Federal judge says Bitcoin is money in case connected to JP Morgan hack
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Megan Geuss
A Manhattan-based federal judge ruled on Monday (PDF)
that a man accused of running an illegal Bitcoin exchange website could
not have two charges of running an unlicensed money transfer business
dropped because Bitcoin is money.
The defendant is Anthony Murgio of Florida, who was arrested in July 2015
in connection with a number of other American and Israeli men who
allegedly hacked into JP Morgan Chase, ETrade, and News Corp., among
others. Murgio was not directly charged with conducting any of the
hacks, but the Justice Department did claim
that Murgio ran a sketchy Bitcoin exchange website called Coin.mx with
Gery Shalon, the alleged mastermind of the JP Morgan hacks. According to
a 2015 indictment, Murgio and others were able to accept shady money
from co-conspirators through Coin.mx.
Murgio is also accused of misrepresenting his
business to financial institutions by creating a front for Coin.mx
called the “Collectables Club,” as well as with bribing a small New
Jersey credit union to process its electronic payments. Judge Alison
Nathan’s Monday order did not impact those charges.
In his motion to dismiss the unlicensed money
transfer business charges, Murgio claimed that, because Bitcoins are not
considered “funds,” he was not operating an illegal business.
In her order, Nathan denied Murgio’s argument,
writing, “Bitcoins are funds within the plain meaning of that term.
Bitcoins can be accepted as a payment for goods and services or bought
directly from an exchange with a bank account. They therefore function
as pecuniary resources and are used as a medium of exchange and a means
of payment.”
Whether Bitcoin is considered money or not has
been inconsistently decided in a variety of legal and regulatory
settings. In July, a Florida judge ruled that cryptocurrency is not money in a case involving a Bitcoin vendor caught in a sting set up by a Miami police detective. In 2013, however, a Texas-based federal judge
came to the opposite conclusion in a case involving a Bitcoin-based
hedge fund. The Financial Crimes Enforcement Network (FinCEN) also
advised in 2013 that Bitcoin-based businesses should be considered Money
Services Businesses under US law, but the Internal Revenue Service treats the cryptocurrency as property rather than currency, meaning it’s subject to capital gains tax.
Judge Nathan responded to the IRS argument in
her Monday order. “The fact that the IRS treats virtual currency as
‘property,’ rather than ‘currency,’ for tax purposes is irrelevant to
the inquiry here,” she wrote. “In fact, the IRS Notice that Murgio cites
makes clear that it ‘addresses only the US federal tax consequences of
transactions in, or transactions that use, convertible virtual
currency.’”
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