Update 08/01/2013
It has been more than thirty days since we provided a response to the Commonwealth of Virginia with corrections to errors made by the commission and the legal analysis on why our activity falls outside the scope scope of "transmission" set by Virginia statute. As of today, we have not received an official response confirming or refuting our conclusions. The lack of a response make it impossible to resume operations within the state in a prudent manner. Doing so would put the company's assets and shareholder's equity at risk to potential fines and civil action.
The company has considered forcing the issue by suing the commission. This response is unattractive as it would mean halting business for months if not years and expending a significant amount of capital to reach a resolution. Even if successful it be a hollow victory, if unsuccessful it would mean the same loss of time and capital but with the need for licensure confirmed by the court. Another response at this time would be to obtain a Virginia Money Transmitter license. This is complicated by the fact that the state's position as laid out in the notice is flawed and contains material inaccuracies. Seeking a license without a clarification from the state would be a de facto acceptance of that flawed notice. This would hamper the company's future operation and open it up to legal liabilities with other states. The pending license would be used as acceptance of the need for licensure. Another consequence of seeking a license on flawed ground is that it would create a precedent which would surely be used against other Bitcoin related companies creating a chilling effect on the growth of Bitcoin in general. This means without a clearer notice from the State and correction of the errors we can not in good faith seek a license at this time.
The lack of clarification from regulators in Virginia, has forced management to relocate the company outside the jurisdiction of those regulators. We recognized this as a possible outcome when preparing a response to the notice two months ago. A contingency plan was put in motion to prepare for a reorganization of the enterprise, so that the entities engaged in buying Bitcoins are located outside of the state of Virginia. We have done this by forming two new wholly owned subsidiaries of Tangible Cryptography, LLC. Those subsidiaries are North American Cryptographics, LLC, a South Carolina Limited Liability Company, and North American Cryptographics, Inc, a British Columbia Corporation. Tangible Cryptography as the sole owner of these entities has transferred assets to these subsidiaries in exchange for equity. Going forward it is these subsidiaries which will interact with clients looking to sell Bitcoins. As it it is no longer engaged in regulated activity, Tangible Cryptography has filed to terminate its MSB registration. The operating agreement of Tangible Cryptography, LLC has been updated to limit the scope of operating to exclude activity which could result in the company being classified as a money service business and this change approved by shareholders.
We have also taken the extraordinary step of relocating all servers, workstations, and backups to datacenters in British Columbia, Canada. Employees of NAC, LLC (and NAC, Inc) will work remotely by connecting to their company workstations located in British Columbia. Any computing resources used by employes locally will be solely as dumb terminal for remote connectivity to company assets located remotely. All company software, databases, and other intellectual property for both production and development, will remain exclusively in British Columbia. Likewise all bank accounts, official offices, phone lines, and mailing addresses for the subsidiaries are in South Carolina and British Columbia. This is done as a precaution to prevent Virginia or any other jurisdiction from claiming that the company operates locally and thus creates a nexus under local law. While this sort of structure requires employees to have continual connectivity with their remotely located company workstations, the near ubiquitous availability of 4G wireless and other forms of broadband connectivity make this less of an issue. The use of Virtual Private Networks and workstation virtualization allow this remote access to be accomplished in a secure, private, and cost effective manner.
This advantage of having employees work remotely from home allows the operating subsidiaries to hire employees in most locales without creating an additional nexus and that another regulatory hurdle. This is due to the arrangement between employee and employer as being one of a remote telecommuting employee working for a foreign employer located outside of the jurisdiction. We have been advised by counsel that offering employment to potential employees in most locations will not present an issue. There are some states where this will not be possible due to uncertainty on the treatment of telecommuting workers (another new legal frontier), or the cost of employer compliance but it but in general this should greatly expand our ability to recruit and retain talent. It is our intention to hire additional operational staff and software developers shortly after launching.
This structure has ramifications beyond our enterprise. The continual advancement of technology is allowing the rise of "virtual companies" who can route around the damaged parts of the financial and political systems of the world. This can be accomplished by using decentralized labor and assets, along with choice of jurisdiction to define the presence of the operating entity rather than have the physical location of the entity define the jurisdiction. While this has been possible to a certain extent for some time, technology is allowing this to happen on a level not seen before. We have chosen to still incorporate and thus accept the authority of the state rather than try an operate as virtual entity without incorporation in any jurisdiction. Operating without incorporation is the route taken by some enterprises and it may be viable for ones which can operate without the need of any physical presence. For some types of economic activity, including ours, this is simply not possible. The opening of a bank and other financial accounts requires an identity of some sort and that either requires a natural person or an artificial legal person. Using a natural person breaks the limited liability and organizational advantages of artificial entities like corporations and limited liability companies. It is not possible to create a corporation or limited liability company without the approval of some state as these constructs exist solely as the product of the law of the jurisdiction they are created (incorporated) in. Barring either a recognized legal construct or natural person in most jurisdictions to open financial and other types of accounts. So while the use of incorporation does tether a virtual entity to one or more jurisdictions, the use of technology allows decentralization of presence, assets, and labor at a level not available until recently.
It has been a complex and extensive reorganization made necessary by overzealous regulators, that we neither wanted nor sought. The end result however is companies which will emerge, better positioned to provide unmatched service to our valued clients. I would take the time to again point out that no client or creditor of our company has ever lost funds in dealing with our company, a claim which can not be made by very many Bitcoin related enterprises. Even in times of high volatility we have no canceled transactions due to "high risk" or other stated reasons, we have always honored a contracted price even if it means a short term loss for the company. During this regulatory issue, we have honored all amounts owed to clients and creditors. Moving forward we feel this reorganization will allow us to remain the gold standard for transparency, security, and customer support.
Due to the regulatory environment in certain locales, the new operating entities will require clients to verify the address of their residence before selling Bitcoins. This will ensure we can block clients in locales where regulators have declaration that such activity requires a license, or such activity violates local law. Initially clients who are residents of the states of Virginia, California, and New York, as well as residents of other states or countries which prohibit or license Bitcoin sales, will be blocked from selling Bitcoins. Our decision to block clients in certain jurisdictions was not taken lightly and should not be seen as agreement with the claims of the applicable local regulators. It is merely a prudent step to isolate these "high risk" jurisdictions, so we can continue to serve the most clients possible with the least amount of burdensome governmental interference. The list of blocked locales will be updated as necessary based on communication with regulators and legal counsel. We will have multiple methods available for prospective clients to verify their residence, including methods which provide instantaneous verification. In addition, prior clients of Tangible Cryptography who received physical delivery (mailed check or bullion) will have an option to have the option to have their account information transferred the new operating subsidiary and become pre verified. It is possible that at some point in the future, one or more of these subsidiaries will look to obtain licensing in order to resume operations in blocked locales however residents of blocked locales should consider that even if successful such licensing will take months if not years and we we will be unable to provide service to them for the intermediate future.
At this time we do not have a date for the launch of new services as there are some lingering bureaucratic details to finalize. The companies have the necessary financial resources to operate for an extended period of time even without any cashflow and we are committed to resuming operations in the future. The "silence" from the company is simply due to a lack of official or meaningful news. Simply put we aren't "going away". I want to express to our valued clients that we do read all received email but due to the volume of email we receive we are not been able to respond to all inquiries. I would ask our prior and future prospective clients to trust us. Everyone in the company, employees and investors alike are just as frustrated as you, about the painfully slow progress, which has been mostly out of our hands. Remember we are dealing with issues which move at the speed of government. This doesn't mean our developers have been idle. We have been hard at work behind the scenes building a next generation sales portal which improves upon fastcash4bitcoin is every respect, and it should be worth the wait.
A launch date will be provided when we are comfortable with the timeline for going live. We are from a development standpoint, ready for launch however we are blocked by some bureaucratic issues. It is ironic given the virtual nature of our business the current delays literally involves a missing piece of paper, an EIN letter, which prevents finalizing the setup of bank accounts for our domestic subsidiary. No I couldn't make this stuff up if I tried. All of us at Tangible Cryptography are excited to complete this reorganization, and look forward to getting back to serving the bitcoin community again. While the corporate structure may be changing you can continue to expect the same great service from the same dedicated professionals which made us "the choice" for no-nonsense Bitcoin sales.
Thank You,
Gerald Davis
Director & Chairman
Tangible Cryptography, LLC
