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Financial Services Law Insights and Observations


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  • Silk Road Operator Sentenced to Life in Prison


    On May 29, US District Judge Katherine Forrest sentenced Ross Ulbricht – operator of the online dark market known as Silk Road – to life in prison without the possibility of parole. As previously reported, Ulbricht was found guilty by a federal jury on February 4, 2015 for his alleged creation, ownership, and operation of a website where activities included narcotics distribution, computer hacking, and conspiracy. In addition to a life in prison sentence, Ulbricht has been ordered to pay over $180 million to the federal government. During the year and a half-long legal process of convicting and sentencing Ulbricht, the DOJ also charged two former federal agents with wire fraud and money laundering of digital currency, and held several government auctions to sell bitcoins seized during its investigation of Silk Road.

    DOJ Virtual Currency Digital Commerce

  • Ninth Circuit Affirms Decision Not To Enforce Browsewrap Arbitration Agreement


    On August 18, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s decision not to enforce a retailer’s online “browsewrap” arbitration agreement because the retailer failed to provide adequate constructive notice. Nguyen v. Barnes & Noble Inc., No. 12-56628,2014 WL 4056549 (9th Cir. Aug. 18, 2014). The consumer filed suit alleging that the retailer’s cancellation of his online purchase of two sale items caused him to buy substitute products at a greater expense. The retailer responded that by making the purchase through the company’s website, the consumer accepted the website’s Terms of Use, which contained an agreement to arbitrate any claims arising out of use of the website. Although this “browsewrap” agreement provided that any user of the website was deemed to have accepted the agreement’s terms by, among other things, making a purchase, the district court held that the consumer did not have constructive notice of the Terms of Use because the site did not require that the consumer affirmatively assent to them. The Ninth Circuit agreed, holding that “where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice.” The court also rejected the retailer’s argument that the customer had constructive notice of the browsewrap terms based on his prior experience with browsewrap agreements found on other sites, including some popular social media sites.

    Arbitration Digital Commerce

  • California Federal Court Dismisses User Information Claims Against Digital Wallet Company

    Privacy, Cyber Risk & Data Security

    On August 12, the U.S. District Court for the Northern District of California dismissed for failure to state a claim a putative class action alleging that a digital wallet provider made unauthorized disclosures of user information to third-party mobile app developers. Svenson v. Google Inc., No. 13-cv-04080, 2014 WL 3962820 (N.D. Cal. Aug. 12, 2014). The named plaintiff claimed that when the digital wallet provider processed payments for apps purchased through an affiliated online store, it also provided certain customer/personally identifiable information to third-party app developers, including email address, account name, home city and state, zip code, and in some instances, telephone number. The plaintiff asserted theories of breach of contract and breach of the implied covenant of good faith and fair dealing, as well as violations of the Stored Communications Act and California’s Unfair Competition Law. The court held that the plaintiff’s breach of contract claim failed, reasoning in part that: (i) the plaintiff was not deprived of the “benefit of the bargain” given that the allegations involved free services and a $1.77 app; and (ii) there was no support for the theory that the economic value of the plaintiff’s information was diminished (because the plaintiff failed to allege that there was a market for the information). Similarly, the court held that the plaintiff’s Unfair Competition Law claims did not allege an economic injury, and that the breach of implied covenant claims were duplicative of the breach of contract claims. The court also dismissed the plaintiff’s Stored Communications Act claims.

    Digital Commerce

  • UK Chancellor Announces Plans, Ambitions For Financial Technology Industry


    On August 6, in remarks at a financial technology conference, the UK’s Chancellor of the Exchequer, George Osborne, outlined the UK government’s plans for the UK to become a world leader in financial innovation and financial technology. Mr. Osborne noted the UK’s science and technology resources and its history of leading the way in financial innovation. He called for new means of banking and payments for consumers and businesses that go beyond just viewing statements online and that “bypass traditional banks altogether, and lend money directly – through peer-to-peer platforms.” Mr. Osborne believes that “with the right backing from government,” London can become “the Fin Tech capital of the world.” To that end, he detailed the government’s plans to support financial innovation, including by: (i) establishing an appropriate tax regime for the industry; (ii) committing funds for government investment programs; (iii) establishing a favorable regulatory regime; (iv) creating a new partnership between Innovate Finance and the British Business Bank to champion financial innovation and technology; and (v) launching a “major program of work exploring the potential of virtual currencies and digital money.” For example, as part of the regulatory changes, Mr. Osborne described several pieces of legislation, including those that will: (i) require the large UK banks to “pass on information on small businesses they reject for loans, so that FinTech Companies and alternative lenders can step in and offer finance instead”; and (ii) allow consumers to use their smart phones to pay in checks.

    Payment Systems Virtual Currency Digital Commerce Financial Technology


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