On Tuesday, a New York judge postponed the Court’s decision in a case that might determine the legal status of bitcoin. Oral arguments centered on
(1) the standing of the petitioner,
(2) the jurisdiction of the New York State Department of Financial Services in establishing the BitLicense, and
(3) whether bitcoin is a financial product or a commodity.

MR. CONLEY: Your Honor, on the discovery issue, the petitioner's motion for limited discovery is inappropriate for multiple reasons. Setting aside the particulars of the discovery that is actually being sought as a procedural matter, discovery is presumptively improper in Article 78 proceedings. And under the CPLR an automatic stay is put in place when a party files a dispositive motion to dismiss under CPLR 3211. So, here, to direct discovery, the moving party, the petitioner, would have to demonstrate an ample need for the requested discovery that was both material and necessary to the claims being raised. The claims being raised here are that the Department of Financial Services exceeded the scope of its regulatory authority in promulgating challenge regulation and that that and that the regulation, certain aspects of its scope and design are arbitrary and capricious. In other words, the petitioner is raising pure questions of law that this Court can fully and fairly review by looking at the challenged regulation itself, the enabling legislation, the Financial Services Law and applicable precedent. Yet the petitioner is seeking a wide range of irrelevant information, including an order from the Court
compelling Paul Krugman, the Nobel Prize winning economist and New York Times columnist, to testify on the economic nature of Bitcoin; an order compelling the Department to produce an assortment of emails and other written documentation that was internally circulated over a three-year period; and an order directing the former superintendent, the head of the Department of Financial Services, to attend a deposition to be deposed on his internal thought processes leading up to the promulgation of the regulation. These requests are facially improper and inappropriate, Your Honor. And it's a quintessential example of a party seeking permission to go on a fishing expedition and find something of possible relevance that could salvage their claims. And the petitioner's request here should be denied.

An entrepreneur who sued the state for foiling his efforts to get seven city bodegas to accept bitcoin wants Pulitzer Prize-winning economist Paul Krugman to testify in his case.

An attorney for Theo Chino says the noted New York Times columnist and CUNY Graduate Center professor should testify before Manhattan Supreme Court Justice Carmen St. George regarding the "economic nature" of the global digital currency.

"I'll take any expert! Krugman is good enough for me," Chino's attorney Pierre Ciric told the Daily News.

Both Chino and attorneys for the state Department of Financial Services have cited Krugman as an authority amid a legal dispute over whether bitcoin is a "financial product or service." A judge would have to approve a subpoena for the famed economist.

 Chino argues bitcoin’s value fluctuates too wildly to be considered a viable financial product. State Assistant Attorney General Jonathan Conley said that argument "defied common sense" and that bitcoin is money subject to state regulation.

Chino sued in 2015, arguing that the state license required to engage in a "virtual currency business" was too burdensome. He had hoped to get the bodegas to accept bitcoin for any purchases.

Conley added that the effort to put Krugman on the stand was an example of a "classic fishing expedition."

Efforts to reach Krugman through the Times were unsuccessful.

THE COURT: I'll hear you. Any reply?
MR. CONLEY: Yes, Your Honor. Just quickly, to go back to the standing issue. The opposing counsel argues that this is a facial challenge. And while the petitioner does attempt to bring a facial challenge to this regulation there is still a requirement that he himself has been injured by the regulation. And it's an injury in fact, it's not an injury based on hypotheticals. The New York State Court of Appeals has defined an injury in fact to mean that the plaintiff will actually be harmed by the administrative action. The plaintiff is basing -- the petitioner is basing his standing argument on a self-professed expertise in the field of virtual currencies, but speculation on how a law is -- or a regulation may or may not be enforced in the future is far too attenuated to confer standing to someone to challenge your regulation . Shifting to
THE COURT: I don't think he said that. He's basing his challenge that he was harmed -- well, obviously he gives these cases that he cites to, but he says he basically had to shut down the business and he incurred losses as a result of that. How are those losses not injuries in fact to that particular petitioner?
MR. CONLEY: Your Honor, they may be an injury to the particular petitioner, but they are not connected in any way to the actual regulation. It's based on the petitioner's understanding of how the regulation might have impacted his business in the future. The Department never advised him to shut down his business. That was the petitioner's decision based on his understanding of what could potentially happen under the regulation in the future. And that -- that type of speculation is is not enough to establish that an administrative act has actually caused harm that would be considered an injury in fact.
THE COURT: So it's the Department's position that the petitioner would have had to have waited for the Department to specifically say, "Shut down your business, you're not getting a license"?
MR. CONLEY: The -- the petitioner would have needed to have incurred an injury because of the regulation. Whether that be that he was denied an application or that he was granted an application but felt that the compliance costs were too high and the resulting financial losses were an injury, to then challenge the aspects of the regulation he objected to. But what he or -- yes, that the Department in some way compelled him to shut down the business.
THE COURT: So what you're saying on behalf of the respondent is that there would have had to be an affirmative act on behalf of the Department to trigger his standing. In other words, the Department would have had to flatout deny him the license or grant him the license but make it feasibly impossible for him to continue. And, therefore, by that act on behalf of the Department it would have triggered his ability to then proceed forward.
MR. CONLEY: Not -- not exactly, Your Honor. The -- the Department's position is that he -- the petitioner is trying to get standing in this case with these facts by litigating a decision that had never been rendered in the first place.
THE COURT: Well, because he's trying to say, "Listen, why do I have to wait to suffer the brunt in full force of this injury? You're going to deny me regardless, so let me go ahead and proceed this way." I mean, are you telling me that he would have had to have waited for the Department to flatout say, "You're denied a license" or "You're granted a license, but these are the things that you needed to do"?
MR. CONLEY: He
THE COURT: In other words, what the Department did instead was it gave him -- they sent him a letter, a correspondence that invited him to conversate more or to have, you know, a further discussion as to what things he could do.
MR. CONLEY: The -- the Department sent a letter saying that it was impossible based on the information provided the Department, it was in the dark, it has no idea what Chino, Limited is and whether there would need to be a license. And the petitioner would need to show some kind of injury that resulted from the regulation. And there is -- there is no connection to the injury that they are pointing to here.
THE COURT: How is him not shutting down this business a direct response to a challenge to the regulation itself?
MR. CONLEY: Because any individual could shut down a business and then blame it on some law or regulation. There needs to be some kind of cause and effect, some type of connection between the harm you're professing to have suffered and the law or regulation that you're challenging.
THE COURT: Are you suggesting that he just randomly decided to shut down the business just because?
MR. CONLEY: It appears that the petitioner would prefer to challenge the validity of the regulation in court based on his impressions of how the regulation might have impacted him in the future.
THE COURT: Okay. Do you have anything to add or respond, a brief reply with respect to the other issues that were raised?
MR. CONLEY: Yes, Your Honor. Just briefly on the point of the Department's authority under the Financial Services Law: The Department was created in the aftermath of the 2008 financial crisis and in - - through the enactment of the Financial Services Law. And in enacting the Financial Services Law the legislature tasked the -- this newly formed department with the enforcement of the Banking Insurance and Financial Services Laws and provided a broad grant of authority to regulate new financial services and products and to ensure the continued safety and soundness of the banking financial insurance industries. The petitioner and virtual currency business activity clearly fits within this. The petitioner's cramped reading of the Financial Services Law ignores the broad consumer protection mandate that's clear on the face of the statute. The virtual currency business activity that is regulated under this regulation is clearly a financial product or service. It's essentially a digital form of money, a medium of exchange that acts as a denominator of value and it can be used to conduct financial transactions, such as buying and selling goods and services. The petitioner maintains and tries to draw a distinction arguing that virtual currency business activity cannot be a financial product or service because it does not involve fiat currencies.

THE COURT: What is the basis of that statement --
MR. CIRIC: Okay.
THE COURT: -- that you just made?
MR. CIRIC: Yes.
THE COURT: Do you not agree that Bitcoin is a financial product? Yes or no?
MR. CIRIC: Okay. Okay. Our theory from the beginning of the first paper to the last page is that Bitcoin is not a financial product or service under the statutory framework passed in 2011. Yes.
THE COURT: Is Bitcoin a financial product? Yes or no?
MR. CIRIC: No. Absolutely not.

Dear BTC/Crypto Legal Forum:

As an experienced BTC attorney I'm happy to answer all questions here.

I have noticed some misinformation in some answers here. When it comes to taxes, laws and regulations, guessing or opinions are not helpful and can easily lead to problems. Most solutions to all the questions here can be summed up in a few short answers.

I can only give legal advice to laws in the United States but can discuss other countries in general terms. I've been involved as an attorney and a miner in BTC and Crypto's for 3 years. During that time I have represented many client's involved in our crypto world. Happy Mining!

George D. Greenberg, Esq.
AttorneyBitcoin
Las Vegas, Nevada, U.S.A.
www.attorneybitcoin.com

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