Aaron Greenspan, the software entrepreneur who founded Think Computer, is a little like Jason Voorhees of the Friday the 13th movies: he just keeps coming back. On Monday, May 6, 2013 the arch enemy of Facebook creator Mark Zuckerberg filed suit against not only that ubiquitous social network but most of Silicon Valley.
Think Computer’s latest suit zeroes in on what it terms “money services businesses” or “MSBs” including companies that make digital payments and transfer cash like PayPal, and funders from large investment firms to solo “angel” financiers. The connection is that most of the companies are startups who were funded by the named investment firms and angels. Among Think Computer’s defendants in the 146 page complaint are A-Grade, Airbnb, Andreessen Horowitz, Coinbase, DST Global, Dwolla, Kleiner Perkins Caufield & Byers, PayPal and Slide co-founder Max Levchin, Reddit CEO Yishan Wong, Sequoia Capital, Square, and Y Combinator.
What’s getting Greenspan so steamed up? What he calls “myriad violations” of both the California Money Transmission Act (MTA) and the Bank Secrecy Act, to start with. He also accuses the defendants of generally “unlawful, unfair, fraudulent and deceptive business activities.” He cites his own experience operating an MSB, FaceCash, as proof of the malfeasance of the defendants—an interesting approach.
Aaron Greenspan’s argument goes something like this. FaceCash was working wonderfully until July 1, 2011. That’s when the MTA went into effect and, ostensibly, anyway, started its role as regulator of all domestic money transmissions in California. At that point all MSBs in the state were required to work with the California Department of Financial Institutions (DFI) to achieve licensure for money transmission. Greenspan alleges that he tried to do just that, beginning his license application process well in advance of the deadline, to no avail.
In fact, Aaron Greenspan and FaceCash were never able to get licensed. That led to another lawsuit, still pending, in the same court that will now be hearing this latest case. This is the basis for the latest case, in fact: Greenspan alleges that since the process was essentially impossible thanks to “insurmountable difficulties with the DFI’s unwritten and arbitrary policies,” the fact that these other MSBs did grow their businesses without ever attempting to comply with the licensure requirements establishes their guilt.
His argument is that everyone knows that it’s impossible to comply with the MTA, and no one gets caught when they don’t, so none of the startup MSB defendants did. Ergo, they and their investors (also defendants for this reason) knew their actions were illegal (or, in the case of the investors, were willfully negligent).
He may be right, and it seems obvious that California’s MTA is much tougher than comparable laws in other states. (Of course his railing against the MTA in this particular lawsuit is misplaced; whether or not the MTA is unfair has no relevance to the issue of whether these defendants are violators.) Unfortunately for Aaron Greenspan, he has sued enough people to seem litigious at best—his own word choice—and a little crazy at worst (that last word choice is mine). Still, his complaint raises some valid points assuming the facts are true, and this remains a case to watch.