Bitcoiner Running Game On NYDFS BitLicense In Court

[grarpamp]

http://www.article78againstnydfs.com/
https://cei.org/blog/new-yorks-bitlicense-trial
https://www.2600.com/offthehook/mp3files/2017/off_the_hook__20170329.mp3

New York's "BitLicense" on Trial
Jim Harper • March 8, 2017

Regulators enjoy a lot of deference in the courts, and New York
regulations in New York courts are no exception. But Theo Chino’s
challenge to New York’s “BitLicense” regulation stands as good a
chance as I’ve seen of toppling an inadvisable and poorly devised
regulation. I was happy to play a small part this week in the effort
to get the regulation overturned.

For those just tuning in, the “BitLicense” is a special regulation
aimed at Bitcoin businesses, which the New York Department of
Financial Services (NYDFS) issued in June, 2015. When New York’s
then-Superintendent of Financial Services Benjamin Lawsky first
encountered Bitcoin, he sent subpoenas to everyone in the Bitcoin
world and went on TV talking about “narcoterrorists.” But by the time
he concluded the matter, he thought differently. In fact, immediately
after his office finalized the “BitLicense” regulation, Lawsky
decamped to a private sector consultancy where his website now boasts
that he was one of 2014’s “Top Ten Most Influential People in
Bitcoin.”

Since imposing the “BitLicense” requirement, the NYDFS has licensed
(or “chartered”) a whopping five companies (as of January, at least).
The NYDFS has chased off four other companies trying to provide
Bitcoin services in New York. They join the many more firms that
suspended services in New York after the regulation was finalized.

Enter Theo Chino. While the big Bitcoin companies steered clear or
meekly complied with the BitLicense – they expect to be repeat players
before the NYDFS, of course – Mr. Chino opted to stand and fight.
First filing a pro se petition against the regulation, he now has
counsel to carry forward what is known as an Article 78 action against
the “BitLicense” regulation.

An Article 78 proceeding in New York allows aggrieved parties to
challenge regulatory actions, including actions taken that are beyond
the jurisdiction of the regulatory body or officer. That is one basis
for Chino’s challenge: that the NYDFS was never given authority by the
legislature to regulate Bitcoin.

Another argument is that the action was arbitrary and capricious or an
abuse of discretion. In theory, administrative regulation assigns
expert, neutral lawmakers to the task of taking arguments from the
public and figuring out the very best rules. This doesn’t seem to be
what happened in the BitLicense rulemaking.

As I described to the New York Supreme Court in an affidavit filed by
Chino’s counsel this week, the NYDFS stated that “extensive research
and analysis” supported the “BitLicense” regulation. But when I asked
for it (wearing my hat as the Bitcoin Foundation’s Global Policy
Counsel), the agency first promised to share it, then delayed sharing
it, and then never shared it.

As a point of comparison, at this time the European Banking Authority
had produced a 46-page analysis of benefits and risks from Bitcoin.
The results were far from perfect, but the methodology allowed for
reasoned debate about the need for regulation and what any regulation
might address. The EBA demonstrated part of what an administrative
rulemaking process should entail. The NYDFS either didn’t do any
analysis to speak of or declined to make its analysis public, denying
itself feedback from Bitcoin experts.

Not only do the defects in the NYDFS’s processes bode well for Theo
Chino’s Article 78 challenge to the “BitLicense,” the results do, too.
The BitLicense made New York a pariah jurisdiction for Bitcoin,
denying consumers access to service providers in this highly
innovative field. The world’s financial capital has made itself a
Bitcoin backwater. Other regulators, looking on with interest, have
not followed New York’s lead.

Thanks to the persistence of Theo Chino and his counsel, the
“BitLicense” is in the dock and heading for trial. The case will have
many twists and turns, but hopefully the idea of special, restrictive
regulation aimed at digital currency will get the electric – er, the
electronic chair.