“Is he paying you in bitcoins?”
The question directed by a court security guard to the legal counsel of New York resident Theo Chino yesterday, highlights a central issue long facing regulators considering the technology – is bitcoin a currency or commodity?
As the industry has found out, time and time again, that just depends.
But that answer isn’t quite good enough in New York, where early rules were put in place for startups on the basis that money transmission laws applied. While most businesses have resigned themselves to the rules, getting practices in shape or else shipping out, Chino hasn’t given up the fight.
Two years after initially filing court documents, Chino’s lawyer argued in court yesterday that the so-called BitLicense regulations brought an early end to his client’s career as a bitcoin entrepreneur, as many others have claimed.
On one side, Chino’s legal counsel argued that the New York State Department of Financial Services (NYDFS) overstepped its mandate when it issued the BitLicense. On the other, the defendant’s lawyer argued that Chino had no grounds for his complaint.
But rather than dismissing the underdog claim, Judge Carmen Victoria St. George issued what may be one of the more surprising statements in bitcoin’s short legal history.
“Court reserves decision.”
Instead of formally weighing in on the case, Judge St. George set a future court date for the participants to reconvene on January 11, 2018.
But while that could seem like an irritating bureaucratic measure, Chino was all smiles at the day’s conclusion. Not only does this mean his case gets to live another day, but the judge seemed, at times, swayed by his lawyer’s arguments.
For Chino and his legal counsel, the indecision can be seen as a small victory, one that will move their case ahead in court, and hopefully, provide relief for smaller businesses they argue have been hurt by the law.
Stepping back, the thrust of Chino’s argument is and has been that as a “small business” owner, he did not have the resources to go through the notoriously expensive application process for the BitLicense. Not only does the application cost $5,000, but it has also resulted in applicants spending millions on legal fees.
So, back in 2015, Chino filed a complaint against NYDFS and ceased work on his business.
“From the moment the license was promulgated,” Chino’s counsel Pierre Ciric argued in court, “he knew the cost of compliance was prohibitive.”
And there’s evidence to back up the claim. To date, just a handful of BitLicenses have been granted, and many more companies remain stuck in application status.
Still, it was perhaps Chino’s critiques based on bitcoin’s legal classification that had the most impact. When asked by the judge if bitcoin was, in fact, a financial instrument, Ciric responded, “No, absolutely not.”
Instead, he argued the cryptocurrency was a commodity, more closely aligned with the definition put forth in 2015 by the U.S. Commodities Futures Trading Commission.
And Judge St. George seemed open to the argument.
On the other side, however, Jonathan Conley, who represented NYDFS, spent much of his time sidestepping this larger intellectual question.
Rather than addressing bitcoin’s open-ended legal definition, Conley argued instead that Chino had no right to proceed with his claim due to the fact that he botched his BitLicense application, among other claims.
According to Conley, Chino filed his forms with multiple fields stating “not applicable” and “I will not disclose,” before stopping the process altogether. Because of this Conley argued damages were only “speculative.”
In this way, the remarks cut to the core of what could be another issue in the case – whether Chino is a suitable candidate to back his claims. But for now, that determination will be delayed.
Come January, it remains to be seen just how the judge will rule – and if more surprises are in store for what is perhaps the industry’s most unlikely legal case.
Themis statue image via Shutterstock
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Published at Wed, 11 Oct 2017 12:30:19 +0000