Recently in Virtual Currency Category

The Real Issues with Virtual Currency: April 22, 2014

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Join members of Pillsbury's leading Virtual Currency practice, partners, James Gatto, and Deborah Thoren-Peden, to understand and analyze some of the key legal and business issues related to Bitcoin and other crypto-currencies. This webinar will highlight the history of Bitcoin and other digital currencies and associated unique business models. They will also address the latest developments in digital currency regulation and enforcement.

Topics will include:
  • Background on Bitcoin and other crypto-currencies and the use of emerging, virtual currency-based business models
  • Overview of the virtual currency legal issues (federal, state, international)
  • Ramifications of recent IRS ruling
  • Update on FINCEN Guidelines
  • Recent enforcements and regulatory actions

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Tuesday, April 22, 2014
12:00 pm PT
3:00 pm ET

Webinar

RSVP by April 21
Please register for this complimentary presentation to receive log-in/dial-in information.

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PARTICIPANTS
James G. Gatto, Leader, Social Media, Entertainment & Technology - Pillsbury
Deborah S. Thoren-Peden, Corporate & Securities, Pillsbury

IRS Issues Significant Convertible Virtual Currency Ruling - Bitcoin Community Abuzz

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The IRS has issued its first major ruling on the U.S. federal tax implications of transactions in, or transactions that use, Bitcoin and other convertible virtual currencies. The ruling stresses that it relates to convertible virtual currencies. The legal landscape with respect to Bitcoin and other convertible virtual currency continues to evolve at a more rapid pace. Last March, FinCEN issued its now famous virtual currency guidance. Shortly thereafter, a number of high profile enforcements ensued.  If history is any lesson, it is likely that following this ruling will likely will be followed by some tax enforcements. Therefore, miners, exchanges, businesses transacting in Bitcoin and others dealing with virtual currencies should promptly assess this guidance and ensure compliance.The IRS made clear that penalties apply for failure to timely comply. This should be of particular concern to the extent the ruling is applied retroactively.

We have prepared a complete client alert on this recent IRS ruling. Please click here to access.

Among other things the IRS has stated:

One of the most significant pronouncements of the notice is that the IRS has determined that virtual currency is treated as property for U.S. federal tax purposes and therefore  general tax principles that apply to property transactions apply to transactions using virtual currency.  The notice indicates that this means that:

  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
  • Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.  Normally, payers must issue Form 1099.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Additional points made by the IRS include the following:

  • Convertible virtual currency is a virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, such as Bitcoin
  • The sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.
  • Virtual currency is NOT treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws.
  • For purposes of computing gross income, a taxpayer who receives virtual currency as payment for goods or services must include the fair market value of virtual currency received as measured in U.S. dollars, as of the date that the virtual currency was received. 
  • The basis of virtual currency received as payment for goods or services is the fair market value of the virtual currency in U.S. dollars as of the date of receipt. 
  • For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars using the fair market value of virtual currency  as of the date of payment or receipt. 
  • If the fair market value of property received in exchange for virtual currency exceeds the taxpayer's adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.
  • A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer and realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer (e.g., inventory and other property held mainly for sale to customers in a trade or business).
  • Mining virtual currency triggers gross income at the fair market value of the virtual currency as of the date of receipt.
  • If a mining of virtual currency constitutes a trade or business, and the "mining" activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute self-employment income and are subject to the self-employment tax.
  • Payments in virtual currency received for services performed as an independent contractor constitute gross income, if related to any trade or business carried on by the individual as other than an employee, at the fair market value (in U.S. dollars)  as of the date of receipt and constitutes self-employment income and is subject to the self-employment tax.

  • The fair market value of virtual currency paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement.

  •  Payments made using virtual currency is subject to information reporting to the same extent as any other payment made in property (e.g., payments in virtual currency with a value of $600 or more for fixed and determinable income including rent, salaries, wages, premiums, annuities, and compensation).

  • A person who in the course of a trade or business makes a payment of $600 or more in a taxable year to an independent contractor for the performance of services is required to report that payment to the IRS and to the payee on Form 1099-MISC, Miscellaneous Income. 
  • Third party settlement organizations are required to report payments made to a merchant on a Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year, both (1) the number of transactions settled for the merchant exceeds 200, and (2) the gross amount of payments made to the merchant exceeds $20,000.

  • Taxpayers may be subject to penalties for failure to comply with tax laws (e.g., underpayments attributable to virtual currency transactions such as accuracy-related penalties under section 6662, and failure to timely or correctly report virtual currency transactions when required to do so under section 6721 and 6722). However, penalty relief may be available to taxpayers and persons required to file an information return who are able to establish that the underpayment or failure to properly file information returns is due to reasonable cause.

    Conclusion

    If you have any questions, Pillsbury has one of the leading virtual currency practices in the country. Our team of over 70 professionals includes a number of tax specialists. For more information, please contact Jim Gatto, our team leader, or the attorney with whom you regularly interact at Pillsbury. Mr. Gatto can be reached at james.gatto@pillsburylaw.com or 703-770-7754.    


Inside Bitcoins

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Inside Bitcoins.png
Explore the Future of Bitcoins

After taking Inside Bitcoins to Las Vegas this past winter, this definitive Bitcoin event is returning to New York City, April 7-8 at the Javits Convention Center. Join us in New York City as our industry experts, business visionaries, and virtual currency veterans converge to analyze the first digital, decentralized, peer-to-peer based global currency. These thought leaders will also share their insights and knowledge on the implications of bitcoin, along with predictions on what lies ahead. Whether you're a venture capitalist, lawyer, technologist, entrepreneur, regulator, cryptographer, payment pioneer, or public policy expert, our agenda offers the latest intelligence for everyone and anyone interested in learning more about bitcoin. Can bitcoin carve out a significant place for itself alongside today's mainstream payment technologies? What technical and regulatory obstacles does bitcoin need to overcome? Will large-scale bitcoin mining help to push the price of bitcoins higher? Is bitcoin going to save the global economy, or is it today's answer to 17th-century tulip mania? Be sure to attend Inside Bitcoins and get answers to all of your burning questions!


Who Should Attend?
Anyone with a vested interest in bitcoins and other virtual currencies, including:
  • Developers
  • Entrepreneurs
  • Financial professionals
  • Private equity, corporate, angel and venture capital investors
  • Banks and financial institutions
  • Brick-and-mortar merchants and online retailers
  • Credit and loyalty solution providers
  • Consultants
  • Daily deal and group buying networks
  • Data and payment processors
  • Legal professionals
  • Security solution providers
  • Founders of early stage and emerging growth companies

PARTICIPANTS

James G. Gatto, Leader, Social Media, Entertainment & Technology, Pillsbury
Deborah Thoren-Peden
, Leader, Consumer & Retail; Co-Leader, Privacy, Data Security & Information Use, Pillsbury

Mt. Gox's Bankruptcy Case Will Be Unlike Any Other

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Originally seen in MoneyBeat - a Wall Street Journal blog.

One thing we can tell you about the Mt. Gox bankruptcy case: It won't be like any other bankruptcy case you've seen.

MoneyBeat had a very enlightening and interesting talk with Christopher Mirick, a partner at the bitcoin1.pnginternational law firm Pillsbury Winthrop Shaw Pittman, operating in the firm's Insolvency & Restructuring practice. He is also one of two educational directors at American Bankruptcy Institute's international committee and co-author of the book "Strategies for Creditors in Bankruptcy Proceedings."

One point he made, that seems obvious in retrospect, is that there's never quite been a bankruptcy case like this one. It involves a new technology, a company that seemed to operate with only a few employees and almost no presence in the countries across the globe where it did business, and questions of cross-border bankruptcy law.

What follows is a paraphrased version of our conversation.


How messy is this bankruptcy going to be?

It's going to be "very messy," Mr. Mirick said. There are a couple of things to think about. For one thing, Mt. Gox has creditors all over the world. Of their roughly 130,000 creditors, only about 1,000 are in Japan. According to Mt. Gox, they don't have U.S. bank accounts. "So what's a person in Illinois going to get? There's nothing there," Mr. Mirick said.  Mt. Gox did business in a lot of places where it didn't have any physical existence. "What's there to recover?"


Is your firm involved in the case?

Mr. Mirick said this kind of case would be "up our alley," but the firm isn't currently involved, although it does have a Tokyo office. "But we would jump at the chance."


Why's that?

"You've never had a case like this." It involves a cutting-edge technology, and questions about cross-border enforcement of bankruptcy proceedings. Mr. Mirick pointed to Lehman Brothers, for comparison [a case that, we'd note is still being settled.] Unlike Mt. Gox, Lehman had entities in each jurisdiction where they operated. "This [Mt. Gox] is just like a couple of guys with some computers who happened to be in Japan, and handling half a billion dollars that went missing."


What can a creditor hope to recover?

Mr. Mirick said creditors of Mt. Gox should be looking for a way to track the money and bring it back, if possible. They should also examine the timeline, for when the money first disappeared, he said. Was it three months ago? Six? "If they were making payments during that time, maybe you could claw some of that back."

From the creditors' point of view, Mr. Mirick said, somebody has to be blamed, whether it's the Mark Karpeles, the directors, or the officers. That person or people may have insurance, if not assets, and creditors may be able to go after that, he added.

"But, for a company without physical assets, the ability to get a recovery is quite limited."

 

Link to story: http://blogs.wsj.com/moneybeat/2014/03/05/mt-goxs-bankruptcy-case-will-be-unlike-any-other/

Russia Cracks Down On Bitcoin

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Both the Central Bank of Russia and the Russian Prosecutor General's Office explained that the rouble is the country's sole official currency and that the production of alternative monetary products, such as Bitcoin and other virtual currencies, is illegal under current lawRussian regulators also warned that anyone who exchanges virtual currency for national or foreign currency, goods, or services will be treated as if they are potentially involved in suspicious activities, money laundering, or terrorism financing.

Virtual Currency - Acronyms, Abbreviations and Key Definitions

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Although many of you are obviously fascinated by the fast-paced virtual currency industry, trying to read a news article or blog can sometimes be incredibly difficult due to the sheer number of acronyms and terms of art commonly used by industry participants. The author of the attached document endeavored to capture the key acronyms, abbreviations and definitions relevant to the VC industry to assist you so that you can keep up with key developments. Still have questions or additional acronyms, abbreviations or definitions that you would like us to add? Please contact the author, Amy Pierce, or any of our Social Media & Games attorneys.

Check out our helpful guide here: Virtual Currency - Acronyms Abbreviations and Key Definitions

28 Million Dollars in Bitcoins Deemed Forfeited to the U.S. Government

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The United States Attorney's Office for the Southern District of New York announced the forfeiture of approximately 29,655 Bitcoins in connection with the seizure of the Silk Road website.  The Silk Road operated as a marketplace for illicit goods and services before it was shutdown in October 2013.  At the time the U.S. Attorney's Office seized the Silk Road website and its servers, a large number of Bitcoins was found in a digital wallet stored on the website's servers.  Since the seizure, no claims have been filed for the wallet, and on January 16, 2014, United States District Judge J. Paul Oetken held that the wallet was deemed forfeited to the U.S. Government.

A spokesman for the U.S. Attorney's Office stated that it has not yet been determined how the Bitcoins will be liquidated.  Since the seizure of the Bitcoins, the value of the virtual currency has grown with the market's increasing demand.  At the present exchange rate, the Bitcoins are valued at approximately $28 million, approximately 4x their value at the time of the seizure.

 

Source; Source

More fallout from Silk Road

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Another set of Bitcoin-related arrests for failing to comply with the Bank Secrecy Act. http://www.cnbc.com/id/101366511

Interestingly, investors in one of the companies include the Winkelvoss twins. Anyone who is involved in Bitcoin or other virtual currency endeavors needs to ensure that they understand and comply with the law. This includes getting licensed when necessary and complying with all disclosure obligations. While there are many legal, sound investment opportunities in this space. Investors should be particularly careful in conducting legal diligence in these companies before investing.

A Discussion of BitLicenses Starring the Winklevoss Twins: NY Announces Details on Upcoming Hearings to Discuss Regulation of Virtual Currencies

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On January 28th and 29th, the New York Department of Financial Services (DFS) will hold hearings to discuss the regulation of virtual currencies, including the potential issuance of a "BitLicense" specific to virtual currencies.  The DFS previously expressed concern about virtual currencies remaining a "virtual Wild West for narcotraffickers and other criminals...."   Despite this concern, the DFS, like FinCEN, has indicated a willingness to work with the virtual currency industry and other stakeholders to establish "appropriate regulatory guardrails to protect consumers and our national security."  The DFS "is concerned that - at a minimum - virtual currency exchangers may be engaged in money transmission as defined in New York law, which is an activity that is licensed and regulated by DFS."  Thus, even though the DFS has stated that it has not made a determination at this point about the necessary regulatory guidelines for virtual currencies, one might anticipate that, at a minimum, these guidelines will include additional oversight and licensure "to bring virtual currencies out of the darkness and into the light of day." 

The upcoming hearings will be held in New York City and will include some high-profile players in virtual currency, such as Cameron and Tyler Winklevoss, Principals of Winklevoss Capital Management, Barry Silbert, Founder & CEO of SecondMarket and Founder of the Bitcoin Investment Trust, Fred Ehrsam, Co-Founder of Coinbase, and Cyrus R. Vance, Jr., District Attorney of New York County.

Sacramento Kings Announce They Will Be The First Pro Sports Franchise To Accept Bitcoin

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On January 16, 2014, The Sacramento Bee in its article Kings will be first pro sports franchise to accept online currency Bitcoins announced that by March 1, 2014, Sacramento Kings fans "will be able to purchase team merchandise and tickets using Bitcoins through BitPay."  Bitcoin is a virtual currency which can be transferred through various exchanges.  In the article, Vivek Ranadive, the Kings managing partner and founder of the Silicon Valley tech firm Tibco Software Inc., confirms that "he wants the team to be among the most technologically-advanced franchises in the world. He calls his philosophy 'NBA 3.0.'"  Among other technological advancements the Kings plan are a technology-rich proposed new arena and "a new Kings app for smartphones that allows fans to upgrade their seats at games, provides detailed maps of Sleep Train Arena and includes a virtual noise-making cowbell."  Their approach is intended to make "the experience for those fans more seamless and hassle free." 


Read more here: http://www.sacbee.com/2014/01/16/6077399/kings-will-be-first-pro-sports.html#storylink=cpy

Read more here: http://www.sacbee.com/2014/01/16/6077399/kings-will-be-first-pro-sports.html#storylink=cpy

Read more here: http://www.sacbee.com/2014/01/16/6077399/kings-will-be-first-pro-sports.html#storylink=cpy

Read more here: http://www.sacbee.com/2014/01/16/6077399/kings-will-be-first-pro-sports.html#storylink=cpy

Read more here: http://www.sacbee.com/2014/01/16/6077399/kings-will-be-first-pro-sports.html#storylink=cpy

Singapore Issues Bitcoin Tax Guidance

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The Singapore tax authority has issued guidance which confirms the viability of certain Bitcoin transactions. Like the central bank in China, the Inland Revenue Authority of Singapore (IRAS) took the position that Bitcoin is not a type of money or currency. This is still an unsettled question in other jurisdictions.

Even if Bitcoin is not currency, transactions in Bitcoins can lead to profits which the Singapore authority is happy to tax, at least in some situations. According to the IRAS guidance, short-term speculative transactions in Bitcoins will be taxed, while capital gains generated from long-term investment will be tax free.  The IRAS guidance also distinguishes using Bitcoins in purchase of physical goods (taxable) and of virtual goods (not taxable).

The IRAS guidance has been warmly welcomed within the Bitcoin community in Singapore for being "rational and well thought-out." Some observers believe that, given the embryonic state of the Bitcoin economy, an incremental and pragmatic approach to regulation makes more sense than attempts to impose blanket definitions or characterization, let alone any outright prohibitions, on transactions in this new and emerging unit of value.

Taxation of Virtual Currencies

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The taxation of virtual currencies has garnered increasing attention, in part due to the princely fortunes some are making from the rapid increase in the price of Bitcoins. Yet, the U.S. IRS has issued little guidance in this area. This is likely to change soon. In May 2013, the GAO issued a report on Virtual Economies and Currencies. In part, the report states:

Transactions within virtual economies or using virtual currencies could produce taxable income in various ways, depending on the facts and circumstances of each transaction. For example, transactions within a "closed-flow" virtual currency system do not produce taxable income because a virtual currency can be used only to purchase virtual goods or services. An example of a closed-flow transaction is the purchase of items to use within an online game. In an "open-flow" system, a taxpayer who receives virtual currency as payment for real goods or services may have earned taxable income since the virtual currency can be exchanged for real goods or services or readily exchanged for government-issued currency, such as U.S. dollars.

More recently, the 2013 National Taxpayer Advocate Annual Report to Congress notes the increasing use of virtual currencies, particularly Bitcoin and that the IRS has yet to issue specific guidance addressing the tax treatment or reporting requirements applicable to virtual currency transactions. The report concludes that IRS-issued guidance would promote tax compliance, particularly among those who want to report virtual currency transactions properly, and it would reduce the risk that users of virtual currencies will face tax consequences that they did not anticipate.

Despite noting that the IRS website suggests that existing guidance covers these transactions, it states that this guidance did not explain when the transactions are sufficiently analogous to be covered by existing rules. Among the remaining questions it identified the following:

1.     When will receiving or using digital currency trigger gains and losses?

2.     When will these gains and losses be taxed as ordinary income or capital gains?

3.     What information reporting, withholding, backup withholding, and recordkeeping requirements apply to digital currency transactions?

4.     When should digital currency holdings be reported on a Report of Foreign Bank and Financial Accounts (FBAR), or Form 8938, Statement of Specified Foreign Financial Assets?

In the interim, our Social Media Team's tax gurus are monitoring the issues.

Does Bitcoin Violate the Stamp Payments Act?

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Based on some recent articles, a number of people have asked whether Bitcoin might be declared illegal under an archaic law known as the "Stamp Payments Act." According to a recent Congressional Research Service report, the answer is .... likely not.

The Stamp Payments Act of 1862 states:
Whoever makes, issues, circulates, or pays out any note, check, memorandum, token, or other obligation for a less sum than $1, intended to circulate as money or to be received or used in lieu of lawful money of the United States, shall be fined under this title or imprisoned not more than six months, or both.
It is questionable whether Bitcoin is an "obligation" and if so who is obligated. It is also not clear whether Bitcoin is a note, check, memorandum or token. The CRS report states:
It does not seem likely that a currency that has no physicality would be held to be covered by  this statute even though it circulates on the internet on a worldwide basis and is used for some payments of less than $1. The language of the statute, "note, check, memorandum, token," seems to contemplate a concrete object rather than a computer file; moreover, a digital currency such as Bitcoin, without a third-party issuer, cannot be said to be an obligation.
Of course, a clever legal mind can always develop a legal argument to the contrary.

One of the more famous cases brought under this act related to the Monongahela Bridge company which issued tickets (worth less than $1) good for one trip over the bridge. The court found that this practice did not violate the act, noting:
these tickets have no resemblance or similitude in shape, design or material, to the coin of the United States, nor to the postage currency, the free and untrammeled circulation of ·which it was the design of the act to advance and protect....They do not contain a promise to pay money, they are not the representatives of money, and therefore cannot be said to circulate, or be intended to circulate as money. Money is the medium of exchange among the people. Its peculiar characteristic is, that it is the one thing acceptable to all men, and in exchange for which they will give any commodity they possess.
Another interesting issue presented is who would be liable. To the extent that a Bitcoin miner "issues" a coin, as long as the price of a coin remains greater the $1, they would not seem to violate the express requirement of the statute that the token be less than $1. Assuming for the sake of argument that the Act did otherwise apply, to the extent that a recipient of a coin uses a partial Bitcoin for a transaction less than $1, then the feds perhaps could go after the user.  But going after users who engage in transactions less than $1 does not seem to be a prudent or effective way to stop Bitcoin use. Assuming the vast majority of the transactions were valued at over $1 it would seem to be a pretty ineffective way to shut down Bitcoin.

If the Federal Government wanted to take action against Bitcoin, it would more likely take action to do so directly through new legislation (or perhaps some other existing legislation) rather than chance an iffy interpretation of an ancient statute that was primarily enacted for another purpose and which might only, at best, provide a basis to go after users in small transactions.

Blurry Lines: Legal and Business Uncertainty in Social Media - Virtual Currency

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All types of businesses are leveraging new and emerging business models around virtual currencies and virtual goods. Check out our video where we discuss the various legal issues that need to be addressed to safely and profitable capitalize on these significant business opportunities:

Social Media & Games: 2013 Year in Review

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2013 was an incredibly active year for social media legal issues. Below are selected highlights on some of the more interesting legal issues that impacted social media, along with links to reference material relating to the topics.

1.
Virtual Currency/Bitcoin

FinCEN Virtual Currency Guidance and Enforcements - FinCEN published legal guidance  on virtual currency making clear that existing regulations regarding money transmitter and anti-money laundering laws apply to certain virtual currency activities. Shortly after issuance of the guidelines, a wave of enforcements shut down non-complying entities. [BLOG]

Congressional Hearings on Virtual Currency - Congressional hearings were surprisingly more friendly and receptive of Bitcoin and other virtual currencies.

2.
Privacy - Guidance and Enforcements

COPPA - The FTC issued new guidance and FAQs for children's online protection due to evolving technology and changes in the way children use and access the Internet, mobile devices and social media.

CA Privacy Law - California passed new privacy laws.

3.
Intellectual Property/Patents

Patents - The number of social media patent filings continued to increase. The America Invents Act (AIA) fully kicked in, providing a greater ability to challenge patents believed to be invalid without going through district court litigation. The Fast Track process to get patents issued more rapidly (often in less than a year) continued.

Ownership of Social Media Accounts and Followers - Despite a number of cases (including ones involving LinkedIn and Twitter) relating to ownership of social media accounts, the law remained murky and fact specific. This uncertainty can be avoided by proper attention to social media policies before issues arise.

4.
Employment Law and Social Media

National Labor Relations Board (NLRB) - The NLRB continued to issue surprising guidance and decisions on social media usage. In many cases, some or all provisions of employers' policies governing the use of social media by employees were found to be unlawful. [BLOG] The NLRB affirmed that workers have the right to discuss work conditions freely without fear of retribution, whether the discussion takes place in the office or on Facebook. But later in the year it actually found some uses of social media for employment (firing) decisions to be okay.

Employer Access to Social Media User Names and Passwords - By year end, 36 states had passed or initiated legislation prohibiting employers from requesting personal social media account information or passwords in connection with employment decisions.

National Conference of State Legislatures Report - Some states have similar legislation to protect students in public colleges and universities.

5.
Online Gaming

First mover states forged forward with online gambling.

·         Nevada - Legalized online poker and granted its first licenses for interactive gaming.

·         New Jersey - In February, passed legislation (signed into law by Governor Chris Christie) allowing on-line wagering. Subject to certain limitations, licensed operators are permitted to offer online versions of a wide variety of games currently permitted in Atlantic City casinos (e.g., roulette, craps, black jack, and slots).

·         Delaware - On October 31, launched what Delaware officials call a "full suite" of internet gambling.

Zynga - In September, Zynga withdrew its bid for a gambling license in Nevada

Federal Gambling Legislation - The prospects for a federal law for online gambling remain elusive.

6.
Mobile Health Applications

FDA Guidance - The Food and Drug Administration (FDA) issued guidance that focused on applications that present a greater risk to patients if they do not work as intended or that cause smartphones or other mobile platforms to impact the functionality or performance of traditional medical devices.

FTC Guidance - The FTC issued guidance in April focusing on truthful advertising and privacy.

7.
Gamblification/Sweepstakes

Florida prohibited gaming promotions in a cause-related marketing campaign (where purchase of a good or service benefits a charitable cause).

Internet Sweepstakes Café Conviction in Florida - Lawyer Kelly Mathis was convicted on 103 of 104 counts related to illegal gambling based on his role in Internet Sweepstakes Cafés in Florida. He faces up to 30 years in prison. CA, OH, SC and other states moved quickly to shut down similar operations.

8.
Equity-based crowd funding legalized in the United States

SEC Rules - In October, the SEC voted unanimously to propose rules under the JOBS Act to loosen the rules and permit companies to offer and sell securities through equity crowd funding.

Note: Equity crowd funding is much like crowd funding, which has been popularized in the United States through sites such as Kickstarter and Indiegogo. The difference is that instead of individuals supporting campaigns through donations, numerous investors are purchasing small stakes in startups or small businesses.

Critics Emerge - Critics of equity crowd funding worry that the industry will be rife with Ponzi schemes or that having too many investors will hurt startups' prospects for future funding.

Pillsbury originally discussed this in a January 2012 client alert and March 2012 Blog Post.

9.
Endorsements

FTC Enforcements on Fake Endorsements - In February, the FTC permanently stopped a fake news website operator that allegedly deceived consumers about acai berry weight loss products. The settlements will yield more than $1.6 million and conclude a sweep against online affiliate marketers and networks. The sites falsely claimed endorsements from ABC, Fox News, CBS, CNN, USA Today and Consumer Reports.

Many companies' understanding of and compliance with the FTC Endorsement Guidelines remains lacking, yet enforcements continue.

10.
Wearable Computing Lawsuit

Google Glass Liability? - In what may be a foreboding development, a California woman received a traffic ticket for wearing Google Glass while driving. Many states have broad distracted-driving laws or bans on certain monitors that may apply to Google Glass and similar wearable computing devices.