Even though I'm not a huge Greenspan fan (are there any?), I find this money transmitter stuff incredibly fascinating. I haven't reviewed the relevant legal code, but I strongly suspect that Greenspan is right in that:
(1) there are lots of little annoying laws related to money transmitters that makes it very difficult to get new payment stuff off the ground
(2) If you have deep pockets and good lawyers you can pretty much ignore these laws
I strongly suspect that the correct solution is to change the laws, but that this is also an even greater pain in the ass than protecting yourself with highly paid lawyers, esp. since relevant laws vary significantly from state to state. What exactly Greenspan is attempting to prove here is beyond me, but I'm still quite curious as to the results.
Ahh, is this why all these tech giants use a non-money credit system for their stores and networks: Sony, Apple, Microsoft, Amazon(?), ... there must be many more.
I'm pretty sure all of those companies also take $'s for digital goods. Microsoft is the most famous for having a credit system, but you can still buy retail download games using $'s.
AFAIK, the only reason these companies would use a credit system is so that people need to buy credits in bulk, reducing the hit received from processing credit card transactions.
I think most larger companies use non-money credit systems because it gets more lock-in and is slightly harder for many people to parse how much they are truly spending.
The reason why companies use points instead of $ is:
1) Easy to keep the price consistent world wide
2) There is a casino chip theory that you spend more money when it is abstracted. People spend more when they use their credit cards as opposed to cash, etc.
3) You can sell point cards at retailers to the unbanked. In the Xbox case this is important because a lot of your audience is kids.
2) is on the spot. As soon as you introduce an abstract that is one step removed from money, people are more willing to gamble with that abstract. This is true for everything from credits to casino chips and from stock/shares to options and derivatives. Also, the word "willing", in this context, is actually an intended pun, since this happens on a subconscious level.
There is a lot of literature on the topic; some pieces even establish a tie between that notion and the most recent banking crises and scandals. For example, stock options are not just one step removed from currency, but at least two or more.
Money transmission means moving money from one person to another. If you could use your Xbox to send money to a friend who also has an Xbox, then Microsoft would need a money transmitter license. Selling products, services, or "credits" for products or services, is not money transmission and doesn't require any kind of financial license.
Is all the money you pay to Airbnb for the service of helping you find a place to stay? Or is most of it being transmitted to the property owner after the end of your stay? Yes, it is; they are acting as a money transmitter. Money transmitters typically take some of the money; they're licensed businesses, not charities.
If Airbnb says that they are being paid for the service they provide, and part of that contract with their customer is to pay a property owner (like an Travel Agent), does that change things?
Would a Travel Agent be called a money transmitter?
As someone asking someone else who seems to know more about this than I, does this lawsuit have legs to stand on? [Edit: seemed to be answered here https://news.ycombinator.com/item?id=5677731]
Travel agents are also licensed in California (and other states). They also have to post a bond to cover any money they're holding on behalf of customers, just like a money transmitter.
I see. Looking into the background of all this, I think there is an argument to be made… whether it will be heard or not in this context is a different story.
Well maybe this presents the perfect opportunity for these VC and portfolio companies to retreat offshore to the tech seastead they created for their very own special SEZ (semi-jokingly).
is the idea that the defendants pursued unfair and illegal business practices, promoting their services, while a law abiding service got swept behind? anyone know what the precedent is for this sort of thing?
IANAL.. but at the very least, I'd say its poor strategy because the people he's suing (esp. VC funds) are well connected in Silicon Valley.
It looks like he's equating "pass through" transactions with being a (unlicensed) Money Transfer Agent.
Hypothetically, If I was going to start a PayPal alternative, I would figure out a way to stay somewhat compliant.
If that fails, seek a declarative judgement against XYZ agency to get legal clarification, without dragging all the VCs, Angels and unrelated companies into the case.
It seems strange to file one suit against a ton of defendants, making it more likely that they will pool resources for defense. Or is that not possible in this context because of the nature of the complaint?
I don't think Greenspan actually cares about winning anything. This is about making everyone play by the same rules -- bringing attention to the fact that California makes it near-impossible for a startup to get licensed as an MTA, essentially shut down his company for trying to get licensed, while all these other startups just ignore the problem and operate illegally.
I don't have time to read much of the lawsuit, but is Think Computer suing for some sort of injunction to require all the companies listed to use Face Cash as only it has a California Money Transfer Act license?
And for those double taking at the name, Aaron Greenspan is the CEO of Think Computer.
From reading the complaint, it seems more likely that the expected result here is something like:
* State is forced to fairly enforce the rules that caused Think Computer so much trouble (re money transmitter regulations)
* Fairly enforcing the rules causes incredible amounts of grief & overhead for companies large enough to comply, and drives smaller companies out of business
* The grief drives those larger companies (and investors into the smaller companies) to push for these laws to actually get fixed
I could see there also being an interest here in having investors be penalized for knowingly investing in companies that were violating the law (having a board seat seems like it would give you enough access to realize that a portfolio company is a money transmitter and be able to ask them whether they're licensed).
It's a way to set the precedent with a court decision in hand.
The most memorable twist on enforcement is Veoh suing Universal Music Group over the threats from UMG in hopes to be found not guilty, essentially asking the court to pretend Universal was suing them http://mashable.com/2007/08/09/veoh-universal/
Can someone please translate this lawsuit into common language. It looks pretty interesting, but I'm not familiar with the laws on money transmission. Thanks!
This group of people knowingly broke the law and profited from it. I chose to obey the law and forgo profits. I would like some profits, hopefully conveyed by legal means, to make me whole.
Wow, yeah, I was very confused until I read this comment. Guess that's what I get for paying too much attention to the comments before reading the article.
78.
Defendant Yishan Wong, in response to an article authored by Plaintiff on the website Quora, wrote the following comments (among others) indicating his knowledge of payments-related laws and regulations on June 15, 2011:
“Yeah, I am constantly amazed at how people haven’t yet learned that the paymentsindustry is really hard to get into. It was okay for first-wave companies like PayPal to besurprised by it, but anyone who does their due diligence before starting a paymentsstartup should know everyone – literally everyone, including regulators and thegovernment – is going to be working against you. If you can’t take the heat, get out of the kitchen and go start a photosharing startup.”
“Payment startups face a far more adversarial environment, including utter and totalhostility. It was okay for PayPal to whine about this (though they didn’t), because itwasn't known. But now it’s known. If you run a payments startup, you are fightingagainst thugs, actual criminals – both real ones and government ones. It is not normalbusiness. It is like trying to start a business in an actual warzone. Complaining aboutthis is just whining. There is no actual solution than to win. Anything else is, in fact, justwhining.”
Presumably with the hope of “winning,” Defendant Wong proceeded to invest his own personalfunds in Unlicensed MSB Defendant Balanced (part of a $3.4 million seed financing round)
Trying to create political pressure against these "thugs" isn't necessarily a bad move. Let's say you want to start a company which bypasses Taxi medallions. It's in your interest to create a PR storm over the unfairness of the medallion system. It's not OK to be surprised when the entrenched powers try to bite you (though it may not hurt to act surprised). Of course, if you don't have the stomach for it, you shouldn't be getting into the space.
The YCFunds share common management and are venture capital funds invested in a number of unlicensed money transmitters.
Can that really hold up? Can an investor be held liable for the decisions of a company they invested in? By that logic, what's to stop someone from suing Facebook shareholders?
Presumably if individual Facebook shareholders had real influence over Facebook's actions you could sue them. I would guess the justification here is that YC's partners/etc have a real, tangible influence on the companies they invest in so they do bear some share of the responsibility.
It's regulated by criminal law, not civil code. The complaint quotes the law:
"Whoever knowingly conducts,controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both."
The whole reason for this mess is that VCs refused to invest in his "legal" startup (didn't want to waste money on compliance costs?) and invested in a bunch of "illegal" competing companies instead.
Pretty weird. On the one hand, there clearly went some effort into this. On the other hand, they are not represented by counsel (p.36), which makes the likelihood of the case being thrown out for procedural reasons regardless of the merits around 99%. All in all I'm leaning more towards publicity stunt...
Does this have anything to do with this patent (listing Greenspan as the inventor), which has a publication date of March this year? http://www.google.com/patents/US8396808
Probably legal reasons why he won't. Most companies make it a policy not to comment on ongoing litigation. Usually nothing good comes of it. Although there are exceptions...
IANAL: They are Payment Processors, technically serviced by banks, and not a Money Services Business. The difference between them and say AirBnBs transactional payment service is a technicality, but I'm not a lawyer.
Stripe uses Wells Fargo as an underwriter for the Merchants it on-boards. Wells Fargo did not invest in their earliest rounds but may take an equity stake in later/future rounds.
It seems really odd to me that AirBnb is being included in this list.
57. Defendant Airbnb, Inc. allows its customers to rent the homes of other
customers for varying durations, in lieu of a hotel. To process each
transaction it holds onto the customer’s funds, and remits those funds
to the property owner at the conclusion of the stay, minus its fee.
Well, okay, but wouldn't this apply to every company that acts as a marketplace between buyers and sellers?
Is the point of this to show the absurdity of the scope of the Money Transmission Act?
In most marketplaces, the buyer pays the seller. In this marketplace, the buyer pays the marketplace and the marketplace pays the seller. Any business that engages in the transfer of funds between people is a money transmitter and needs a license. Escrow service has always been regulated.
Perhaps I'm new here, but any chance the title might get 's/Greenspan/Aaron Greenspan/'? I got real confused as to why Alan Greenspan might be suing tech companies...
But, Aaron Greenspan is synonymous with Think Corporation, which he himself emphasizes in his request to press this claim, as a non-lawyer individual, without the usual (by rule) corporate counsel. Greenspan is the 100% owner, the author of this complaint, and the origin of its offbeat legal reasoning. To leave him and his personality out of the headline, and name the artificial corporate persona instead, would hide the real story.
Unfortunately this change didn't help. I thought it said "Alan Greenspan" until I started reading the lawsuit, saw "Think Corp", and went back to re-read the HN headline.
I agree with pedalpete, the headline really should just say "Think Corp".
That would have helped me out a bit... I have no effin' clue who Aaron Greenspan is. Well, except that now I know he's the guy who is suing YC and a bunch of others.
He's been making the same rants in the comments here for a long time... and he hasn't found many sympathetic to his cause. I can't imagine suing YC (frivolously) will gain many friends.
Did anyone read the part where he explains that he is not being represented by a lawyer? ("REQUEST FOR CIVIL LOCAL RULE 3-9(b) EXEMPTION AND RETIREMENT.") That seems a very unusual decision indeed. Does anyone have any idea why he would do it that way? Is it probably a money issue?
If the PR (making the tech community aware of the problems with CA's MTA laws, getting the VCs to stop ignoring it, and perhaps getting the legislature to reconsider how they treat startups that try to get licensed) is more important than the result of the suit, you wouldn't want to bankrupt yourself over the suit.
Yeah, that's kind of what I thought--a money issue. I have no idea whether Aaron Greenspan has money to burn on something like this. The fact that he was bringing suit on behalf of his computer company made me immediately imagine a monied plaintiff. But that could be a false assumption.
I agree that the PR could be beneficial to the industry as a whole. Let's hope this doesn't mess up a bunch of legitimate businesses in the process.
Funny! After reading the first few pages, I said, "What lawyer is willing to put his name on this garbage?" and paged around in the document. Only to find no lawyer's name at the bottom, just his own. And now you confirm it.
Is there some way that this isn't idiotic? I have seen a federal judge in full-on "this case is a waste of my time" mode, and it is fearsome. I would never file a document with a federal court without having a very experienced lawyer involved.
Of course, I also wouldn't step to all of those rich and powerful people without a clear and sensible plan of action. If Greenspan has one, I can't extract it from this document. Is he a total loon?
Have you looked at Aaron Greenspan's legal credentials ? He is (or atleast claims) a fellow of Stanford Law School. Has build a site for searching legal articles and in general spent considerable time researching this issue
I looked. I don't see him saying he has a JD. I don't see him saying he passed a bar exam. I especially don't see him saying he's a practicing lawyer. I have no idea what "fellow" means in this context, but he's not listed in the staff directory.
"Spending considerable time researching the issue" is not sufficient for not looking like an ass when acting as a lawyer.
There's a theoretical side to law, but it's mainly a practical art. Sort of like software. It would be hubris for somebody who has "spent considerable time researching software" to make his first coding project something big enough that it gets reported nationally.
178 comments
[ 9.5 ms ] story [ 587 ms ] thread(1) there are lots of little annoying laws related to money transmitters that makes it very difficult to get new payment stuff off the ground
(2) If you have deep pockets and good lawyers you can pretty much ignore these laws
I strongly suspect that the correct solution is to change the laws, but that this is also an even greater pain in the ass than protecting yourself with highly paid lawyers, esp. since relevant laws vary significantly from state to state. What exactly Greenspan is attempting to prove here is beyond me, but I'm still quite curious as to the results.
AFAIK, the only reason these companies would use a credit system is so that people need to buy credits in bulk, reducing the hit received from processing credit card transactions.
There is a lot of literature on the topic; some pieces even establish a tie between that notion and the most recent banking crises and scandals. For example, stock options are not just one step removed from currency, but at least two or more.
Interesting stuff indeed.
Would a Travel Agent be called a money transmitter?
As someone asking someone else who seems to know more about this than I, does this lawsuit have legs to stand on? [Edit: seemed to be answered here https://news.ycombinator.com/item?id=5677731]
Well maybe this presents the perfect opportunity for these VC and portfolio companies to retreat offshore to the tech seastead they created for their very own special SEZ (semi-jokingly).
This seems crazy.
http://knowyourmeme.com/memes/christ-what-an-asshole
Except, unfortunately, without notably increasing the humor value, so far.
It looks like he's equating "pass through" transactions with being a (unlicensed) Money Transfer Agent.
Hypothetically, If I was going to start a PayPal alternative, I would figure out a way to stay somewhat compliant.
If that fails, seek a declarative judgement against XYZ agency to get legal clarification, without dragging all the VCs, Angels and unrelated companies into the case.
Not seeing that this has been date stamped by the court...yet. Typically you scribd the stamped copy so you know it has been filed.
And for those double taking at the name, Aaron Greenspan is the CEO of Think Computer.
http://www.thinkcomputer.com/
* State is forced to fairly enforce the rules that caused Think Computer so much trouble (re money transmitter regulations)
* Fairly enforcing the rules causes incredible amounts of grief & overhead for companies large enough to comply, and drives smaller companies out of business
* The grief drives those larger companies (and investors into the smaller companies) to push for these laws to actually get fixed
I could see there also being an interest here in having investors be penalized for knowingly investing in companies that were violating the law (having a board seat seems like it would give you enough access to realize that a portfolio company is a money transmitter and be able to ask them whether they're licensed).
Huh? The law just got rid of many of their competitors, and they're going to push to change the law?
Huh? They're going to push to change a law that prevents smaller companies from competing with them?
http://www.leginfo.ca.gov/cgi-bin/displaycode?section=bpc...
The most memorable twist on enforcement is Veoh suing Universal Music Group over the threats from UMG in hopes to be found not guilty, essentially asking the court to pretend Universal was suing them http://mashable.com/2007/08/09/veoh-universal/
(1) Think Computer Corporation built FaceCash (https://www.facecash.com/) a mobile payment solution
(2) Aaron Greenspan is Think's President and CEO
Maybe he's trying to get these companies to lobby against "money transmitter" regulation.
http://abovethelaw.com/2012/06/facebook-litigation-continues...
78. Defendant Yishan Wong, in response to an article authored by Plaintiff on the website Quora, wrote the following comments (among others) indicating his knowledge of payments-related laws and regulations on June 15, 2011:
“Yeah, I am constantly amazed at how people haven’t yet learned that the paymentsindustry is really hard to get into. It was okay for first-wave companies like PayPal to besurprised by it, but anyone who does their due diligence before starting a paymentsstartup should know everyone – literally everyone, including regulators and thegovernment – is going to be working against you. If you can’t take the heat, get out of the kitchen and go start a photosharing startup.”
“Payment startups face a far more adversarial environment, including utter and totalhostility. It was okay for PayPal to whine about this (though they didn’t), because itwasn't known. But now it’s known. If you run a payments startup, you are fightingagainst thugs, actual criminals – both real ones and government ones. It is not normalbusiness. It is like trying to start a business in an actual warzone. Complaining aboutthis is just whining. There is no actual solution than to win. Anything else is, in fact, justwhining.”
Presumably with the hope of “winning,” Defendant Wong proceeded to invest his own personalfunds in Unlicensed MSB Defendant Balanced (part of a $3.4 million seed financing round)
The YCFunds share common management and are venture capital funds invested in a number of unlicensed money transmitters.
Can that really hold up? Can an investor be held liable for the decisions of a company they invested in? By that logic, what's to stop someone from suing Facebook shareholders?
"Whoever knowingly conducts,controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both."
This might be the only case where the only good that could possibly come of it would be to comment.
https://news.ycombinator.com/item?id=5308013
Is the point of this to show the absurdity of the scope of the Money Transmission Act?
I agree with pedalpete, the headline really should just say "Think Corp".
His username is thinkcomp.
https://news.ycombinator.com/user?id=thinkcomp
I agree that the PR could be beneficial to the industry as a whole. Let's hope this doesn't mess up a bunch of legitimate businesses in the process.
Is there some way that this isn't idiotic? I have seen a federal judge in full-on "this case is a waste of my time" mode, and it is fearsome. I would never file a document with a federal court without having a very experienced lawyer involved.
Of course, I also wouldn't step to all of those rich and powerful people without a clear and sensible plan of action. If Greenspan has one, I can't extract it from this document. Is he a total loon?
"Spending considerable time researching the issue" is not sufficient for not looking like an ass when acting as a lawyer.
There's a theoretical side to law, but it's mainly a practical art. Sort of like software. It would be hubris for somebody who has "spent considerable time researching software" to make his first coding project something big enough that it gets reported nationally.
FaceCash failed -> Sue Facebook + everyone
Aaron got rich by filing a frivolous lawsuit against Zuck, might as well try it again, huh? This time with even more victims.
Building successful companies is hard, let's go lawyering.