Bitcoin Foundation ordered to cease operations in California

Nonprofit organization devoted to promoting the virtual currency is accused of transmitting money without a license.

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The Bitcoin Foundation, a nonprofit devoted to promoting best practices for the virtual currency, has been ordered to cease operations in California.

The California Department of Financial Institutions, which oversees banks, credit unions, and other financial organizations operating in the state, sent a cease-and-desist letter (see below) last month to the foundation accusing it of "engaging in the business of money transmission without a license or proper authorization."

If found to be in violation of the California Financial Code, the Seattle-based foundation could be fined up to $2,500 a day per violation and face criminal prosecution, according to Forbes, which first reported the story. The report noted that federal law prohibits engaging in money transmission without the appropriate state license or registration with the Treasury Department.

The letter, which was dated May 30, states that the Bitcoin Foundation had 20 days to comply with the order. The Forbes article was written by Jon Matonis, who sits on the Bitcoin Foundation's board of directors but did not indicate whether the foundation had addressed the department's concerns.

CNET contacted the Bitcoin Foundation for comment and will update this report when we learn more.

In his Forbes article, Matonis defended the foundation and suggested the letter was misguided:

One activity that the foundation does not engage in is the owning, controlling, or conducting of money transmission business. Furthermore, that activity would also be against the original charter of the foundation. As general counsel for the Bitcoin Foundation, Patrick Murck has lead responsibility for corresponding with the California Department of Financial Institutions.

At this stage, it's difficult to tell whether or not it was a general blanket action and if other bitcoin-related entities received cease and desist letters from California. If Bitcoin Foundation was not the only recipient, then expect other companies to come forward in the days and weeks ahead.

Emerging payment services have been a recent target of government agencies. In March, mobile payment service Square received a cease-and-desist order from the state of Illinois over allegations that it violated its Transmitters of Money Act.

California Cease and Desist May 30 via Scribd