United States v. Harmon

Citation514 F.Supp.3d 47
Decision Date24 December 2020
Docket NumberCriminal Action No. 19-cr-395 (BAH)
CourtU.S. District Court — District of Columbia
Parties UNITED STATES of America v. Larry Dean HARMON, Defendant.

514 F.Supp.3d 47

UNITED STATES of America
v.
Larry Dean HARMON, Defendant.

Criminal Action No. 19-cr-395 (BAH)

United States District Court, District of Columbia.

Signed December 24, 2020


514 F.Supp.3d 48

Catherine Pelker, Sarah Riane Harper, U.S. Department of Justice, Christopher Brodie Brown, U.S. Attorney'S Office, Washington, DC, for United States of America.

Charles Flood, Pro Hac Vice, Flood & Flood, Houston, TX, Timothy P. O'Toole, Miller & Chevalier, Chartered, Eugene Ohm, Federal Public Defender, Washington, DC, Jean-Jacques Cabou, Pro Hac Vice, Perkins Coie LLP, Phoenix, AZ, for Defendant.

MEMORANDUM OPINION

BERYL A. HOWELL, Chief Judge

514 F.Supp.3d 49

Defendant, Larry Dean Harmon, is charged in three counts, including violating the District of Columbia's Money Transmitters Act ("MTA"), D.C. Code § 26-1023(c), by engaging, without a money transmitter's license, in the business of money transmission, as defined in D.C. Code § 26-1001(10), when, between 2014 and 2017, he allegedly owned and operated the bitcoin business called Helix. See Indictment ¶¶ 19–20 (Count Three), ECF No. 1. The MTA violation in Count Three is also a partial predicate for Count Two, which charges defendant with operating an unlicensed money transmitting business, in violation of 18 U.S.C. § 1960(a). Id. , Count Two, ¶¶ 17–18. Shortly after defendant's motion to dismiss Counts Two and Three was denied, see United States v. Harmon ("Harmon ") Crim. Action No. 19-395 (BAH), 474 F.Supp.3d 76, 87–89 (D.D.C. 2020), the government filed a notice of supplemental authority consisting of a 2016 letter, with two attachments, issued by the District of Columbia Department of Insurance, Securities and Banking ("DISB"), the local MTA licensing authority, see Gov't’s Notice of Supplemental Authority ("Gov't’s Not."), ECF No. 62. DISB indicated in this letter that, during the same period defendant is charged with allegedly operating a bitcoin money transmitter without a license in violation the MTA, another virtual currency operation was permitted to operate without a license and that DISB construed the term "money" in the MTA to exclude certain virtual currency transmitters from the MTA licensing requirement. See id. , Attachment, Letter from Charlotte W. Parker, Assistant General Counsel, DISB, to William A. Cunningham, Chief Exec. Officer, COEPTIS (Jun. 23, 2016) ("DISB Letter"), at 1–2, ECF No. 62-1. In light of this new information about DISB's apparent view as to the MTA's application to certain virtual currency operations, defendant now seeks reconsideration of his motion to dismiss Counts Two and Three, reiterating the argument previously rejected by this Court that "bitcoin is not money pursuant to the MTA." Def.’s Mot. Reconsider ("Def.’s Mot.") ¶ 5, ECF No. 63; see also id. ¶ 6.

For the reasons explained below, defendant's Motion to Reconsider is denied.

I. BACKGROUND

The background underlying the charges in this case is detailed in Harmon, 474 F.Supp.3d at 80–86, and will not be repeated here, except as pertinent to resolution of the pending motion for reconsideration.

Defendant allegedly operated the online service Helix between 2014 and 2017 as a "bitcoin tumbler," meaning that customers’ bitcoin sent to Helix were "tumbled" by stripping them of identifying information, "enabl[ing] customers ... to send bitcoins to designated recipients in a manner which was designed to conceal and obfuscate the source or owner of the bitcoins." Indictment ¶¶ 3–4. The service was "advertised ... as a way to conceal transactions from

514 F.Supp.3d 50

law enforcement," id. ¶ 5, especially for transactions via the Darknet market AlphaBay, which offered customers the opportunity "to purchase a variety of illegal drugs, guns, and other illegal goods," id. ¶ 6. Helix was used to "exchange[ ] ... approximately 354,468 bitcoins – the equivalent of approximately $311 million in U.S. dollars." Id. at ¶ 8.

Based on these and other relevant facts alleged by the government, defendant was indicted, on December 3, 2019, on three counts for conspiracy to launder monetary instruments, in violation of 18 U.S.C. § 1956(h), id. ¶¶ 14–16 (Count One); operating an unlicensed money transmitting business, in violation of 18 U.S.C. § 1960(a), id. ¶¶ 17–18 (Count Two); and engaging in the business of money transmission without a license, in violation of the MTA, id. ¶¶ 19–20 (Count Three). Defendant sought dismissal of Counts Two and Three on grounds that both charges relied on the allegation that defendant "broke District of Columbia law by engaging in money transmission without a D.C. license to do so," Def.’s Mem. Supp. Mot. to Dismiss ("Def.’s MTD) at 1, ECF No. 31, but failed to state an offense because bitcoin is not money for the purposes of the MTA, id. at 2, and Helix, as a bitcoin tumbler, was not a money transmitting business under 18 U.S.C. § 1960, id. at 4.

After close examination of the ordinary meaning of the term "money" and the statutory history and construction of the MTA, this Court held that "bitcoin qualifies as money under the MTA," Harmon, 474 F.Supp.3d at 86–87, 98–99, and that "Helix was in the business of money transmission for purposes of the MTA," id. at 87. Consequently, defendant's motion to dismiss Count Three and the portion of Count Two charging a violation of 18 U.S.C. § 1960(b)(1)(A) (failing to comply with the District's money transmitter requirements), was denied. Id. Further, finding that Helix's business "was receiving bitcoin to send to another location or person in order to mask the original source of the bitcoin," id. at 88 —as opposed to defendant's characterization of the business as merely "provid[ing] bitcoin back to the user from whom it was sent," id. (quoting Def.’s Reply Supp. Mot. to Dismiss at 2, ECF No. 49)—this Court also held that this business model "qualifies as money transmission," warranting denial of defendant's motion to dismiss the portion of Count Two charging a violation of 18 U.S.C. § 1960(b)(1)(B) for " ‘fail[ing] to comply with the money transmitting business registration requirements under’ 31 U.S.C. § 5330 of the [Bank Secrecy Act], or ‘regulations prescribed under such section’ ", id. (quoting 18 U.S.C. § 1960(b)(1)(B) ); id. at 100 ("Helix, as described in the indictment, satisfies the definition of ‘unlicensed money transmitting business’ at § 1960(b)(1)(B) because Helix's core business was receiving bitcoin and transmitting that bitcoin to another location or person.").1

Six weeks after denial of defendant's motion to dismiss, the government provided notice of an exhibit to a post-conviction

514 F.Supp.3d 51

Petition for Writ of Error Coram Nobis filed in another case before this Court, United States v. E-Gold Ltd. , Crim. Action No. 07-cr-00109 (ABJ), which exhibit, the government conceded, was pertinent to "the Court's July 24, 2020 ruling that ‘bitcoin qualifies as money’ " under the MTA. Gov't’s Not. ¶ 1 (citing Harmon , 474 F.Supp.3d at 98–99 ).2 This exhibit is a "heretofore non-public letter," id. , dated June 23, 2016, from DISB's Assistant General Counsel to the Chief Executive Officer of a company, named COEPTIS, responding to the company's inquiry in October 2015 about whether it "needs to obtain a money transmitter license in D.C" for its "privately issued currency (AUG) that will be 100% reserved by physical gold," DISB Letter, at 1–2. In particular, the DISB Letter advised that "COEPTIS does not require a money transmitter license," id. at 2, based on the description of its operations "in Exhibit A," id. at 1, as "a closed/centralized settlement platform ... to make internet payments," in which "[n]ational currency will not be received, dispensed, or used ... [and] COEPTIS will not provide for any conversion of [privately issued currency], to national currency ...," id. at 1.3 This conclusion was further "[b]ased on" the legal conclusions contained in two exhibits to the DISB Letter, Exhibits B and C, which were "incorporated [t]herein by reference," id. at 2, and, unlike Exhibit A, provided as part of the government's Notice.

Exhibit B is an internal 5-page DISB memorandum, dated January 16, 2015, from DISB's Associate Commissioner for Banking, through a DISB Assistant General Counsel, to DISB's Acting Commissioner, regarding "Regulatory Treatment of the Sale or Exchange of Decentralized Virtual Currency under the Federal Bank Secrecy Act and the District of Columbia Money Transmitters Act of 2000" ("DISB Opinion Memo"). DISB Letter, Ex. B, at 3–7, ECF No. 62-1.4 Citing the DISB Opinion Memo, DISB informed COEPTIS "that COEPTIS does not require a money transmitter license pursuant to the District of Columbia [MTA] because ‘the transactions as described do not involve the transmission of money.’ " DISB Letter at 2. DISB also cited Exhibit C, an intra-agency email, dated June 2, 2016, from a DISB Licensing Manager to DISB's Assistant General Counsel ("DISB Email"), which had concluded that the company " ‘is engaged in a two party business model that

514 F.Supp.3d 52

does not involve the transfer of money or a medium of exchange authorized or adopted by a government as part of its currency,’ "...

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