On September 19, 2016, the US District Court for the Southern District of New York ruled, in US v. Anthony R. Murgio, et al., that bitcoin qualifies as "funds," and thus money, under federal law. The case is linked to a federal investigation of the hacking of certain financial firms, including JPMorgan Chase & Co.

Defendant Anthony Murgio was charged with, inter alia, operating and conspiring to operate the website Coin.mx as an unlicensed money transmitting business (counts one and two). Several other charges, including wire fraud, money laundering, and bribery also stemmed from the Coin.mx operation.

Counts one and two of the indictment were charged under Sections 371 and 1960 of the US Code, and consisted of conspiracy to operate and operating an unlicensed money transmitting business, respectively. To qualify as an unlicensed money transmitting business under Section 1960, a business must transfer (on behalf of the public) funds in violation of federal licensing and registration requirements. The underlying substantive offense of operating an unlicensed money transmitting business in violation of Section 1960 was the focus of Murgio's motion to dismiss.

The key question the court faced in the motion to dismiss was whether bitcoins qualify as "funds" under the statute.

In his motion to dismiss, Murgio urged that the court adopt a narrow definition of "funds," as found in Black's Law Dictionary (Black's). Black's defines "funds" as a sum of money established for a specific purpose. The definition of "money" in Black's states that money operates as the medium of exchange authorized or adopted by a government as part of its currency. Since bitcoin is not "money," as defined in the Black's definition, Murgio argued, Section 1960 is rendered inapplicable.

Murgio supported his claim in part by referencing various government documents that discuss virtual currencies, including guidance documents and classifications from the IRS and the Department of Treasury. Murgio also relied on a CFTC decision from In re Coinflip, in which the CFTC defined bitcoin as "a digital representative of value that functions as a medium of exchange, a unit of account, and/or a store of value, but does not have legal tender status." This narrow reading of "funds" would exclude bitcoin.

The court, however, rejected Murgio's assertion and in doing so adopted a broader and more expansive ordinary meaning of the word "funds." The court reasoned that when a term goes undefined in a statute (as it does in Section 1960), the term is given its ordinary meaning (absent conflicting congressional intent). Here the court turned to Webster's Dictionary, and not a legal dictionary such as Black's, to find the ordinary meaning of the term "funds." Webster's, the court explained in its decision, defines "funds" as "available pecuniary resources" that take the form of or consist of money and are generally accepted as a medium of exchange or a means of payment.

Referencing informational material produced by bitcoin.org, the court reasoned that it was clear that bitcoins are funds within the plain meaning of the term, since bitcoins are accepted as payment for goods and services and bought directly from an exchange with a bank account.

The court's approach mirrors the approach taken by other courts in the Second Circuit. Most notably, in United States v. Faiella and United States v. Ulbricht, both courts concluded that Bitcoins, for purposes of Section 1960, are money or something generally accepted as a medium of exchange, measure of value, or means of payment.

In rejecting Murgio's motion to dismiss counts one and two, the court firmly stated that bitcoins qualify as money.

Murgio represents the latest case in which the courts have been forced to grapple with the proliferation of virtual currencies. In the Southern District of New York, a judicial consensus that bitcoin is money has emerged, as Murgio echoes the sentiment of the SDNY courts in US v. Ross Ulbricht, US v. Liberty Reserve, et al., and US v. Robert Faiella and Charlie Shrem. The decision also underscores the disconnect in the understanding of virtual currencies between some financial regulators and the courts.

For example, in a 2013 guidance document, the Department of Treasury's Financial Crimes Enforcement Network (FinCEN) defined virtual currency as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency" (see FIN-2013-G001 (March 18, 2013)). The FinCEN guidance is similar to the CFTC ruling in In re Coinflip in its approach to define virtual currencies such as bitcoin.

For more information on bitcoin and other digital currencies, see Practice Note, Virtual Currency Regulation: Overview.