Walnut Creek, California-based Linx Card., Inc., a “Trusted Payment Solution for Dispensaries”, Fined $200,000
On May 16, 2019, Linx Card, Inc. (“Linx”) entered into an order with Oregon’s Department of Consumer and Business Services, Division of Financial Regulation, and agreed to a fine of $200,000 for operating as an unlicensed money transmitter under Oregon law.
The Order sets out exactly how Linx operated to facilitate payments in Oregon cannabis retailers. According to the Order:
- Since [February 2017] Linx operated in Oregon as a business that allows consumers to transfer funds from their personal credit or debit cards onto reloadable payment cards (the “Linx Card”), a physical card with a magnetic stripe, similar to most credit or debit cards.
- Linx has contracted with marijuana dispensaries to create a network of dispensaries that accept Linx Cards. As part of this network, participating marijuana dispensaries distribute the Linx Cards to consumers on Linx’s behalf and assist consumers to load funds onto their Linx Cards. To load these funds, the participating marijuana dispensary swipes a consumer’s credit or debit card in a card reader provided by Linx.
- Funds loaded onto a Linx Card are transferred from a consumer’s credit or debit card to an account owned and controlled by Linx. A participating dispensary does not receive or control any funds as part of the process to load funds onto a Linx Card. After a consumer makes a purchase using a Linx Card, funds are transferred from Linx’s account to the participating dispensary where the purchase was made.
- Any funds loaded onto a Linx Card are redeemable only at marijuana dispensaries that participate in Linx’s network, where consumers may use those funds to purchase marijuana products or other goods sold at such dispensaries.
- After the initial purchase of a Linx Card and loading of funds on that card, consumers may load additional funds onto their Linx Cards at a participating marijuana dispensary or online at Linx’s website. Consumers may also maintain a balance of unused funds on their Linx Cards.
- When consumers load funds onto their Linx Cards, Linx charges them a fee or fees. Between February 6, 2017, and July 31, 2018, approximately 50,005 Oregon consumers made 129,676 load transactions and paid $375,970 in fees to Linx. Consumers have continued to make load transactions and pay fees to Linx.
The Order then provides that, following conversations with the Division, a wholly-owned subsidiary of Linx – GiVV, Inc. – applied for an Oregon money transmitter license in December 2018 and that license was issued on May 1, 2019.
I’ll get back to GiVV, Inc. First, though, to the violations and penalty.
The Director of the Division concluded that Linx is the issuer and seller of a “payment instrument” (the Linx card), and Linx is in the business of receiving money from consumers for transmission, and transmitting money from consumers to marijuana dispensaries that participate in the Linx network, which makes Linx a money transmitter under Oregon (and federal) law.
The penalties are stiff: a civil penalty in an amount not to exceed $1,000 for each violation or, in the case of a continuing violation, $1,000 for each day that the violation continues. The Director fond this to be a continuing violation (continuing since February 6, 2017), and assessed a civil penalty of $200,000. The Director ordered $100,000 to be paid immediately, and the remaining $100,000 suspended for three years and, if Linx complies with the Oregon Money Transmitters Act and the terms and conditions of the Order, the $100,000 would be waived.
What about GiVV, Inc.? According to publicly available sources, GiVV, Inc. is an Australian entity, registered in California (CA entity C3836387) linked to someone named Chris Grant Foster. See www.egivv.com. It appears that GiVV has the merchant account side of the business (rather than the consumer side), and uses a Merchant Category Code of 5947 – Gift, Card, Novelty Stores – for its marijuana retailer/dispensary merchant customers.
Linx Card, Inc. is also a California registered entity (C3986647) managed and controlled by Patrick Hammond (who signed the order on behalf of Linx) with an address of 1990 N. California Blvd, 8th Floor, Walnut Creek, California. According to publicly available information, which I can’t confirm other than to know that it was publicly available, the process for consumers in the marijuana retailer is as follows:
- The marijuana consumer gives the Budtender his or her ID and a bank debit or credit card.
- Budtender opens the Linx terminal and uses the consumer’s ID to create a Linx account.
- Budtender enters the purchase amount and a load fee of $3.00 to “load” the card.
- Budtender swipes the credit/debit card, then enters the credit/debit card number to load the Linx card
- The Linx system draws down the Linx card and credits the dispensary’s Linx account.
- The issuer of the Linx gift card appears to be, or perhaps was, Security State Bank out of St. Paul, Minnesota.
- Transactions appear on the consumer’s credit or debit card statements as “GiVV, Inc.”, not the cannabis retailer.
We’ll have to wait and see if FinCEN comes down on Linx Card, Inc., GiVV, Inc. or any of their principals or beneficial owners for operating as an unlicensed money remitter under federal law: 18 USC s. 1960.
The Oregon order is available at https://dfr.oregon.gov/AdminOrders/enf-orders-2019/LinxConsentOrderSIGG.pdf