Addressing legal issues with the latest technological developments and social media trends.
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The U.S. Department of the Treasury has targeted Liberty Reserve S.A. as a financial institution of primary money laundering concern under Section 311 of the USA PATRIOT Act (Section 311).   According to Financial Crimes Enforcement Network (FinCEN) press release, Liberty Reserve – a web-based money transfer system or “virtual currency” – is specifically designed and frequently used to facilitate money laundering in cyber space.

Additionally, FINCEN published a regulatory finding explaining the basis of the actions anda notice of proposed rulemaking that, if adopted as a final rule, would prohibit covered U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign banks that are being used to process transactions involving Liberty Reserve.

The regulatory enforcements around virtual currency appear to be increasing. If you have not recently reviewed your regulatory compliance with your counsel, now is a good time to do so.

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On May 20, 2013, the New Jersey Assembly passed – by a vote of 77 to 0 – a revised bill barring employers from seeking access to employees’ social media accounts.

The bill incorporates changes suggested by Governor Chris Christie, including the elimination of a private cause of action. Instead, the law will be enforced by the New Jersey Commissioner of Labor and Workforce Development. Employers would be subject to a maximum civil penalty of $1,000 for the first violation and $2,500 for each subsequent violation.

Under the proposed law, employers may not request or require a current or prospective employee to provide a user name, password, or any other form of access to a personal social networking account. The law applies only to purely personal accounts; the law does not apply to accounts used for business purposes or policies regarding employer-issued devices.

The revised bill now awaits passage by the state Senate, where the prior version of the bill passed with a vote of 38-0.

For more information, please read the Social Media Privacy Bill.

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MP900449113.JPGA weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

 

Walmart Hopes ‘Gamification’ Can Engage Employees and Turn Things Around
In a move that echoes what other major employers are doing, the nation’s largest retailer is working with a Boston-based marketing and consulting organization to improve more of its internal processes by lending them a digital-gaming aspect. In turn, greater “employee engagement” is supposed to lead to improving the experiences of Walmart customers.

Nintendo Wants Review of Patent Claim Ruling in Wii IP Row
Nintendo Co. Ltd. argued Wednesday that the U.S. International Trade Commission’s chief administrative law judge had not properly considered its arguments to invalidate a patent claim by an interactive game company accusing Nintendo’s Wii products of infringing three patents.

Atari Seeks OK For Plan to Sell Off Assets Piece By Piece
The U.S. branch of French holding firm Atari SA on Wednesday asked a New York bankruptcy judge to greenlight its plan to sell off its assets piece by piece, after it failed to garner acceptable offers from potential stalking horse buyers to bid on the game maker’s entire business.

When Rights of Publicity Trump 1st Amendment
In a recent 62 page decision by the Third Circuit obviously intended to give guidance in an unclear area of the law, the rights of publicity of a college athlete in a video game trumped the First Amendment arguments of the video game manufacturer.

Online Gambling Bets on Return to U.S.
Until a year ago, the U.S. Justice Department considered online gambling illegal, but PokerStars, arguing against that interpretation of the law, kept taking bets until the government filed a civil action against it. Now, the legal landscape has taken a surprising shift, and states like Nevada and New Jersey have passed laws allowing some forms of online gambling. PokerStars, which reached a $731 million settlement with the government but admitted no wrongdoing, wants back in.

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FinCEN recently issued interpretive guidance to clarify that it views certain activities involving convertible virtual currencies as money transmission services under the Bank Secrecy Act and FinCEN regulations. If your business involves creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies, you may be subject to FinCEN’s registration, reporting, and recordkeeping requirements.

To read the full Client Alert, please see Financial Crimes Enforcement Network Issues Guidance on Virtual Currency.

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The Financial Industry Regulatory Authority (FINRA) has levied a $7.5 million fine against LPL Financial LLC (LPL) for a series of email system failures which prevented LPL from accessing hundreds of millions of emails and reviewing tens of millions of other emails. On top of that. FINRA ordered LPL to establish a $1.5 million fund to compensate affected brokerage customers due to allegedly material misstatements it made to FINRA during the investigation that revealed the  email failures.

FINRA alleged that “as LPL rapidly grew its business, the firm failed to devote sufficient resources to update its email systems, which became increasingly complex and unwieldy for LPL to manage and monitor effectively. The firm was well aware of its email systems failures and the overwhelming complexity of its systems.”

As a result, LPL failed to produce all requested email to certain federal and state regulators, and FINRA, and also likely failed to produce all emails to certain private litigants and customers in arbitration proceedings, as required.

According to Brad Bennett, EVP and Chief of Enforcement: “As LPL grew, it did not expand its compliance and technology infrastructure; and as a result, LPL failed in its responsibility to provide complete responses to regulatory and other requests for emails. This case sends a strong message to firms to make sure your business does not outgrow your compliance systems.”

The number of regulatory enforcements continue to increase. It is important for all companies, and particularly those in regulated industries to do periodic compliance audits. If you have questions on social media or IT legal audits please contact us.

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It took just two weeks for the first online poker site located and operated completely inside the United States to deal its one millionth hand of poker. While UltimatePoker.com is only available to Nevada residents located in Nevada at this point, it has set the stage for what is likely to be a rapidly expanding market.

For more information, check out Ultimate Poker’s legal online betting foray could be a game changer in the U.S.

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bitcoing.jpgFederal authorities executed a seizure warrant against a bank account associated with one of the leading bitcoin exchanges. The warrant was not based on bitcoins themselves being illegal. Rather, the entity was not registered as a money transmitter. The failure to so register was alleged to be a violation of 18 U.S.C. 1960. The entity, Mutum Sigillum LCC, is a subsidiary of Japan-based Mt. Gox, the world’s biggest Bitcoin exchange.

As we previously reported, FINCEN issued guidance in March of this year, articulating its views on the applicability of the existing regulations to virtual currency and decentralized virtual currency (such as bit coin). If you are acting as a money transmitter and are not licensed, or if you are not sure if you are a money transmitter, you should consult with counsel promptly. It is likely that more enforcements may be forthcoming. Don’t be next!

 

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MP900449113.JPG A weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

 

 

 

What’s the Matter With Zynga?
This was supposed to be a story about a guy building a highly anticipated mobile game. Instead, it’s a story about a multi-billion-dollar Internet company that is almost certainly headed for disaster.

Video game maker drops gun makers, not their guns
In the midst of the bitter national debate on gun violence, gun manufacturers and videogame makers are delicately navigating one of the more peculiar relationships in American business.

Atari Asks For More Time To Assemble Asset Sale
Atari Inc. sought an extra 90 days to put together a Chapter 11 plan without the threat of rival plans being submitted, saying it needs more time to put together a sale of its well-known brands and intellectual property.

Nintendo Scores Fed. Circ. Win In Wii Controller IP Row
The Federal Circuit Monday that Nintendo Co. Ltd.’s imported Wii video system did not infringe Motiva LLC’s wireless controller patents, saying Motiva’s failure to commercialize its patented technology had nothing to do with Nintendo’s subsequent presence in the market.

High Court Seeks SG’s Opinion in ‘Rock Band’ IP Row
The U.S. Supreme Court asked the Obama administration to weigh in on whether the Federal Circuit applied too inflexible a standard when it reversed a finding of inequitable conduct against a patent holder suing Electronics Arts Inc. and others over the “Rock Band” video game.

Homeland Security cuts off Dwolla bitcoin transfers
Immigration and Customs Enforcement confirms an “ongoing investigation” that led to Dwolla cutting off bitcoin transfers to Mt. Gox.

 

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A new Manhattan bar has become one of the few brick and mortar operations to accept Bitcoins as a method of payment.

What are Bitcoins? They are essentially a form of digital cash or virtual currency. They are unique in that there is no central issuing or regulatory authority (such as a corporation or government), rather they are issued through the use of downloadable software which in effect searches for Bitcoins over the Internet. A successful search, which takes varying and increasing amounts of computer processing power, results in the issuance of a block of Bitcoins. The more people searching, the more difficult it is, but also the more valuable the Bitcoins are worth. One of the key features of Bitcoins is anonymity. Just like with a cash payment, there are no records as to the individual engaging in the transaction, as the transactions can occur through anonymous Bitcoin addresses. Bitcoins, however, are regulated, at least on the administrator side in the US, by the Department of the Treasury’s Financial Crimes Enforcement Network (FINCEN). For more on their virtual currency regulations see FINCEN Issues Virtual Currency Regulations.

The bar accepts Bitcoin payments through a virtual wallet app, which is similar to most app-based payment systems. The app converts bar tabs from US dollars into Bitcoins, which are then transferred to the bar’s bank. Notably, some of the press for the bar may be due to the owner’s close friendship with the chairman of Bitcoin.

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In a 33-1 vote, on May 13, the state Senate approved Senator Mark Leno’s bill that would require state law enforcement officials to obtain a search warrant before asking service providers to disclose the contents of their customers’ emails. This approval came after Senator Leno agreed to allow for an exemption to the warrant requirement if evidence is at risk of being destroyed or if the individual consents to law enforcement reading his or her emails. Senator Leno, at the hearing, argued that “What this bill will do is one consistent, clear, clean, reasonable policy, which says before any of our emails can be accessed by law enforcement, a warrant will be needed.” S.B. 467 will now head to the California Assembly for review.