States Put Heat on Bitcoin

State regulators are warning virtual-currency exchanges and other companies that deal with bitcoin that they could be closed down if their activities run afoul of state money-transmission laws, according to people familiar with the matter.

Banking regulators in California, New York and Virginia in recent weeks have issued letters telling the companies that they need to follow the state rules or prove that the rules don't apply to them. The warnings fall short of formal "cease and desist" orders, which would demand that the companies immediately stop engaging in their business, these people said. Still, the moves show that state regulators have moved beyond merely scrutinizing virtual currencies and now are taking steps to prevent people and companies from using them for illegal activities. Federal regulators already are cracking down on virtual currencies.