Cryptocurrency Exchange Hit With Unclaimed Property Class Action
In May of 2010, a Jacksonville software developer named Laszlo Hanyecz made the first purchase of real world goods (2 pizzas) using the cryptocurrency Bitcoin. Since that time, cryptocurrencies – digital currencies that rely upon computerized cryptography to control monetary flow (i.e., the amount of funds available), approve and record transactions – have become more publicly accepted and risen tremendously in value. Today, Bitcoin - one of the most widely known cryptocurrencies - can be used to purchase a wide variety of goods at a number of retailers.
As cryptocurrencies such as Bitcoin become more widely accepted, they will also come under increasing scrutiny from financial regulators, law enforcement agencies, and consumer protection watchdogs. Indeed, it appears that this is already happening. Already, the IRS has issued guidance as to when cryptocurrencies will be treated as property for U.S. tax purposes. On the unclaimed property law front, the 2016 Uniform Unclaimed Property Act includes within the definition of "property" subject to the act "virtual currency," defined as: "a digital representation of value used as a medium of exchange, unit of account, or store of value, which does not have legal tender status recognized by the United States."
More recently, "digital currency exchange" Coinbase has been sued in a potential class action for, among other things, purportedly failing to comply with California's unclaimed property laws. A digital currency exchange is generally a business where cryptocurrencies can be traded or exchanged for "fiat currency" (i.e., government-issued money). The class action complaint was filed in a California federal court on behalf of "[a]ll persons and entities who were sent Cryptocurrencies . . . through Coinbase.com to their email address, and who never claimed such Cryptocurrency." The complaint alleges that, in certain instances, members of the plaintiff class who were sent cryptocurrencies by others through Coinbase were only sent a single email notifying them of the transaction. The complaint alleges that Coinbase's alleged failure to send follow up emails or escheat the property to the State amounts to a violation of the California Unclaimed Property Act and/or is an unlawful business practice.
Assuming the case proceeds to the merits, it will be interesting to see how the court's attempt to impose the unclaimed property regulatory framework on this type of "asset." Coinbase's response to the complaint is currently due on May 18, and indications are that it will move to dismiss the complaint.