The Washington State Department of Financial Institutions (“DFI”) issued a consumer alert warning of the risks of holding virtual currencies for investment or as a currency.  The Washington DFI specifically called out virtual currency’s volatility, lack of backing or guarantee, connection to criminal activity and potential tax repercussions.  This warning is the Washington DFI’s second announcement on virtual currencies following its earlier determination that it interprets Washington law to include digital or virtual currency in the definition of “money” in the Uniform Money Services Act, chapter 19.23 RCW.  The DFI also recently revised certain regulations to require all authorized delegates of licensed money transmitters to have a physical presence in Washington unless the licensed money transmitter received prior approval for an out of state licensed delegate.  This revision effectively requires all internet-based companies, including virtual currency firms, to obtain prior approval before acting as an authorized delegate for a licensed money transmitter.
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On March 10, the Securities Commissioner of the State of Texas issued an emergency order against Balanced Energy, LLC (“BE”), ordering it to immediately cease and desist its sale of working interests in oil wells (“C&D”). The primary basis for the C&D appeared to be that the working interests constituted unregistered securities, and that by offering them for sale without a qualified exemption, BE was violating both state and federal securities laws. However, the C&D also noted BE’s claims that it is the first company in the oil and gas exploration and production industry to accept bitcoin as payment for its prospects. The C&D concluded that BE’s failure to disclose the risks associated with using bitcoin to purchase unregistered working interests constituted fraud and materially misleading conduct in connection with the offer for sale of securities – activity that threatened immediate and irreparable public harm. The C&D specifically focused on perceived risks inherent to the use of bitcoin and the risk that fluctuation in the price of bitcoin may affect business operations. These findings regarding BE’s use of bitcoin follow the Securities Commissioner’s previous issuance of a press release addressing the risks associated with investments tied to digital currencies.
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On March 11, the New York State Department of Financial Services issued an Order announcing that that it “will consider formal proposals and applications in connection with the establishment of regulated virtual currency exchanges operating in New York.”  While the Order itself is silent on timing, an accompanying press release makes clear that the NYDFS will begin accepting applications from exchanges “immediately.”  The press release also makes clear that while exchanges can begin submitting applications at any time, approved applicants will ultimately be required to adhere to the proposed “BitLicense” regulatory framework, which the NYDFS promised would be announced no later than the end of the second quarter of 2014.
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