From the Los Angeles Times:
NEW YORK -- The state of New York's top financial regulator is turning up the heat on Bitcoin and other virtual currencies as government investigators grow increasingly alarmed that the emerging industry could aid criminals and terrorists.*Okay, maybe not that Draconian but as Nicholas Thompson said in 'Legal Affairs':
The state's Department of Financial Services said Monday it has launched an inquiry into virtual currency firms, which it may seek to regulate. The announcement comes as federal regulators have intensified their scrutiny of the industry.
"If virtual currencies remain a virtual Wild West for narco-traffickers and other criminals, that would not only threaten our country’s national security, but also the very existence of the virtual currency industry as a legitimate business enterprise," Benjamin Lawsky, the state's superintendent of financial services, said in a notice posted on the department's website.
The department has authority over firms engaged in "money transmission," Lawsky said. Such firms are subject to regulatory examination and post collateral to safeguard customers' accounts, and the department said it may put in place other rules specific to virtual currencies.
The department noted that virtual-currency companies could face steep criminal penalties if their platforms become the financial hub for drug-running, human-trafficking, terrorism and other illegal activities....MORE
...The purpose of the Martin Act is to arm the New York attorney general to combat financial fraud. It empowers him to subpoena any document he wants from anyone doing business in the state; to keep an investigation totally secret or to make it totally public; and to choose between filing civil or criminal charges whenever he wants. People called in for questioning during Martin Act investigations do not have a right to counsel or a right against self-incrimination. Combined, the act's powers exceed those given any regulator in any other state.
Now for the scary part: To win a case, the AG doesn't have to prove that the defendant intended to defraud anyone, that a transaction took place, or that anyone actually was defrauded. Plus, when the prosecution is over, trial lawyers can gain access to the hoards of documents that the act has churned up and use them as the basis for civil suits. "It's the legal equivalent of a weapon of mass destruction," said a lawyer at a major New York firm who represents defendants in Martin Act cases (and who didn't want his name used because he feared retribution by Spitzer). "The damage that can be done under the statute is unlimited."...
