Jon Matonis, who serves on Board of Directors for Bitcoin Foundation, explained for Forbes that the nonprofit corporation whose goal is to standardize and promote the open source Bitcoin protocol, but actually "does not engage in is the owning, controlling, or conducting of money transmission business."
The cease and desist letter has been delivered on May 30, and the deadline for responding to it and to comply with the request has passed a few days ago. Matonis didn't share what steps the Foundation has actually made in the meantime.
If the California DFI finds that the Foundation has violated the California Financial Code, the Foundation could be hit with penalties up to $2,500 per violation per day and would be faced with criminal prosecution that could end up with additional fines and even imprisonment. The same goes for violating federal law that demands such an organization must be registered with the U.S. Treasury Department.
"At this stage, itís 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," he noted, adding that the State of Illinois has issued similar letters to mobile payments processor Square, prepaid card provider NetSpend and six additional payments companies.
"If this practice grows among states, it could have a potentially significant 'chilling effect' on financial services innovation, especially upon lawful businesses that are designing infrastructure to support and grow the Bitcoin technology," he pointed out.
For a primer on Bitcoin risks and threats go here.
By subscribing to our early morning news update, you will receive a daily digest of the latest security news published on Help Net Security.
With over 500 issues so far, reading our newsletter every Monday morning will keep you up-to-date with security risks out there.