Amended in Assembly April 20, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 1326

Introduced by Assembly Member Dababneh

February 27, 2015

An act to add Division 11 (commencing with Section 26000) to the Financial Code, relating to virtual currency.

LEGISLATIVE COUNSEL’S DIGEST

AB 1326, as amended, Dababneh. Virtual currency.

Existing law, the Money Transmission Act, prohibits a person from engaging in the business of money transmission in this state, or advertising, soliciting, or holding itself out as providing money transmission in this state, unless the person is licensed by the Commission of Business Oversight or exempt from licensure under the act. Existing law requires applicants for licensure to pay the commissioner a specified nonrefundable fee and to complete an application form requiring certain information. As security, existing law requires each licensee to deposit and maintain on deposit with the Treasurer cash in an amount not less than, or securities having a market value not less than, such amount as the commissioner may find and order from time to time as necessary to secure the faithful performance of the obligations of the licensee with respect to money transmission in this state. Existing law requires a licensee at all times to own eligible securities, as defined, in a specified aggregate amount not less than the amount of all of its outstanding money received for transmission, as specified.

This bill would prohibit a person from engaging in this state in begin delete the business of end delete begin insert any end insert virtual begin delete currency, end delete begin insert currency business, end insert as defined, begin delete in this state end delete unless the person is licensed by the Commissioner of Business Oversight or is exempt from the licensure requirement, as provided. The bill would require applicants for begin delete licensure end delete begin insert licensure, including an applicant for licensure and approval to acquire control of a licensee, end insert to pay the commissioner a specified nonrefundable begin insert application end insert fee and complete an application form required to include, among other things, information about the applicant, prior virtual currency services provided by the applicant, a sample form of receipt for transactions involving the business of virtual currency, and specified financial statements. The bill would begin delete require end delete begin insert make these licenses subject to annual renewal and would require a renewal fee paid to the commissioner in a specified amount. The bill would require licensees to annually pay the commissioner a specified amount for each licensee branch office. The bill would require applicants and licensees to pay the commissioner a specified hourly amount for the commissioner’s examination costs, as provided. The bill would also require the commissioner to levy an assessment each fiscal year, on a pro rata basis, on licensees in an amount sufficient to meet the commissioner’s expenses in administering these provisions and to provide a reasonable reserve for contingencies. end insert

begin insert This bill would require end insert each licensee to maintain at all times such capital as the commissioner determines, subject to specified factors, is sufficient to ensure the safety and soundness of the licensee, its ongoing operations, and maintain consumer protection. begin delete To satisfy this capital requirement, the bill would require each licensee to invest an aggregate amount equal to the value of the virtual currency that the licensee has on deposit for its customers in only specified investments. end delete begin insert The bill would require each licensee to maintain a bond or trust account in United States dollars for the benefit of its customers in the form and amount as specified by the commissioner. end insert

begin insert

This bill would authorize the commissioner to examine the business and any branch office of any licensee to ascertain whether the business is being conducted in a lawful manner and all virtual currency is properly accounted for. The bill would require a licensee to file a report with the commissioner within a specified period of time after the licensee knows about the occurrence of certain events relating to the virtual currency business and those persons connected to that business, and to also maintain records as required by the commissioner for a specified period of time.

end insert begin insert

With regard to enforcement, among other things, this bill would, if it appears that a licensee is violating or failing to comply with these provisions or conducting business in an unsafe or injurious manner, authorize the commissioner to order the licensee to comply or discontinue those practices. The bill would also authorize the commissioner to issue an order suspending or revoking a license, or placing a licensee in receivership, if after notice and an opportunity for a hearing, the commissioner makes a specified finding. The bill would provide that every order, decision, or other official act of the commissioner is subject to review.

end insert begin insert

This bill would authorize the commissioner to impose a civil penalty for a violation of these provisions. The bill would also make it a felony for a person to intentionally make a false statement, misrepresentation, or false certification in a record filed or required to be maintained or to intentionally make a false entry or omit a material entry in such a record. The bill would also make it a felony for a person to knowingly engage in an activity for which a license is required without being licensed or exempt from licensure, as provided. By creating these new crimes, the bill would impose a state-mandated local program.

end insert begin insert

This bill would prohibit a licensee from appointing or continuing any person as an agent unless the licensee and the person have made a specified written contract, including a requirement that the agent operate in full compliance with these provisions. The bill would prohibit a licensee from appointing any person as an agent unless it has conducted a review of the proposed agent’s fitness to act as an agent, as provided. Subject to specified notice, if any agent of a licensee conducts any virtual currency business on behalf of the licensee, where the commissioner has suspended or revoked the license of the licensee or the commissioner has issued a specified order, the bill would make the agent jointly and severally liable.

end insert begin insert

Within a specified period after the fiscal year, the bill would require a licensee to file with the commissioner a specified audit report. Within a specified period after the end of each calendar quarter, the bill would require a licensee to file with the commissioner a report containing financial statements verified by 2 of the licensee’s principal officers.

end insert begin insert

This bill would require a licensee to provide a specified consumer protection disclosure about virtual currency to its consumers.

end insert begin insert

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

end insert begin insert

This bill would provide that no reimbursement is required by this act for a specified reason.

end insert

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program:  begin delete no end delete begin insert yes end insert .

The people of the State of California do enact as follows:

SECTION 1.  

Division 11 (commencing with Section 26000)
is added to the Financial Code, to read:

 

Division 11.  Virtual Currency

 

begin insert

Chapter   begin insert 1. end insert begin insert General Provisions end insert

end insert

 

26000.  

For purposes of this division, the following definitions
shall apply:

begin insert

(a) “Commissioner” means the Commissioner of Business
Oversight.

end insert begin delete

(a)

end delete

begin insert (b) end insert  “Virtual currency” means any type of digital unit that is used
as a medium of exchange or a form of digitally stored value or that
is incorporated into payment system technology. Virtual currency
shall be broadly construed to include digital units of exchange that
(1) have a centralized repository or administrator, (2) are
decentralized and have no centralized repository or administrator,
or (3) may be created or obtained by computing or manufacturing
effort. Virtual currency shall not be construed to include digital
units that are used solely within online gaming platforms with no
market or application outside of those gaming platforms, nor shall
virtual currency be construed to include digital units that are used
exclusively as part of a customer affinity or rewards program, and
can be begin delete applied solely as payment end delete begin insert redeemed for goods, services,
or end insert for purchases with the issuer or other designated merchants, but
cannot be converted into, or redeemed for, fiat currency.

begin delete

(b) “Commissioner” means the Commissioner of Business
Oversight.

end delete begin insert

(c) “Virtual currency business” means the conduct of either of
the following types of activities involving a California resident:

end insert begin insert

(1) Storing, holding, or maintaining custody or control of virtual
currency on behalf of others.

end insert begin insert

(2) Providing conversion or exchange services of fiat currency
into virtual currency or the conversion or exchange of virtual
currency into fiat currency or other value, or the conversion or
exchange of one form of virtual currency into another form of
virtual currency.

end insert

begin insert

begin insert 26001. end insert   

For the purposes of carrying out the provisions of this
division, the commissioner may adopt regulations pursuant to the
Administrative Procedure Act (Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code).

end insert

 

begin insert

Chapter   begin insert 2. end insert begin insert Licenses end insert

end insert

 

26002.  

begin delete (a) end delete begin delete   end delete A person shall not engage in this state in begin delete the
business of end delete begin insert any end insert virtual currency begin insert business end insert unless the person is
licensed or exempt from licensure under this division.

begin delete

(b) No licensee may conduct any virtual currency business
activity through an agent or agency arrangement if the agent is not
a licensee.

end delete

26004.  

The following are exempt from the licensing
requirement described in Section 26002:

begin delete

(1)

end delete

begin insert (a) end insert  The United States or a department, agency, or instrumentality
thereof, including any federal reserve bank and any federal home
loan bank.

begin delete

(2)

end delete

begin insert (b) end insert  Money transmission by the United States Postal Service or
by a contractor on behalf of the United States Postal Service.

begin delete

(3)

end delete

begin insert (c) end insert  A state, city, county, city and county, or any other
governmental agency or governmental subdivision of a state.

begin delete

(4)

end delete

begin insert (d) end insert  A commercial bank or industrial bank, the deposits of which
are insured by the Federal Deposit Insurance Corporation or its
successor, or any foreign (other nation) bank that is licensed under
Chapter 20 (commencing with Section 1750) of Division 1.1 or
that is authorized under federal law to maintain a federal agency
or federal branch office in this state; a trust company licensed
pursuant to Section 1042 or a national association authorized under
federal law to engage in a trust banking business; an association
or federal association, as defined in Section 5102, the deposits of
which are insured by the Federal Deposit Insurance Corporation
or its successor; and any federally or state chartered credit union,
with an office in this state, the member accounts of which are
insured or guaranteed as provided in Section 14858.

begin delete

(5)

end delete

begin insert (e) end insert  An entity licensed as a money transmitter under the Money
Transmission Act described in Division 1.2 (commencing with
Section 2000).

begin delete

(6)

end delete

begin insert (f) end insert  A merchant or consumer that utilizes virtual currency solely
for the purchase or sale of goods or services.

begin insert

(g) (1) A transaction in which the recipient of virtual currency
is an agent of the payee pursuant to a preexisting written contract
and delivery of the virtual currency to the agent satisfies the
payor’s obligation to the payee.

end insert begin insert

(2) For purposes of this subdivision, the following shall apply:

end insert begin insert

(A) “Agent” has the same meaning as that term is defined in
Section 2295 of the Civil Code.

end insert begin insert

(B) “Payee” means the provider of goods or services, who is
owed payment of money or other monetary value from the payor
for the goods or services.

end insert begin insert

(C) “Payor” means the recipient of goods or services, who owes
payment of money or monetary value to the payee for the goods
or services.

end insert

26006.  

(a) An applicant for licensure under this division shall
pay to the commissioner a nonrefundable begin insert application end insert fee of five
thousand dollars ($5,000).

(b) An applicant for a license shall do so in a form and in a
medium prescribed by the commissioner by order or regulation.
The application shall state or contain all of the following:

(1) The legal name and residential business address of the
applicant and any fictitious or trade name used by the applicant in
conducting its business.

(2) A list of any criminal convictions of the applicant and any
material litigation in which the applicant has been involved in the
10-year period next preceding the submission of the application.

(3) A description of any virtual currency services previously
provided by the applicant and the virtual currency services that
the applicant seeks to provide in this state.

(4) A list of the applicant’s proposed agents and the locations
in this state where the applicant and its agents propose to engage
in the business of virtual currency.

(5) A list of other states in which the applicant is licensed to
engage in the business of virtual currency and any license
revocations, suspensions, or other disciplinary action taken against
the applicant in another state.

(6) Information concerning any bankruptcy or receivership
proceedings affecting the licensee.

begin delete

(7) A sample form of payment instrument or instrument upon
which stored value is recorded, if applicable.

(8)

end delete

begin insert (7) end insert  A sample form of receipt for transactions that involve money
received for the business of virtual currency.

begin delete

(9)

end delete

begin insert (8) end insert  The name and address of any bank through which the
applicant’s begin delete payment instruments and stored value will be paid. end delete
begin insert business will be conducted. end insert

begin delete

(10)

end delete

begin insert (9) end insert  A description of the source of money and credit to be used
by the applicant to provide virtual currency services.

begin delete

(11)

end delete

begin insert (10) end insert  The date of the applicant’s incorporation or formation and
the state or country of incorporation or formation.

begin delete

(12)

end delete

begin insert (11) end insert  A certificate of good standing from the state or country in
which the applicant is incorporated or formed.

begin delete

(13)

end delete

begin insert (12) end insert  A description of the structure or organization of the
applicant, including any parent or subsidiary of the applicant, and
whether any parent or subsidiary is publicly traded.

begin delete

(14)

end delete

begin insert (13) end insert  The legal name, any fictitious or trade name, all business
and residential addresses, and the employment, in the 10-year
period next preceding the submission of the application, of each
executive officer, manager, director, or person that has control, of
the applicant, and the educational background for each person.

begin delete

(15)

end delete

begin insert (14) end insert  A list of any criminal convictions and material litigation
in which any executive officer, manager, director, or person in
control, of the applicant has been involved in the 10-year period
next preceding the submission of the application.

begin delete

(16)

end delete

begin insert (15) end insert  A copy of the applicant’s audited financial statements for
the most recent fiscal year and, if available, for the two-year period
next preceding the submission of the application.

begin delete

(17)

end delete

begin insert (16) end insert  A copy of the applicant’s unconsolidated financial
statements for the current fiscal year, whether audited or not, and,
if available, for the two-year period next preceding the submission
of the application.

begin delete

(18)

end delete

begin insert (17) end insert  If the applicant is publicly traded, a copy of the most recent
report filed with the United States Securities and Exchange
Commission under Section 13 of the federal Securities Exchange
Act of 1934 (15 U.S.C. Sec. 78m).

begin delete

(19)

end delete

begin insert (18) end insert  If the applicant is a wholly owned subsidiary of:

(A) A corporation publicly traded in the United States, a copy
of audited financial statements for the parent corporation for the
most recent fiscal year or a copy of the parent corporation’s most
recent report filed under Section 13 of the federal Securities
Exchange Act of 1934 (15 U.S.C. Sec. 78m) and, if available, for
the two-year period next preceding the submission of the
application.

(B) A corporation publicly traded outside the United States, a
copy of similar documentation filed with the regulator of the parent
corporation’s domicile outside the United States.

begin delete

(20) The name and address of the applicant’s registered agent
in this state.

end delete begin delete

(21)

end delete

begin insert (19) end insert  The applicant’s plan for engaging in the business of virtual
currency, including without limitation three years of pro forma
financial statements.

begin delete

(22)

end delete

begin insert (20) end insert  Any other information the commissioner requires with
respect to the applicant.

(c) The commissioner may waive any of the information
required under subdivision (b) or permit an applicant to submit
other information instead of the required information.

begin insert

(d) The nonrefundable application fee for filing an application
for licensure and approval to acquire control of a licensee is three
thousand five hundred dollars ($3,500). An applicant for licensure
and approval shall comply with subdivision (b).

end insert begin insert

(e) A licensee, including a licensee described in subdivision (b),
shall pay annually on or before July 1, a license renewal fee of
two thousand five hundred dollars ($2,500).

end insert begin insert

(f) A licensee shall pay annually on or before July 1, one
hundred twenty-five dollars ($125) for each licensee branch office
in this state.

end insert begin insert

(g) Whenever the commissioner examines a licensee, the licensee
shall pay, within 10 days after receipt of a statement from the
commissioner, a fee of seventy-five dollars ($75) per hour for each
examiner engaged in the examination plus, if it is necessary for
any examiner engaged in the examination to travel outside this
state, the travel expenses of the examiner.

end insert begin insert

(h) Whenever the commissioner examines an applicant, the
applicant shall pay, within 10 days after receipt of a statement
from the commissioner, a fee of seventy-five dollars ($75) per hour
for each examiner engaged in the examination plus, if it is
necessary for any examiner engaged in the examination to travel
outside this state, the travel expenses of the examiner.

end insert begin insert

(i) Each fee for filing an application shall be paid at the time
the application is filed with the commissioner. No fee for filing an
application shall be refundable, regardless of whether the
application is approved, denied, or withdrawn.

end insert

26008.  

(a) Each licensee shall maintain at all times such capital
as the commissioner determines is sufficient to ensure the safety
and soundness of the licensee and maintain consumer protection
and its ongoing operations. In determining the minimum amount
of capital that must be maintained by a licensee, the commissioner
shall consider a variety of factors, including, but not limited to:

(1) The composition of the licensee’s total assets, including the
position, size, liquidity, risk exposure, and price volatility of each
type of asset.

(2) The composition of the licensee’s total liabilities, including
the size and repayment timing of each type of liability.

(3) The actual and expected volume of the licensee’s virtual
currency business activity.

(4) Whether the licensee is already licensed or regulated by a
state or federal entity, and whether the licensee is in good standing
in such capacity.

(5) The amount of leverage employed by the licensee.

(6) The liquidity position of the licensee.

(7) The financial protection that the licensee provides for its
customers through its trust account or bond.

begin delete

(b) In order to satisfy subdivision (a), each licensee shall invest
an aggregate amount equal to the value of the virtual currency that
the licensee has on deposit for its customers in only the following
high-quality, investment-grade permissible investments:

(1) Certificates of deposit issued by financial institutions that
are regulated by a United States federal or state regulatory agency.

(2) Money market funds.

(3) State or municipal bonds.

(4) United States government securities.

(5) United States government agency securities.

end delete begin insert

(b) Each licensee shall maintain a bond or trust account in
United States dollars for the benefit of its customers in the form
and amount specified by the commissioner.

end insert

 

begin insert

Chapter   begin insert 2.5. end insert begin insert Agents end insert

end insert

 

begin insert

begin insert 26008.2. end insert   

(a) A licensee shall not appoint or continue any
person as agent, unless the licensee and the person have made a
written contract. A written contract between a licensee and an
agent shall require the agent to operate in full compliance with
this division.

(b) The written contract shall contain each of the following
provisions:

(1) That the licensee appoints the person as its agent with
authority to conduct any virtual currency business on behalf of
the licensee.

(2) That the agent shall make and keep accounts,
correspondence, memoranda, papers, books, and other records
as the commissioner by regulation or order requires, and shall
preserve the records for the time specified by the commissioner
pursuant to a regulation or order.

(3) That all virtual currency, less fees due agents provided for
and expressly set forth in the written agreement, received by the
agent on behalf of the licensee shall be trust funds owned by and
belonging to the licensee.

(4) That the agent is subject to joint and several liability
pursuant to Section 26008.8.

(5) Any other provisions that the commissioner may by
regulation or order find to be necessary to carry out the provisions
and purposes of this division.

(c) An agent shall not provide any virtual currency business
outside the scope of activity permissible under the written contract
between the agent and the licensee.

(d) An agent shall not use a subagent to conduct any virtual
currency business on behalf of a licensee.

(e) Each licensee shall exercise reasonable supervision over its
agents to ensure compliance with applicable laws, rules, and
regulations with regard to the virtual currency business.

(f) Licensees conducting any virtual currency business subject
to this division shall maintain full charge, control, and supervision
of any authorized agent and shall be responsible for ensuring any
activity undertaken by an authorized agent on behalf of the licensee
is in compliance with this division.

end insert begin insert

begin insert 26008.4. end insert   

(a) A licensee shall not appoint any person as an
agent unless it has conducted a review of the proposed agent’s
fitness to act as an agent and has determined that the proposed
agent and any persons who control the proposed agent are of good
character and sound financial standing.

(b) A licensee shall maintain records of this review for each
agent while the agent is providing any virtual currency business
on behalf of the licensee, and for three years after the relationship
with the agent has terminated.

end insert begin insert

begin insert 26008.6. end insert   

A person, including an agent, shall not provide any
virtual currency business on behalf of a person not licensed or not
exempt from licensure under this division. A person that engages
in that activity provides virtual currency business to the same
extent as if the person was a licensee and shall be jointly and
severally liable with the unlicensed or nonexempt person.

end insert begin insert

begin insert 26008.8. end insert   

(a) No agent of a licensee who has actual notice that
the commissioner has suspended or revoked the license of the
licensee or that the commissioner has issued an order taking
possession of the property and business of the licensee shall
conduct any virtual currency business on behalf of the licensee.

(b) If any agent of a licensee, after first having actual notice
that the commissioner has suspended or revoked the license of the
licensee or that the commissioner has issued an order taking
possession of the property and business of the licensee, conducts
any virtual currency business on behalf of the licensee, the agent
shall be jointly and severally liable with the licensee.

end insert

 

begin insert

Chapter   begin insert 3. end insert begin insert Examinations and Records end insert

end insert

 

begin insert

begin insert 26009. end insert   

(a) The commissioner may at any time and from time
to time examine the business and any branch office, within or
outside this state, of any licensee in order to ascertain whether
that business is being conducted in a lawful manner and whether
all virtual currency held or exchanged is properly accounted for.

(b) The directors, officers, and employees of any licensee being
examined by the commissioner shall exhibit to the commissioner,
on request, any or all of the licensee’s accounts, books,
correspondence, memoranda, papers, and other records and shall
otherwise facilitate the examination so far as it may be in their
power to do so.

end insert begin insert

begin insert 26010. end insert   

The commissioner may consult and cooperate with
other state or federal regulators in enforcing and administering
this division. They may jointly pursue examinations and take other
official action that they are otherwise empowered to take.

end insert begin insert

begin insert 26011. end insert   

A licensee shall file a report with the commissioner
within five business days after the licensee has reason to know of
the occurrence any of the following events:

(a) The filing of a petition by or against the licensee under the
United States Bankruptcy Code (11 U.S.C. Secs. 101-110, incl.)
for bankruptcy or reorganization.

(b) The filing of a petition by or against the licensee for
receivership, the commencement of any other judicial or
administrative proceeding for its dissolution or reorganization,
or the making of a general assignment for the benefit of its
creditors.

(c) The commencement of a proceeding to revoke or suspend
its virtual currency business license in a state or country in which
the licensee engages in such business or is licensed to engage in
such business.

(d) The cancellation or other impairment of the licensee’s bond
or trust account as required by subdivision (b) of Section 26008.

(e) A charge or conviction of the licensee or of an executive
officer, manager, director, or person in control of the licensee for
a felony.

end insert begin insert

begin insert 26012. end insert   

A licensee shall maintain any records as required by
the commissioner for determining its compliance with this division
for at least three years.

end insert

 

begin insert

Chapter   begin insert 4. end insert begin insert Enforcement end insert

end insert

 

begin insert

begin insert 26013. end insert   

Any licensee may surrender its license by filing with
the commissioner the license and a report with any information
as the commissioner requires. The voluntary surrender of the
license shall become effective at the time and upon the conditions
as the commissioner specifies by order.

end insert begin insert

begin insert 26014. end insert   

(a) The commissioner may prepare written decisions,
opinion letters, and other formal written guidance to be issued to
persons seeking clarification regarding the requirements of this
division.

(b) The commissioner shall make public on the commissioner’s
Internet Web site all written decisions, opinion letters, and other
formal written guidance issued to persons seeking clarification
regarding the requirements of this division. The commissioner
may, at his or her discretion or upon request by an applicant or
licensee, redact proprietary or other confidential information
regarding an applicant or licensee from any decision, letter, or
other written guidance issued in connection with an applicant or
licensee.

end insert begin insert

begin insert 26015. end insert   

The commissioner may offer informal guidance to any
prospective applicant for a license under this division, regarding
the conditions of licensure that may be applied to that person. The
commissioner shall inform any applicant that requests that
guidance of the licensing requirements that will be required of
that applicant, based on the information provided by the applicant
concerning its plan to conduct business under this division, and
the factors used to make that determination.

end insert begin insert

begin insert 26016. end insert   

At any time, if the commissioner deems it necessary for
the general welfare of the public, he or she may exercise any power
set forth in this division with respect to a virtual currency business,
regardless of whether an application for a license has been filed
with the commissioner, a license has been issued, or, if issued, the
license has been surrendered, suspended, or revoked.

(a) If it appears to the commissioner that a licensee is violating
or failing to comply with this division, the commissioner may direct
the licensee to comply with the law by an order issued under the
commissioner’s official seal, or if it appears to the commissioner
that any licensee is conducting its business in an unsafe or
injurious manner, the commissioner may in like manner direct it
to discontinue the unsafe or injurious practices. The order shall
require the licensee to show cause before the commissioner, at a
time and place to be fixed by the commissioner, as to why the order
should not be observed.

(b) If, upon any hearing held pursuant to subdivision (a), the
commissioner finds that the licensee is violating or failing to
comply with any law of this state or is conducting its business in
an unsafe or injurious manner, the commissioner may make a final
order directing it to comply with the law or to discontinue the
unsafe or injurious practices. A licensee shall comply with the
final order unless, within 10 days after the issuance of the order,
its enforcement is restrained in a proceeding brought by the
licensee.

end insert begin insert

begin insert 26017. end insert   

(a) The commissioner may issue an order suspending
or revoking a license, or taking possession of and placing a
licensee in receivership, if after notice and an opportunity for
hearing, the commissioner finds any of the following:

(1) The licensee is violating this division or a regulation adopted
or an order issued under this division, or a condition of approval
issued under this division.

(2) The licensee does not cooperate with an examination or
investigation by the commissioner.

(3) The licensee engages in fraud, intentional misrepresentation,
or gross negligence.

(4) The competence, experience, character, or general fitness
of the licensee, or any director, officer, employee, or person in
control of a licensee, indicates that it is not in the public interest
to permit the person to provide virtual currency services.

(5) The licensee engages in an unsafe or unsound practice.

(6) The licensee is insolvent, suspends payment of its obligations,
or makes a general assignment for the benefit of its creditors.

(7) The licensee has applied for an adjudication of bankruptcy,
reorganization, arrangement, or other relief under any bankruptcy,
reorganization, insolvency, or moratorium law, or any person has
applied for any such relief under that law against the licensee and
the licensee has by any affirmative act approved of or consented
to the action or the relief has been granted.

(8) Any fact or condition exists that, if it had existed at the time
when the licensee applied for its license, would have been grounds
for denying the application.

(b) In determining whether a licensee is engaging in an unsafe
or unsound practice, the commissioner may consider the size and
condition of the licensee’s provision of virtual currency services,
the magnitude of the loss, the gravity of the violation of this
division, and the previous conduct of the person involved.

end insert begin insert

begin insert 26018. end insert   

(a) Every order, decision, or other official act of the
commissioner is subject to review in accordance with law.

(b) Whenever the commissioner has taken possession of the
property and business of any licensee, the licensee, within 10 days
after that taking, if it deems itself aggrieved thereby, may apply
to the superior court in the county in which the head office of the
licensee is located to enjoin further proceedings. The court, after
citing the commissioner to show cause why further proceedings
should not be enjoined and after a hearing and a determination
of the facts upon the merits, may dismiss the application or enjoin
the commissioner from further proceedings and direct the
commissioner to surrender the property and business to the
licensee.

end insert begin insert

begin insert 26019. end insert   

(a) If the commissioner finds that any of the factors
set forth in Section 26017 is true with respect to any licensee and
that it is necessary for the protection of the public interest, the
commissioner may issue an order immediately suspending or
revoking the licensee’s license.

(b) Within 30 days after the license is suspended or revoked
pursuant to subdivision (a), the licensee may file with the
commissioner an application for a hearing on the suspension or
revocation.

(c) If the commissioner fails to commence a hearing within 15
business days after the application is filed with the commissioner
pursuant to subdivision (b) or within a longer period of time agreed
to by the licensee, the suspension or revocation shall be deemed
rescinded.

(d) Within 30 days after the hearing, the commissioner shall
affirm, modify, or rescind the suspension or revocation. Otherwise,
the suspension or revocation shall be deemed rescinded.

(e) The right of the licensee to petition for judicial review of the
suspension or revocation shall not be affected by the failure of the
licensee to apply to the commissioner for a hearing on the
suspension or revocation pursuant to subdivision (b).

end insert begin insert

begin insert 26020. end insert   

The commissioner may assess a civil penalty against
a person that violates this division or a regulation adopted or an
order issued under this division in an amount not to exceed one
thousand dollars ($1,000) for each violation or, in the case of a
continuing violation, one thousand dollars ($1,000) for each day
or part thereof during which the violation continues, plus this
state’s costs and expenses for the investigation and prosecution
of the matter, including reasonable attorney’s fees.

end insert begin insert

begin insert 26021. end insert   

(a) A person that intentionally makes a false statement,
misrepresentation, or false certification in a record filed or
required to be maintained under this division or that intentionally
makes a false entry or omits a material entry in such a record is
guilty of a felony.

(b) A person that knowingly engages in an activity for which a
license is required under this division without being licensed or
exempt from licensure under this division is guilty of a felony.

(c) Nothing in this division limits the power of the state to punish
any person for any act that constitutes a crime under any statute.

end insert begin insert

begin insert 26022. end insert   

The enforcement provisions of this division are in
addition to any other enforcement powers that the commissioner
may have under law.

end insert begin insert

begin insert 26023. end insert   

(a) The commissioner may by order or regulation grant
exemptions from this section in cases where the commissioner
finds that the requirements of this section are not necessary or
may be duplicative.

(b) A licensee shall, within 90 days after the end of each fiscal
year, or within any extended time as the commissioner may
prescribe, file with the commissioner an audit report for the fiscal
year that shall comply with all of the following provisions:

(1) The audit report shall contain audited financial statements
of the licensee for or as of the end of the fiscal year prepared in
accordance with United States generally accepted accounting
principles and any other information as the commissioner may
require.

(2) The audit report shall be based upon an audit of the licensee
conducted in accordance with United States generally accepted
auditing standards and any other requirements as the commissioner
may prescribe.

(3) The audit report shall be prepared by an independent
certified public accountant or independent public accountant who
is not unsatisfactory to the commissioner.

(4) The audit report shall include or be accompanied by a
certificate of opinion of the independent certified public accountant
or independent public accountant that is satisfactory in form and
content to the commissioner. If the certificate or opinion is
qualified, the commissioner may order the licensee to take any
action as the commissioner may find necessary to enable the
independent or certified public accountant or independent public
accountant to remove the qualification.

(c) Each licensee shall, not more than 45 days after the end of
each calendar year quarter, or within a longer period as the
commissioner may by regulation or order specify, file with the
commissioner a report containing all of the following:

(1) Financial statements, including balance sheet, income
statement, statement of changes in shareholders’ equity, and
statement of cashflows, for, or as of the end of, that calendar year
quarter, verified by two of the licensee’s principal officers. The
verification shall state that each of the officers making the
verification has a personal knowledge of the matters in the report
and that each of them believes that each statement in the report is
true.

(2) Other information as the commissioner may by regulation
or order require.

end insert begin insert

begin insert 26024. end insert   

In addition to the fees provided in Section 26006, the
commissioner shall levy an assessment each fiscal year, on a pro
rata basis, on those licensees that at any time during the preceding
calendar year engaged in this state in the virtual currency business
in an amount that is, in his or her judgment, sufficient to meet the
commissioner’s expenses in administering the provisions of this
division and to provide a reasonable reserve for contingencies.

end insert

 

begin insert

Chapter   begin insert 5. end insert begin insert Miscellaneous Provisions end insert

end insert

 

begin insert

begin insert 26025. end insert   

A licensee shall disclose to consumers the following
disclosure in a form and manner prescribed by the commissioner:

“Once submitted to the network, a virtual currency transaction
will be unconfirmed for a period of time (usually less than one
hour, but up to one day or more) pending sufficient confirmation
of the transaction by the network. A transaction is not complete
while it is in a pending state. Virtual currency associated with
transactions that are in a pending state will be designated
accordingly, and will not be included in your account balance or
be available to conduct transactions.

The risk of loss in trading or holding virtual currency can be
substantial. You should therefore carefully consider whether
trading or holding virtual currency is suitable for you in light of
your financial condition. In considering whether to trade or hold
virtual currency, you should be aware that the price or value of
virtual currency can change rapidly, decrease, and potentially
even fall to zero.

(Insert company name) is licensed by the Department of Business
Oversight to do business in California. If you have complaints
with respect to any aspect of the virtual currency business
conducted by (company name), you may contact the California
Department of Business Oversight at its toll-free telephone number,
1-800-622-0620, by email at [e-mail], or
by mail at the Department of Business Oversight, Consumer
Services, 1515 K Street, Suite 200, Sacramento, CA 95814.”

end insert

begin insert

begin insert SEC. 2. end insert   

end insert begin insert

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

end insert