California's Department of Financial Institutions is going after Bitcoin. Today, Forbes published a cease and desist letter sent to the Bitcoin Foundation, an organization devoted to creating best practices for the decentralized currency. Regulators accused the foundation of being "engaged in the business of money transmission" without license or authorization under California's Financial Code. If it doesn't comply with the order, it faces a fine of $1,000 to $2,500 per day or per transmission. The problem, of course, is that the Bitcoin Foundation doesn't appear to be involved in making monetary transmissions at all.
Bitcoin doesn't have any kind of central regulatory authority, and trading takes place through Mt. Gox or other exchange floors. Individual companies have come under scrutiny: some have lost significant amounts of money from hacking, others have had technical problems, and Mt. Gox itself is fighting a $75 million lawsuit. The US government is also working on tougher rules for virtual currencies in general, saying they need to play by the same rules as ordinary banks. But no transactions actually take place through the Bitcoin Foundation. It's closer to an industry group than anything else: companies pay for membership, which goes towards things like security research and better Bitcoin public relations.
We've reached out to the Bitcoin Foundation about the order, so we'll hopefully soon have more information about what California's bank regulators are looking to stop. It's also possible that this is part of a larger crackdown on Bitcoin by California, in which case other trading floors or companies would have received similar notices. If this is true, it could be another sign that Bitcoin and other upstart financial services will need to start working with regulators if they want to continue operation.