As the popularity of digital currency Bitcoin increases, the United States will need to take a stance on how they will regulate the currency through different sectors of the economy. The media and the general public may think lawmakers will decided the US stance on Bitcoin, but our court system may be the one that decides the future of digital currency in this country. There have been a couple of cases in the past few years where the court system seems to be taking a position on Bitcoin. Although bitcoin may not be considered money in the traditional sense, many of the court cases have viewed Bitcoin as a currency. In fact, bitcoin has also been compared to international currencies like the Euro or Yuan. The cases provided below may be providing hints of where the future of Bitcoin may be going in America.
SEC v. Trendon Shavers
In September 2014, Trendon Shavers was fined $40 million for defrauding investors into a Bitcoin Ponzi scheme. Shavers was the operator of Bitcoin Savings and Trust and was known to have solicited illicit investments in bitcoin-related opportunities. He accumulated about $64 million with his activities. The SEC brought the case against him and the court charged him by saying that bitcoin is a form of money and therefore he could not defraud people with it. The court’s ruling was going against a 2013 declaration by the FinCEN guidance, which said Bitcoin could not be considered a currency. However, the Texas Court said it was pretty clear that Bitcoin can be used as a form of money and can help a consumer purchase goods and services. This case was also crucial because Judge Amos Mazzant provided insight on how bitcoin-denominated damages would be considered. In this case, Judge Mazzant looked at the average daily price of bitcoin to determine the amount of damages. This may set a precedent for similar cases in the future.
US v. Faiella
Charlie Shrem and Robert Faiella came under fire when the two were accused of providing bitcoin to Silk Road users, an online black market. Shrem was the CEO of BitInstant, a bitcoin exchange company. Both Shrem and Faiella were charged with several counts of money laundering and transferring money without a license. Faiella tried to plead his case by saying that Bitcoin was a digital currency and therefore did not fall under the money laundering counts. Judge Jed Rakoff rejected this reasoning and said something very similar to Judge Mazzant, explaining that anything that bought goods and services counted as money. Since bitcoin had the capability of purchasing goods and services and paying for things like a rental payment, it could be considered money. With this reasoning, both Shrem and Faiella were forced to plead guilty to the charges and ultimately ended up paying nearly $1 million in fines.
State of Florida v. Espinoza
Pascal Reid and Michell Abner Espinoza were arrested in February 2014 for engaging in fake transactions on LocalBitcoins.com and converting $30,000 of cash into bitcoin. Both were charged with Florida’s anti-money laundering law and with money transmission charges. In August, the Bitcoin foundation filed an amicus brief to dismiss the money transmission charges because Florida’s law applied only to corporations and entities qualified to do business in the state. Reid and Espinoza did not fall under this category. Although the foundation’s brief may help Reid’s case, that was not the goal of the organization. Their amicus brief was only an attempt to ensure an outcome that sets a favorable precedent for the rest of the Bitcoin community. Reid and Espinoza turned to the IRS to help them prove that bitcoin is not money.
US vs Ross William Ulbricht
This last case was fairly similar to the three presented above, where Ulbricht argued that he could not be charged with money laundering because bitcoin did not count as money. Ulbricht was charged with being the leader of the online black market Silk Road. He was found guilty on charges of computer hacking, drug trafficking, money laundering and engaging in a criminal enterprise. Like previous judges, Judge Katherine Forrest compared bitcoin to the Euro and other international currencies. While Ulbricht was not willing to plead guilty on any of his charges, there seems to be little hope that a decision will be made in his favor.
As it is clear through the four court cases present above, the legal definition of money is somewhat debated. US Courts seems to agree that bitcoin does fall under the category of money, but defendants continue challenging this definition of money. Their explanation for this is that bitcoin, like money, can help someone pay for goods or services. Many foreign countries have criticized the use of bitcoin and want to ban the currency all together. A case involving Bitcoin has not yet reached the Supreme Court, but their decision may put an end to all this debate.
Source referenced: Coin Desk