Dwolla sued by former Bitcoin exchange, issues statement

A rocky relationship that we wrote about July has reemerged today with news that TradeHill, a former online Bitcoin exchange based in San Francisco and Chile, on Monday filed a federal lawsuit against Dwolla, an online cash transfer startup based in Des Moines. The lawsuit lists nine complaints, including false advertising, breach of contract and

A rocky relationship that we wrote about in July has reemerged today with news that TradeHill, a former online Bitcoin exchange based in San Francisco and Chile, on Monday filed a federal lawsuit against Dwolla, an online cash transfer startup based in Des Moines. The lawsuit lists nine complaints, including false advertising, breach of contract and defamation, and seeks, according to Betabeat’s interview with TradeHill’s attorney, at least $2 million in damages. The lawsuit names Dwolla, its CEO Ben Milne and COO Charise Flynn and five other undetermined defendants.

The story was broke by Betabeat around noon, and was followed by a story from the Des Moines Register, a press release from TradeHill and around 5 p.m. a statement from Dwolla. Leading up to today’s news was the following series of events over a nine-month period:

  • June 8 – TradeHill began accepting Dwolla to allow users to transfer funds in and out of its online Bitcoin exchange. Bitcoin is a peer-to-peer currency that’s not backed by any centralized authority. Bitcoin exchanges allow individuals to buy Bitcoins from one another.
  • July 26 – TradeHill announced it no longer accepts Dwolla because of an issue it experienced with chargebacks. It alleged that after it credited a certain number of user accounts with Bitcoins, Dwolla reversed those users’ payments to TradeHill, leaving TradeHill with lost revenue as it had already sent its users the purchased Bitcoins. In a blog post, TradeHill’s CEO published an open letter to Milne asking for cooperation in the matter.
  • February 13 – TradeHill shut down its Bitcoin exchange citing “increasing regulation” in a blog post. It also said that one of its “payment processors removed over $100,000 dollars” from its account without notice and that it would take legal action against the processor.
  • March 5 – TradeHill files a federal lawsuit (embedded below) against Dwolla, two Dwolla executives and five other undetermined defendants.

In a phone interview today, Dwolla director of communications Jordan Lampe declined to comment but issued a statement from the company via email (below), which states that Dwolla has not yet been formally notified of the lawsuit.

For more on TradeHill’s lawsuit against Dwolla, which Betabeat reported to be the statup’s first, see the embedded lawsuit and Dwolla’s statement below as well as stories from Betabeat and the Register. As details emerge, we’ll update this post as needed or provide further coverage.

For an explanation of Bitcoin, see our post, “Bitcoin: What is it and how is Dwolla involved in its marketplace?


TradeHill’s lawsuit filed against Dwolla


Dwolla’s statement on TradeHill

First and foremost, it is important to note that neither Dwolla, nor any of its management or investors, have been served formal notice of any potential lawsuits. It is also noteworthy that a party making unfounded allegations would likely notify the media of litigation prior to advising the party that it says caused it harm. That said, if served, we will vigorously defend all allegations of wrongdoing in the traditional venues of the judicial system. What we will not do is provide specific comment on specious allegations made by those who have a self-serving interest in seeking publicity.

In the interests of transparency, we’d like to say a few high-level things: Dwolla has always worked closely with merchants to rightfully identify and protect the victims of identity theft. Every day, thousands of users log thousands of successful and legal transactions in one of the industry’s safest ecosystems. Unfortunately, as is a reality with all financial services (e.g. banks, credit cards, etc.), predators can use stolen identities to create fraudulent accounts without a victim’s knowledge. That’s why Dwolla requires numerous identification and verification steps.

A necessary byproduct of this kind of fraud is bank-level reversals, “chargebacks” issued by the institutions on behalf of the victim, not Dwolla. With that said, we will not play accomplice to sources of ongoing fraud. In such cases, we move quickly and act appropriately to facilitate restitution on behalf of the financial institution and its members (the victims). This is required by federal and state consumer protection laws, but more importantly it’s the right thing to do.

Most all merchants are well aware of the problem, which is why we’ve always had something in our terms of service about chargebacks since Day One. Notably, there are certain types of businesses and marketplaces that are continued targets for illegal activity and, just like we work hard to protect and improve our community, a similar expectation should be assumed on behalf of merchants participating in high-risk industries. If any merchant continues to be a source of systemic fraud and we cannot come to an agreement, we will always take the appropriate actions.

In the event that a user or merchant feels as though they have been wronged to the point of litigation, we’ll be happy address their concerns or issues in the court of law. It is their right to do so, as it is our right to rationally and reasonably present our side. So while people may throw a bit of mud on us, it’s important to let the appropriate parties figure this stuff out. This will allow us to focus on what we do best: Build.

In the meantime, Dwolla continues to be a source for hundreds of thousands of transactions, all safe, legal, and cost-effective. Please, don’t hesitate to drop us a line.


Credits: Copy of TradeHill’s lawsuit embedded from Adrianne Jeffries on Scribd.


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