Nina Marino quoted in LADJ on Bitcoin
FTC steps up on Bitcoin
Agency has begun policing consumer fraud involving the cryptocurrency
By Kibkabe Araya
Hot off the heels of a settlement with a mobile app company that was illegally mining bitcoins without consumers' knowledge, the Federal Trade Commission recently sounded the alarm about the virtual currency and its impact on consumer legal rights, leading many experts to believe that more federal and state government action is around the corner for the covert industry.
Some states have recently jumped into action in an attempt to regulate the cryptocurrencies: California is in the stages of drafting a law, known as AB 1326, to enforce companies and individuals to register for a license with the Commission of Business Oversight. The bill will resemble New York's new law dubbed "BitLicense" which also aims to regulate virtual currency businesses and individuals by enforcing a license.
Nina Marino of Kaplan Marino PC, who represents clients using virtual currencies that have been accused of fraud with online purchases, said states will be looking at New York's new law because it's the first state to adopt such a law.
"Ultimately, all states will need this legislation," she said. "Each state will be focused on the protection of the consumer."
Consumers using bitcoin can easily be taken advantage of because bitcoin transactions are "irreversible."
"The merchant can't legitimately refund the money. It means there isn't a third party administrator involved in a transaction," she said. "If you purchased something with your Visa card and didn't get the product, you can call Visa and say, 'I didn't get the product. Reverse the charges.' With bitcoin, there is no third-party administrator."
With the governments and courts failing to keep pace with virtual currency, Marino said businesses will have to publicize their own consumer protection rules like offering or denying a refund or return policy to avoid lawsuits. She added: "Problems don't arise when there's full disclosure or transparency."
The secrecy of virtual currency punctuated last month's FTC settlement with the New Jersey attorney general's office against Ohio app-maker Equiliv Investments LLC. The company's rewards app "mined" - or mathematically solved puzzles to earn cryptocurrencies like bitcoin - without consumers knowing, using a malware that quickly killed charged batteries. The FTC and the attorney general's office sued Equiliv and the developer behind it. Federal Trade Commission, et al. v. Equiliv Investments LLC, et al., CV15-4379 (D. N.J., filed June 24, 2015).
The FTC categorized the case under "fintech," the new term for financial technology the agency said will be under an ongoing effort to make consumers aware of bad transactions. The agency also sent a warning through a blog post letting consumers know about the lack of refund and return policies in the virtual currency world.
"A big challenge for bitcoin is getting consumers comfortable with using it, and the recent FTC warning highlights that fact," said Brian E. Klein, a virtual currency defense attorney at Baker Marquart LLP.
Despite consumer backlash and other legal issues, Klein added the virtual currency industry is still growing, he said. "Ultimately, bitcoin, because of its digital nature and the technology behind it, can offer tremendous consumer protections, but the industry is still in early stages."