Service has announced that 29,656.51306529 bitcoins will be auctioned in this initial round.  The reported
value of the Bitcoins to be auctioned, at the time of the announcement, is approximately $18 million U.S. Dollars.

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The California Attorney General recently published recommendations
for developing meaningful privacy policies that comply with the California Online Privacy Protection Act of 2003 (CalOPPA), including recommendations for complying with “Do Not Track” disclosure requirements.  According to the Attorney General, a meaningful privacy policy is one that addresses significant data collection and use practices, uses plain language, and is presented in a readable format.  While the recommendations are not regulations, mandates,
or legal opinions, they do identify certain best practices for privacy policies that satisfy the minimum legal requirements.

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Following an 18-month investigation into the practices and operations of data brokers,
the Federal Trade Commission has issued a voluminous report calling for legislation to regulate the industry in the interests of consumer privacy.  The report, called Data Brokers: A Call for Transparency and Accountability, identifies “data brokers” as “companies that collect consumer’s personal information and resell or share that information with others,” and notes that in today’s economy, “Big Data is big business.”  The report recounts that the privacy issues that data brokers present today were first addressed back to the 1970’s when Congress enacted the Fair Credit Report Act (FCRA) to regulate the collection and use of consumer data in connection with credit, housing, employment and similar decisions.  The FTC has been active in enforcing the provisions of the FCRA, but has also argued for similar types of protections even where the FCRA does not apply, such as where data is collected for marketing purposes, fraud prevention purposes, and people search products.  In its March 2012 report “Protecting Consumer Privacy in an Era of Rapid Change: Recommendations for Businesses and Policymakers”, the FTC noted that prior self-regulatory efforts by the industry had not addressed its concerns with transparency and called for the industry to create a web portal to provide consumers with more information about and access to information that data brokers hold about them.  In addition, an FTC Commissioner has spearheaded a “Reclaim Your Name” campaign urging the industry to adopt self-regulatory reforms to educate consumers as to how information is collected and used and to allow consumers access to the data that brokers hold,
correct any errors in it, and opt out of its use for marketing purposes. 

Noting that the industry has not moved on past suggestions such as these, the report calls for legislation that would require data brokers to provide the consumer with access to the data they hold regarding the consumer and to permit consumers to opt-out of the sharing of that information for marketing purposes.  The FTC reiterates its suggestion that a central web portal be created where data brokers identify themselves and their information collection and use practices and allow consumers access to their data and to opt out of certain uses.  The report also calls for legislation that would require data brokers to disclose to consumers that they not only use raw data that they collect, but whether they combine that data with other information and draw conclusions based on it such as determining a consumer’s interests based on magazine subscriptions, previous purchases, or website visits.  To facilitate consumer education, the report suggests that all consumer-facing entities be required to disclose if they sell consumer information to data brokers, provide opt out options concerning this sharing, and to provide the names of the specific data brokers with which the information is shared and a link to the web portal where consumers can learn more about the data brokers and their data access and opt out rights.  With respect to risk mitigation products, the report recommends extending FCRA-like notices to the consumer where, for example, the consumer is denied a cellular phone contract not because he or she is a credit risk, but because risk mitigation information indicates that he or she is an identity thief.  The notice would identify the data broker from which the information was obtained and the data broker in turn would provide the consumer with access to the data and a right to correct it if it is inaccurate.  In connection with people search products, the report recommends not only that consumers have the ability to access their data and opt out of certain uses, but that limits on those opt outs be clearly identified and that the data broker’s sources of information be identified.

The report concludes with a recommendation that all data brokers adopt the principles in the Commission’s 2012 report that they adopt “privacy by design”
and incorporate consumer privacy into all aspects of their operations. 

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More and more federal and state agencies are weighing in on virtual currency.  Here’s what they are saying:

Financial Crimes Enforcement Network (FinCEN):

  • FinCEN Statement on Providing Banking Services to Money Services Businesses (Nov. 10, 2014)
  • Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Payment System, FIN-2014 (Oct. 27, 2014)
  • Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Trading Platform, FIN-2014-R011 (Oct. 27, 2014)
  • Application of Money Services Business regulations to rental of computer systems for mining virtual currency, FIN-2014-R007 (Apr. 29, 2014)
  • Whether a Company that Offers Secured Transaction Services to a Buyer and Seller in a Given Sale of Goods or Services is a Money Transmitter, FIN-2014-R005 (Apr. 29, 2014)
  • Application of FinCEN’s Regulations to Virtual Currency Mining, FIN-2014-R001 (Jan. 30, 2014)
  • Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity, FIN-2014-R002 (Jan. 30, 2014)
  • Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (Mar. 18, 2013)

Jennifer Shasky Calvery, Director FinCEN:

U.S. Securities and Exchange Commission (SEC):

Internal Revenue Service (IRS):

David S. Cohen, Under Secretary of Terrorism and Financial Intelligence:

U.S. Immigration and Customs Enforcement:

U.S. Department of Homeland Security:

United States Senate, Committee on Homeland Security and Governmental Affairs:

U.S. Government Accountability Office (GAO):

Conference of State Bank Supervisors:

Financial Action Task Force (FATF):

Here’s is what the states are saying:

Alabama Securities Commission

California Department of Business Oversight:

California Assembly:

Connecticut Department of Banking, Securities and Business Investments Division:

Florida Office of Financial Regulation:

Kansas Office of the State Bank Commissioner:

Illinois General Assembly:

  • House Bill 5886 — Bill would amend the Transmitters of Money Act to define “virtual currency” as a medium of exchange that operates like currency in some environments, but does not  have all the attributes of real currency.

Maryland Commissioner of Financial Regulation:

Massachusetts Consumer Affairs and Business Regulation

  • National Study Finds Consumers Aware of Virtual Currency, but Have Concerns (Aug. 27, 2014)

State of Nevada Department of Business & Industry:

  • Nevada Financial Institutions Division issues consumer and investor guidance on virtual currency (Apr. 25, 2014)

New York State Department of Financial Services:

  • Excerpts From Superintendent Lawsky’s Remarks On Virtual Currency and Bitcoin Regulation in New York City (Oct. 14, 2014)
  • Proposed New York Codes, Rules and Regulations, Department of Financial Services, Virtual Currencies (Jul. 2014)
  • In the Matter of Virtual Currency Exchanges, Order Pursuant to New York Banking Law §§ 2-b, 24, 32, 102-a, and 4001-b and Financial Services Law §§ 301(c) and 302(a) (Mar. 11, 2014)

Texas Department of Banking:

  • Supervisory Memorandum ¾ 1037 (Apr. 3, 2014)

Washington State Department of Financial Institutions:

State Wisconsin, Department of Financial Institutions:

  • State agency warns consumers to be cautious with virtual currencies (Apr. 30, 2014)

Others:

Isle of Man, Department of Economic Development:

Here’s is what other countries are saying:

Canada’s Federal Government:

Isle of Man:

Swiss Financial Market Supervisory Authority (FINMA):