In State of Florida v. Espinoza, Miami Circuit Judge Teresa Pooler recently dismissed all charges against individual Bitcoin seller, Michell Abner Espinoza, after he was indicted on illegal money transmission and money laundering charges. The defendant Espinoza, looking to make a fifteen percent (15%) spread buying and selling Bitcoin, was arrested in a sting operation led by local police working in conjunction with federal secret service, after agreeing to sell $30,000 USD in Bitcoin to an undercover detective, who purportedly would use the Bitcoin to purchase stolen credit card numbers from Russians.
SUMMARY OF FACTS:
After launching a local investigation in the purchase and sale of Bitcoin in South Florida, Detective Ricardo Arias and Special Agent Gregory Ponzi became intrigued by online seller “Michelhack” after finding him on LocalBitcoins.com, by virtue of his username, advertised 24-hour availability, and his desire to transact business in public places. Subsequently, the undercover detective completed a series of Bitcoin transactions with the defendant, suspecting the Bitcoin seller might be engaged in unlawful activity.
After initiating communication, the undercover detective arranged a few meetings with the defendant between December 2013 and January 2014, where they completed a series of small cash for Bitcoin transactions. At the initial meeting, the detective purchased $500 USD in Bitcoin, and no illicit activity was discussed. The Bitcoin seller educated the detective about Bitcoin and explained he made a fifteen percent (15%) yield by buying Bitcoin at ten percent (10%) under market and selling it at five percent (5%) over market value. During the second meeting, approximately a month later, the detective purchased $1,000 USD in Bitcoin and told the seller he was in the business of buying stolen credit card numbers from Russians and the Bitcoin would be used to fund this activity. The detective further proposed exchanging the stolen credit card numbers as a trade for Bitcoin in their next transaction, to which the Bitcoin seller responded indecisively. Their third transaction of $500 USD worth of Bitcoin was conducted exclusively via text message.
On February 6, 2014, during their fourth Bitcoin transaction in the amount of $30,000 USD, again the detective discussed with the defendant that he was in the business of buying and selling stolen credit cards and showed the Bitcoin seller a “flash roll” of hundred dollar bills purporting to be the $30,000 USD purchase money. “Michelhack” was then arrested, without taking possession of the counterfeit cash. The defendant was charged with one count of unlawfully engaging in the business as a money services business and two counts of money laundering in violation of Florida law.
COURT RULING:
On July 22, 2016, the court dismissed all charges against the defendant, finding neither the Bitcoin seller nor his conduct fit within the applicable statutes, and therefore as a matter of law, the defendant did not commit the crimes charged. For the first charge of unlawful money transmission, Judge Pooler concluded that Bitcoin is not “money” and selling bitcoins is not “money transmission” under the statute. The court held that “Bitcoin has a long way to go before it is the equivalent of money” and that “attempting to fit the sale of Bitcoin into a statutory scheme regulating money services businesses is like fitting a square peg in a round hole.” Defendant Espinoza also failed to meet the money transmitter statutory requirements because he did not charge a fee for the transaction; the court likened him instead to a day trader, who solely made a profit. As for the money laundering charges, the court asked “[i]s it criminal activity for a person merely to sell their property to another, when the buyer describes a nefarious reason for wanting the property?” Here, the court found the defendant lacked the requisite intent, that simply hearing of the illicit activity was insufficient. In concluding the defendant did nothing wrong, Judge Pooler commented on the need for the legislature to play catch up to address Bitcoin and other virtual currencies.
The State of Florida is appealing the decision.
TAKEAWAY:
This first judicial opinion dismissing charges against a Bitcoin seller highlights a split among regulators and courts on the issue of Bitcoin and virtual currency regulation. The Florida ruling stands in contrast to updated and broader federal language, including the federal Financial Crimes Enforcement Network (FinCEN), as well as the general regulatory trend. This case highlights the continued uncertainty in the cryptocurrency space and the possible limits in applying money laundering and similar statutes to Bitcoin and other digital currencies.