The cryptocurrency exchange Cryptsy has long stated that it complies with all laws and regulations regarding the operations of the exchange. The bottom of each page of the exchange displays an MSB registration number and the terms of service discuss the fact they are an MSB license holder. The company falls under FinCen guidelines for money service businesses in addition to state-level guidelines, regulations, and laws for the states in which it operates.
Cryptsy has long stated publicly via multiple avenues that the company is fully compliant with all applicable laws regarding the exchanging of money. A Coin Fire investigation has found that while Cryptsy is fully registered with FinCen to operate a money service business, they lack the appropriate registrations and ability to operate legally in the majority of US states. The MSB registration number 31000061019575 returns to Project Investor Inc., which is doing business as Cryptsy.
The DelRay Beach Florida company did not respond to repeated Coin Fire requests for applicable state license numbers, nor did they respond to multiple attempts for comment. As part of the investigation, Coin Fire’s research team began looking at Project Investor Inc’s status in several states to determine where they were appropriately licensed to operate as a money service business. We also spoke with Adam Atlas, an attorney who specializes in legal services for money service businesses and virtual currency companies for further information regarding state licenses and registrations in the United States.
Mr. Atlas leads the firm Adam Atlas Attorney at Law. Mr. Atlas holds a Bachelor of Civil Law, Bachelor of Common Law, and a Bachelor of Arts in Political Science with Honors, all from McGill University, which included a year on exchange at the National University of Singapore. Atlas has been a member of the Bar of the State of New York and Bar of the Province of Quebec since 1998. His firm generated some of the published guidance on virtual currency for FinCen. Exchanges such as Cryptsy are required to obtain an MSB registration with FinCen, and then register and be provided licenses for individual states and territories before doing business. While the FinCen registration is relatively simple for a company to secure, many states require a license for this type of business. Not having those licenses while offering services to customers in those states can come with serious consequences. Mr. Atlas told Coin Fire that,
“When you are a potential MSB you have to ask if you are an MSB under federal law and also ask the question under each and every state banking law. There is a handful of states such as Montana that do not have MSB license requirements.” Only registering with FinCen doesn’t suddenly make a company legal to operate in all states and territories with Mr. Atlas telling us, “The short answer is no but the long answer is that in the handful of states that do not regulate MSBs or VCBs you can start operating.”
Simply opening up shop on the Internet without the appropriate licenses in many states may result in far-reaching consequences.
Mr. Atlas said, “If you are determined to have operated a money service business without the necessary license applicable under the state law you are exposed to civil and potential criminal penalties under both the state law and by ricochet under Federal Law because the US code says that it is a federal offense to be breach of the state law”.
States that do not require a license to operate as an MSB or VCB, such as Montana, were not included in the Coin Fire license search. In every case where the state or territory responded to our inquiry, we were told that Project Investors and Crypsty are not authorized for operations in the territory or state under either name. The lack of licenses in each state or territory flies directly in the face of Cryptsy statements that the company is fully compliant with all applicable laws and regulations for operating as an exchange in the United States. [table id=9 /]
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