bitcoin-judge

Decentralized virtual currencies are largely unregulated leading to a wild west situation between merchants, end users, and service providers. Illustrating this fact, one eBay merchant doesn’t like the way he’s been treated by PayPal, the marketplace company’s subsidiary payment platform, and has decided to sue.

If the details of a 2,138 word comment posted to the Bitcointalk.org message board at 3:51am PT today by user TerraHasher (Terra) are to be believed, PayPal has been repeatedly freezing his assets and harassing him for selling bitcoin-related computer hardware. Now, it looks like he may get his day in court.

Terra began his lengthy post with the following comment (all spelling and punctuation original):

I finally got a judge to allow me to file a lawsuit against PayPal, and after complying with the judges request that we send a letter of intent to sue them this week and giving them 2 weeks to reply or resolve the issues. We will be allowed to file a 4 MILLION dollar lawsuit against paypal.

Before going much further, it’s critical to point out this is just one man’s side of the story and that many of the details remain unverified. When reached for comment on the allegations, a PayPal spokesperson said, “We’ll  look into this. We can confirm that eBay users are able to buy bitcoin-related hardware on the eBay MarketPlaces platform using PayPal.” The company did not confirm or deny the existence of such a legal complaint or pending lawsuit. We will update this post as additional information becomes available related to this specific case.

But now more details on PayPal’s alleged misconduct. Terra describes himself as a long-standing eBay merchant that has been using the marketplace and its related payments platform, PayPal, to sell a variety of electronics for the last eight years. He further claims to have conducted “close to $1 million in sales in the past year alone.”

Terra states that in October of this year, enticed by the upswing in bitcoin price and activity, he began selling mining rigs and related hardware, or custom computers and components designed specifically for solving the complex mathematical problems required to create new virtual currency. It wasn’t until December that he got his first sign of trouble. He writes:

In early december, now selling mainly only bitcoin hardware, out of nowhere i get a limitation on my paypal account. they want documents uploaded, photo ID, proof of address, invoices, what have you. most of it all stuff i had submitted already in the past. at the time they had held hostage, $33,600 3 days of going the rounds with paypal and the limit is raised.

Following this first encounter, Terra claims that he began recording all customer service calls with PayPal. His attorney was horrified until he was able to verify that PayPal’s customer service system also records and monitors its calls.

After several times through the customer service ringer with no real answers, Terra claims he had the following exchange:

after going from customer service rep, to supervisor, to specialist, to team lead, then finally to manager over  the course of 1 hour 30 minutes with nobody giving me any real information. I HIT GOLD, the manager states, your selling bitcoin. i politely reply, ‘no sir, i am not, that is against paypals rules, i am selling specialized hardware which is like a computer but designed for one purpose, and that is hashing on a SHA- 256 encrypted network.’ He replies back, well it’s all the same and bitcoin is direct competition with paypal’s  business model therefore we do not condone, anything bitcoin related.

So it would seem that at least one PayPal employee admits that Terra’s association with bitcoin is the underlying factor in his ongoing battle with the payments platform. It’s worth noting here that Terra’s dealings with bitcoin are not related to bitcoin exchange or similar alternative currency services that many banks and financial services have previously proven hesitant to sanction. He’s simply selling computer hardware designed with a specific use in mind.

The account limitations and freezes became a recurring pattern, he says, occurring several times over the rest of December.

Needless to say it took a few days and a few dozen threatening phone calls, but we got the funds un frozen. I figured, well that was fun, but back to business. here comes the kicker, 7 hours later i have only 2 auctions close for a total of $8,300 in total. i print the labels, stop at UPS in the morning and drop off the miners, and before i could even get home. whamo account limitations again. i think to myself. you have to be kidding me, a company cannot suck this bad and still be in business…

After a particularly contentious back and forth under which PayPal allegedly refused to undress $54,000 worth of Terra’s funds on December 30, he says his lawyers decided to get involved.

By wednesday afternoon [January 1] my legal team says O.K. this is where we step in, a company cannot hold peoples money hostage because they dont like bitcoin. And the battle begins, their paralegals transcribe every phone call, copy every e-mail print every screen shot, copy hundreds of complaints from srew-paypal.com and paypal sucks.com. The start blasting it everywhere, writing senators, congress people, filing complaints with the DOJ, the FTC, the IC3, the NW3C everybody pretty much, at the same time the file a petition with the court for a ruling on letting us Sue them in court.

The judge initially threw out the claim, Terra writes, but then just a day later called his legal team back into court. Apparently the judge reviewed the stacks of evidence documenting Terra’s back and forth with PayPal, which Terra describes as three inches thick and having been filled with little pink pieces of paper, presumably Post-It notes:

…[the judge] then turns his phone around and it is flashing the number 34 on it, as in 34 voice mails. He says ‘you sure know how to ruin a mans weekend, i dont know who you talked to, but i want to see all of you in my courtroom on monday morning and i will rule on your petition…’ 

This morning we arrive 30 minutes early at the court house and the room had like 15 people in it. The judge comes in, sits down, and says ‘Send them a letter of intent to sue, request that they reply within 2 weeks, if they do not resolve the issue, or reply, i will see this case in my courtroom.’ 

It’s quite the tail. If accurate it could mean that PayPal acted inappropriately by limiting access to its platform to a merchant whose only “crime” was selling specialized, and entirely legal computer equipment.

Terra has a right to be frustrated, but his contemptuous tone toward PayPal draws into question just how whether his written account is based entirely in fact and reality, or otherwise motivated. His writing is punctuated with statements like, “Paypal starts to bully bitcoin AND BITCOIN BITES BACK” and “Hopefully paypal gets everything they deserve in court. How dare they start committing white collar crimes against people “associated with bitcoin.”

That said, the comments posted in response to Terra’s message tell similar tales of arbitrary account limitations and general erratic enforcement behavior by PayPal toward bitcoin-related merchants. This wouldn’t be the first time that PayPal ran afoul of its users by freezing accounts without explanation and acting slowly in response to claims of errors in this regard.

Despite apparent evidence to the contrary, PayPal CEO David Marcus has expressed admiration for bitcoin, calling it “a very powerful thing” and expressing a willingness to integrate the next generation payment protocol into his platform once he feels it’s reached maturity and can be done in a way that makes sense for all users.

PayPal would be wise to exercise caution in integrating bitcoin. In the US, PayPal’s home and largest global market, the Government has yet to pass any meaningful legislation regarding PayPal’s legality and the obligations of financial services companies operating within its infrastructure. That means that PayPal and its industry peers would be taking on substantial risk by dealing in bitcoin before they know the full lay of the regulator land. But this doesn’t excuse the company alleged inconstancy in dealing with Terra and other bitcoin hardware merchants.

Expect to hear more from the TerraHasher vs. Paypal saga, or as he titled his Bitcointalk post, “Bitcoin vs. Paypal.”

[image via thinkstock]