Bitcoin – Commodity Or Currency; California Bankruptcy Judge To Decide
Bitcoin’s status as either a currency or a commodity is at the center of a California lawsuit between a bitcoin mining computer company and a person the company paid to promote it, according to The Recorder , a California legal and technology newspaper.
Marc Lowe, a California doctor, received payment in bitcoin to promote HashFast Technologies’ bitcoin mining computer.
HashFast Technologies filed for bankruptcy in 2014 and its bankruptcy trustees claim the doctor was overpaid and want him to return the payment of 3,000 bitcoin, now worth $1.2 million. They argued bitcoin is a commodity that fluctuates in price. The doctor, in response, argued it’s a currency.
A hearing for summary judgment is scheduled for Feb. 19 in U.S. Bankruptcy Judge Dennis Montali of the Northern District of California.
No Established Bankruptcy Law for Bitcoin
Duane Morris partner Aron Oliner, the lawyer representing the trustee in the bankruptcy case, said there is no decided law in the bankruptcy courts on the issue of bitcoin’s status as a currency. He said bitcoin has increased in value by many multiples in a short time period, which indicates bitcoin is “more in the nature of a commodity than a currency.”
In a motion for partial summary judgment, the bankruptcy trustee asked that Lowe return the bitcoin—or its current equivalency in U.S. dollars. Oliner cited decisions by the U.S. Commodity Futures Trading Commission (CFTC) and the Internal Revenue Service that virtual currencies are not legal tender even though they can be used to pay for goods and services.
Lowe’s attorney, Brian Klein of Baker Marquart, said even if the court decides the doctor has to give the bitcoin back, bitcoin should be considered a currency.
Doctor Followed The Agreement
Lowe said his promotional efforts were “extensive” and led to the quick orders for the mining system. He said he was paid under the terms of the memorandum of understanding. His attorneys, in support of his contention that bitcoin is a currency, cited guidance from a Consumer Financial Protection Bureau finding that bitcoin is “a kind of electronic money, “the U.S. Treasury Department’s Financial Crimes Enforcement Network; and a Securities and Exchange Commission argument in court.
Requiring Lowe to return all the bitcoin or its current U.S. dollar equivalent would improperly give the state an undeserved windfall, the doctor’s lawyer argued.
Lowe’s attorney further said the trustee would not be arguing bitcoin is a commodity if had depreciated after the payment to the doctor.
“If bitcoin were to tank massively tomorrow, the trustee’s position would change overnight,” Lowe’s lawyer stated.
Partnership Began In 2013
HashFast in 2013 was developing and promoting a mining system called BabyJet. Lowe visited the company’s facility and agreed to buy several BabyJets. In August 2013, he signed a memorandum of understanding with the company, agreeing to promote its products in online forums and bitcoin message boards. HashFast was to pay Lowe 10 percent of the gross sale proceeds for the first 550 BabyJets sold. HashFast at the time advertised BabyJets for sale for 56 bitcoins, or about $5,600, according to the trustee’s filings. Lowe also joined the company’s board of advisers.
Lowe said his efforts on behalf of the company were “extensive” and resulted in orders for BabyJets.
Doctor Became A Sponsor
Posting under the moniker Cypherdoc, Lowe wrote on the Bitcointalk forum on Aug. 8, 2013, that he was a paid HashFast sponsor. He praised the BabyJet and called its CEO “a visionary.”
Buyers placed 550 BabyJets orders by September 2013. HashFast paid Lowe 3,000 bitcoin in four installments that month. The payment translated into $363,861 or $11,370 per day, according to the bankruptcy trustee.
The company did not have enough capital to fill all of the orders on time, however. Buyers, including Lowe, began asking for refunds in 2014. Lowe received his money, plus a 5 percent bonus, while other customers received nothing, according to the trustee. In May 2014, creditors filed an involuntary petition against HashFast under the bankruptcy code. A month later, the company filed a voluntary court petition for relief.
Creditors eventually submitted claims totaling $40 million. The bankruptcy trustee attorney said Lowe had an “insider” relationship with the company and the payments were fraudulent.
The attorneys said Lowe was overpaid for posting 160 comments on bitcoin message boards for one month, a cost the cash-strapped company could not afford to pay.
Featured image from Shutterstock.
