California's Department of Financial Institutions has issued a cease and desist letter to the Bitcoin Foundation for "allegedly engaging in the business of money transmission without a license or proper authorization," according to Forbes. The news comes after Bitcoin held its "Future of Payments" conference in San Jose last month. (The license information is available on CA.gov and Forbes placed the cease and desist letter on Scribd.)

If found in violation, penalties range from $1,000 to $2,500 per violation per day plus criminal prosecution (which could lead to more fines and possibly imprisonment). Under federal law, it's also a felony "to engage in the business of money transmission without the appropriate state license or failure to register with the US Treasury Department," according to Forbes. Penalties under that law could be up to five years in prison and a $250,000 fine.

Jon Matonis, a member of the Bitcoin Foundation's Board of Directors, wrote up the news for Forbes. Matonis defended the Bitcoin Foundation's actions during its time in California:

One activity that the foundation does not engage in is the owning, controlling, or conducting of money transmission business. Furthermore, that activity would also be against the original charter of the foundation. As general counsel for the Bitcoin Foundation, Patrick Murck has lead responsibility for corresponding with the California Department of Financial Institutions. At this stage, it’s difficult to tell whether or not it was a general blanket action and if other bitcoin-related entities received cease and desist letters from California. If Bitcoin Foundation was not the only recipient, then expect other companies to come forward in the days and weeks ahead.

This isn't the first time a payment service has run into state-level cease and desists. In March, Square received a similar letter from Illinois (PDF). Illinois claimed Square was not observing the state's Transmitters of Money act because it did not have the proper licensing.

The letter Bitcoin received is dated May 30. It states that the foundation has 20 days from the issued date to inform the states of steps taken to comply. Matonis did not address if Bitcoin took such actions in his Forbes piece.