You should probably know the name "Aaron Greenspan," but you've most likely never heard of him. In 2003, Aaron Greenspan created "houseSYSTEM" at Harvard University, a web service that integrated features which were
eerily similar to what would eventually be found in Mark Zuckerberg's Facebook. He ended up settling with Facebook in May of 2009 for an undisclosed sum. No, he wasn't one of the Winklevoss brothers. The only reason why you probably don't his name is because he chose not to cooperate with the author of "The Accidental Billionaires," the book upon which the Hollywood hit, "The Social Network," was based.
Seven years after launching houseSYSTEM, Aaron Greenspan went to the California Department of Financial Institutions (DFI) to obtain a money transmitter license in California for FaceCash, a subsidiary of his company, Think Computer. The requirement for a license stemmed from the newly passed California Aseembly Bill 2789, or Money Transmission Act (MTA), which was sponsored by The Money Services Roundtable, made up of
members including Western Union, Moneygram, Travelex, and American Express.
When Aaron Greenspan went to the California DFI, he didn't just discover that the process was lengthy and onerous. Instead, he found that the Department had no desire to explain to him how his company could even begin to apply for a license. He had met with Robert Venchiarutti, the Department's Deputy Commissioner, to get a full understanding of the amount of capital that would be required, a key piece of information that was not readily advertised. According to the
lawsuit filed by Think Computer in late 2011, Venchiarutti tossed around various figures at the meeting, ranging from $1 million to $80 million, never disclosing the actual amount, and closed the meeting by threatening to have Greenspan incarcerated.
Not willing to drop the issue, and obviously concerned that he was being treated unfairly,
"Greenspan enlisted the informal assistance of Ms. Eileen Newhall, Staff Director of the California Senate Banking and Financial Institutions Committee, to try to ascertain the DFI’s unwritten requirements." Despite her position, she was not able to establish communications with Venchiarutti, and Greenspan found himself no further ahead.
To this day, Think Computer has not been able to determine the requirements for applying for a money transmitter license in California. Phone calls, emails, and written letters have all gone unanswered, whether they be to the Governor's office, members of the houses of the California legislature, or Congress. You almost start to get the impression that it's a crime to even consider applying for a license. Perhaps you'd be better off just skirting the regulations and carrying on with your business?
Curiously, that's exactly what was implied by DFI Senior Counsel, Tony Lehtonen, in discussions with Aaron Greenspan. He stated that "the DFI would probably not actively investigate any unlicensed money transmitters," of which there are many in California or outside of California that serve residents of the state. It's a policy that is very difficult to comprehend, and will hopefully be explained when this case goes to trial.
Since Think Computer's battle with the California government began, the company has lost several clients, an outcome that can be directly attributed to regulatory uncertainty and the company's inability to achieve compliance. In a catch 22, they've also lost venture capital support and will therefore not be able to pay the application fees, whatever they turn out to be. The lawsuit concludes that Think Computer has no doubt been subject to a violation of due process rights under the California Constitution. After repeated requests, the government continues to refuse to disclose the real requirements for license application.
Understandably, if Greenspan can't operate in California, he's not willing to let others get away with dodging the new regulations. From paragraphs 53 and 54 of the lawsuit:
Private universities, for example, are not exempt from the MTA, but frequently issue stored value instruments to students under names such as “Crimson Cash” (offered by Harvard University), “Cardinal Dollars” (offered by Stanford University) and “TechCASH” (offered by MIT) that can be used either on campus or to transmit money to area merchants via routine purchases. Such money transmission systems are designed to temporarily eliminate the need for debit and credit cards, protecting students from predatory lending practices frequently targeted at youth with limited or non-existent credit history. These programs are extremely common nationwide at institutions that enroll California residents, yet not a single institution of higher education is registered in California as a money transmitter with the DFI, making university presidents and trustees criminally liable.
Other types of entities regularly violate state money transmission statutes, including the MTA. These institutions include:
a) Payroll processors, which draft funds on behalf of clients in advance of tax and benefit deadlines;
b) Real estate agents, which handle funds for buyers and sellers of homes;
c) Law firms, which regularly collect funds from clients to forward to courts, government agencies and adverse parties;
d) Construction companies, which use client funds to pay for materials and equipment; and
e) Technology companies, which facilitate electronic payments.
Greenspan identifies a total of 32 unlicensed money transmitters that are in violation of the new California DFI regulations:
1. Academy of Art University
2. Pomona College
3. Stanford University
4. University of Southern California
5. Airbnb, Inc.
6. Facebook, Inc.
7. CheckPoint HR
8. Cimbal, Inc.
9. CompuPay, Inc.
10. Corduro, Inc.
11. Corporate Payroll Services
12. Dwolla, Inc.
13. Fidelity HR Services
14. GTM Payroll Services, Inc.
15. Interlogic Outsourcing, Inc.
16. Loyola Marymount University
17. Mobibucks
18. Netchex
19. Occidental College
20. Padgett Payroll Services
21. Paychex, Inc.
22. Paycom Payroll
23. PayCycle, Inc.
24. Paylocity Corporation
25. Paypro Corporation
26. Payroll People, Inc.
27. Santa Clara University
28. Sprint Nextel Corporation
29. TimePlus Payroll Services
30. University of San Diego
31. Verizon Communications, Inc.
32. Zaarly, Inc.
Remember, this is only one state we're talking about. Similar but annoyingly different regulations can be found in
nearly every state, making compliance veritably impossible for all but the largest corporations (see: The Money Services Roundtable). The net effect is the creation of monopolies that are hugely detrimental to consumers, which runs contrary to the advertised purposes of regulation.
Back in the world of virtual currencies, you begin to understand where Satoshi Nakamoto may have found the impetus to create Bitcoin. After all, if money transmission regulations are designed to be impossible to meet except by the largest of corporations, and the people in charge of the regulations are guaranteeing that they can't be met, then there's nothing better than a payment processor that can't be shut down nor attributed to any one operator. Oh, and if you're going to create such a system, it would probably be a good idea to disappear once it gets off the ground, just in case.
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