Bitcoin Law Review – QuadrigaCX, Mitchell Espinoza, Civil Liberties Group vs SEC, & More!



oh I think I want long live by accident okay hello I didn't realize it hey guys welcome to another episode of Bitcoin law review with your host own face we got a full show for you today we got three lawyer starting off right now we got three more they're gonna come in over time I get ready because this might be a long one and we got lots of topics for you let's start with very brief introductions even though I don't think Jason Seaver no longer needs an introduction on my show my fan I do if you're gonna keep mispronouncing my name tone its cyber is your god sake honey brought your name Seibert have you ever had it's not beer tone have you ever had a Steen of beard know you've got a Stein of beer yeah beans ketchup yeah hi for god sakes one thing right on just one thing [Laughter] all right well as my introduction by the way very Jason Seifer are you working on any cases these days or are you just out boating well I've been doing a lot of boating but what I've been focusing on for the most part is I'm doing some advising of a few companies that are looking to enter the crypto space and lately I've been writing quite a few legal opinions on on coins for exchanges so that that's been the focus of my practice also still mentoring young law students and new attorneys on on the intersection of securities law and crypto kind of continuing the work that I did in Panama last year so enjoying teaching and trying to get more attorneys in this space gotcha all right very cool I'll go over to Sasha Sasha how are you doing pretty good thanks for having us on the show today I'm excited to be here ya know and thanks for coming out on confiscate a baller was just I you and David silver made it out did the law panel the law panel was great you ended up writing an article about f bar I can do a quick screen share maybe you can give us a very quick summary on now why you wrote it yeah sure thing that was a great question the guy asked what happens after like if you buy Bitcoin on coinbase and then move it to your hardware wallet is it considered international banking funds was kind of the crux of his question and I had never considered that before so it was a it was a is really one of those questions that makes you think you know if Bitcoin is held on the nodes all around the world is it international and then when we read the f bar guidance that the IRS has provided it's pretty specific that it has to be a banking relationship like you have to have control over a banking deposited or something along those lines and then we looked further into it so if you're hold and then crypto tax girl from Twitter she had actually done a report on this as well and she heard back from the IRS that if you are holding over ten thousand dollars of crypto assets accumulative on exchanges that are outside of the US you would be required to file this F bar which just basically lets get IRS know that you have the assets but also carries a penalty of twelve thousand dollars for not doing so but you don't need to do it for your own Bitcoin that's not considered if you scroll up a little bit I have the definition of what is required it's like would be no keep one more paragraph or two more up sorry yeah I think that's it there um it's like if you have ten thousand or more or signing authority over a foreign financial account including a bank account brokerage account mutual fund trust or other type of foreign financial account you have to let the IRS know so that was I think these were created to kind of combat people you know hiding money in like a Switzerland or the Cayman Islands and yeah they put a steep penalty in place but again it's one of these things how are they really going to know if if if you haven't kyc Don these crypto exchanges it's it's it would be I guess it you know the only prudent answer a lawyer can give is if you have ten thousand or more on one of these exchanges you'd probably should report Greg if you remove the word probably even right and that's uh ya know F bar has caused a lot of people a lot of havoc I mean I've seen it firsthand being in the world of finance where we had people dot you know had like joint accounts with like their mother in their home countries and they ended up getting like destroyed by f bar as if they're like hiding money uh I mean like this law went a little bit overboard with their intentions but you can imagine and like it it's like your mom savings and you happen to have your knee and she happens to have your name on the account and then you're also like a US citizen or US national now but your mom is foreign and all of a sudden you owe the government like tens of thousands of dollars and penalties and it's not penalties for the assets or any tax consequence it's just penalties for not telling them like not giving them a magnifying glass into your life right alright and so thanks for the update on that and I bill how are you been man haven't seen you in a while I think I've only done like one or two of these shows sparingly and you missed one or both of them so good to have you back yeah thank you it's nice to be back it is just dawn here on the west coast Bill Restless I'm an attorney in San Diego California my firm is Restless law firm I have for a lot of years worked in the securities class action space plaintiffs class actions and when I opened my new firm about a year and a half ago I started getting involved in the crypto class actions on one on the lead plaintiff team lead counsel team in the tezo's case I also have a case against coinbase for for failing to deliver unclaimed Bitcoin that was sent by email to third parties and I also have been advising blockchain startups and entrepreneurs looking to raise funds and get consulting for their for their new businesses i've been busy the past a couple of weeks working on a very large dispute between some owners of a few entities here in california so i have not been in the blockchain space recently but you just put up there that we and it's early in california – so excuse me with with my lack of coherence but we good yeah pulled up office that puzzle oh you have on your screen there the motion for class certification in the Tesla's case that was filed about two weeks ago and it has some very interesting a class certain is really a procedural motion and it tests whether there's a sufficient basis to tie everyone together in a class and the court will be ruling on that probably by I would say June and then we will see whether it is a case that you know involves thousands and thousands of people or whether it's a case that involves the named plaintiffs I have a strong feeling that it this is a case that is very certifiable and we will see the case certified but you never know so bill can I ask you a question on that sure I don't know whether I can answer it but I can tell you what's in the in the docs sure as the as the Tasos independent group that kind of formed that 1200 or so community and they'd they filed their briefs yet or that enough to file anything beside the defendants in the case it would be it at the opposition to the motion which i think is going to be in mid-march sure I just kind of heard through the grapevine that there may be a group trying to file either an intervener or an amicus claiming that that they're not part of the class and an attempt to break up the class but if that hasn't happened yet then I won't ask you to comment on it well I'll just say this you know I think there's some misconception about what the case is seeking you know some people think hear the term rescission and they think that it is going to force everyone who invested in the tezo's ico to unwind their transaction and that's not a medication yeah it's it's optional if you if the court were to rule that this was an unregistered and illegal securities offering under the under the Securities Act then that would give any member of the class the option the right to rescind their transaction and would not automatically unwind their transaction so I don't know anyone in the class would not think that that's a benefit particularly since tezo's now is very much underwater or relative to the particularly notable investor what did that like 37 cents versus 50 cents it's like 37 cents I think so you know you need to people like to confuse these things with US dollars versus the crypto currency the etherium or Bitcoin that was contributed to it right just because something is up in US dollar terms from its ICO strike price doesn't mean that it's down it's not down in terms of the Bitcoin that was contributed and so that is a net loss at this point yeah that's all I'll say about it but I think that that's some self-evident no and I don't you and I have spoken offline quite a bit about the tasers issue and I know that you can't speak to it and I won't reveal our conversations I just I find the entire thing interesting from a game theory standpoint of how and when people decide to jump in and jump out and receive so it's an interesting case to be sure the jurisdictional question alone just fascinates favorite yeah you know an interesting thing about the jurisdictional questions so Sasha was just talking about and it's too early I can't remember the name of the statute that is intended to cover you know Swiss and Cayman Islands bank accounts hey f bar that's right you know so I think that what we're going to see is that f bar may be treated in the way that US courts are starting to treat the the jurisdictional limitations of the Securities Act so to unwind to rewind a little bit judge Seaborg in the tezo's case was dealing with the issue of whether you can apply the US securities laws to transactions that in some respect may have been had a global reach right this was an ICO that that dealt with people from around the world so under US law you can only apply the US securities laws if the transaction to summarize and without going into detail if the transaction took place within the United States and what judge Seaborg said was that the the Bitcoin in aetherium nodes are distributed around the world but the predominant number of them are located in the United States so they look back up a second so that the people watching aren't confused the transaction doesn't have to wholly take place in the United States just one part of the transaction right yeah there is a and again it's alright do you buy or you sell from in the United States or idle has to transfer in the US or there's that there's a two part there's a two part test where it's an either/or and I'm blanking now but it effectively is that the transaction title has to pass funds have to pass in the US and so what that means if you look at it from a blockchain perspective and you'll see that in the motion the class certification is you know at least in the context of the tezo's ico when someone went to the the ICO website and clicked contribute the the funds were immediately debited from their Bitcoin wallet address or aetherium wallet address and sent to the Tesla Foundation and so because those nodes are clustered in the US or a significant portion of them are clustered in the US the judge at least on the motion to dismiss and he hasn't ruled on this definitively at least with the motion to dismiss the judge said you know that is that is sufficient to hold that the title passed in the US and I think that at least with respect to US law judges try to have consistent reasoning and so if you look at the f bar statute that it's very possible that courts may take this type of analysis and apply it to blockchain transactions you know it exchanges that are not not US based no this is the exact same way that the Southern District of New York its jurisdiction over anybody in the United States through the banking system because that they say that the majority the banking system has computer systems that are in New York and therefore funds must have transferred at some point in time through New York in order to give the Southern District jurisdiction they did the same thing in the shavers criminal case so I think the recipe for the courts and prosecutors is there they just have to slightly change the language a little bit check their boxes on using that similar which for those financial crimes and I think those courts can't have jurisdiction but not to get too far out we have so many things to talk about yes sir so that's my introduction good morning all right no no thanks for that guys it was actually very very informative let's jump into a couple of other quick updates before we get into the meat of our stories so New York that people continue to file for the crazy New York bitlicense and another company just got approved 88 additional Bitcoin ATMs are now approved in New York I mean I I don't feel like there's Bitcoin ATMs all over in New York City but New York City is a pretty big place I know Texas has a bunch of ATM machines as well I I know a company in Florida does ATM machines they do hackathons there and California I'm sure has some as well so maybe a quick word on where do you guys see the legal structure around Bitcoin ATMs and how is that working in your respective states I guess let's start with Sasha well my state just had a wrench you know thrown at it with this Espinoza case that I think they're hold you up it up yeah but but yeah the ATM situation is is interesting like most states allow you to operate as long as you have the federal FinCEN license and then there's a you know a bit more than a handful that you require the state license in and and so it's just easier not to operate in those states as much in New York is kind of the heaviest regulated spot um but it's good that some companies are getting through the process I understand it takes several years I just submitted my first application about two weeks ago and we've yet to hear back yet but I expect it'll be quite a bit of back and forth as we go through go through the process and it you know in the end it's probably going to create a very heavy compliance program that the the guy that's been you know been moving it forward he he he doesn't mind complying with it if it means like he's the business person and so if you can get the New York license it's kind of like a barrier to entry or it creates a monopoly but the ones that get the approval stand to make a lot of money so that company that's got the eighty-eight machines there they kind of you know they're they're probably gonna do quite well financially over the next couple years all right cool ah bill let's not over to you anything you've heard California anything come across your radar in the ATM space no I I have to give you radio silence on this one I got it AJ said I'll buy you out in Texas any anything come across your radar in the ATM world now Jason is getting a parking ticket I think for parking and speaking all right let's uh sorry about that I'm I'm actually at the boatyard where one of my votes is being repaired missus quiet as spot as in might truck and one of the guys that's doing the maintenance has to come off my job and he's got to go fix a cooling tower so he was just letting me know that that he was going to do that I'm sorry you were asking about Bitcoin machines in Texas yes yeah anything anything come across your radar just to give us a general update on any interesting news coming out of the ETM space in Texas you may or may not know anything not so a few years ago there was a little bit of an audit that was done on one of the machines I think Sheldon is one of the largest operators in Texas he had been basically running the full compliance program to begin with Texas has very liberal rules when it comes to to crypto and money transfer it's very easy to comply in Texas so based on that and the the co-operative regulatory environment there really haven't been any any issues that that I've seen or come across now that doesn't mean there haven't been any but you know I can't I can't follow everything I love solids do one more update finra released its 2019 annual risk monitoring and examination priorities letter it's a little too long and beyond my attention span sasha did you skim through this read it maybe he give us a quick update what this kind of let what this annual letter is and does it have any kind of relevance to us I did I haven't given it as in-depth of a raid as I would like but some of the highlights that it had word that it basically is looking at risk relating to associated people in problematic regular to with problematic regulatory history so basically what that saying is that I think they're looking heavily at crypto companies like that's what they define as problematic regulatory history and they want to know whether firms have adequate cybersecurity programs that will allow protection of people's personally identifiable information and they did publish a pretty comprehensive report of what that cybersecurity program should look like and gave kind of a model for how to store the sensitive material and they also said they had some concerns you know that a lot the industry standards are not up to par with with what they'd like people to be doing and not just in our industry but in all finance you know all of all of the areas that FINRA monitors which also includes like traditional broker dealers and they said that they want to evaluate basically how people are meeting the AML requirements and then they're also looking at platforms that are issuing Regulation D offerings and want to evaluate how those firms are assessing risk for sales to non-accredited investors and what escrow agreements look like or what they're you know what their whole escrow arrangements are looking like and I remember when I was working for well me and another student while we were in law school we started this platform for the JOBS Act like it we got the FINRA license to to basically sell these red D or like you know the new things that were coming out and that was the biggest thing was how were we s growing the funds and we had to get a special escrow agent set up that like while the one-year wait time was being waited on and we weren't talking about crypto at that time it was just any traditional reg D offering you had to hold the customers money in a special escrow like a licensed escrow agent and I think that's a pretty drastic difference than what what we would be proposing to you know if someone's doing a reg d security token offering there's no formal escrow agent set up for where their money is and where the tokens go and how that process works so I think that's kind of what they're what they're focused on and yeah it was that it was a good report well it was a interesting read all right they're just I'm gonna head over to Jason real quick we probably should have gone through definitions and I Jason was pretty good at that on a Jason so before you comment I don't know if you read this or not but if you can give us the definition of like FINRA the Financial Industry Regulatory Authority like what do they actually do and maybe you know just people what Regulation D is ready so the financial industries regulatory authority is the self regulating body that effectively monitors and and and self regulates the stock exchanges Nasdaq and New York Stock Exchange in the United States so if you have a complaint against a broker you file a complaint against a broker through FINRA arbitration they have arbitration services they have all kinds of rules on on testing and yeah basically if you want to be a broker you have to be licensed you would go through so that's very 30,000 foot view of what different doesn't self-regulate so women are follow so sooner isn't funded by tax dollars more of a private organization correct thinner is a self regulating agency it's not a government agency it's what we would call a quasi governmental agency okay great yeah so then reg D under 506 you have exempt offerings where you're you where the SEC has said that you can't regulate everything you don't need bells and whistles for everything we don't pull disclosure documents we don't need quarterly filings there's certain types of offerings that exist in the world where there are people that are either can suffer losses or sophisticated enough to where they can fend for themselves that they don't need government oversight to the extent that you would get with something else that's an SEC filing not a finra filing okay so the the SEC then creates these exemptions from whole filings under Regulation D and the most popular is your regulation the 506 b offering io6 B allows for an unlimited amount of accredited investors and up to 35 sophisticated investors to be sold to within an offering for an unlimited amount of offering but with a 506 b offering you're not allowed to advertise 506 C offerings same thing but you can advertise the difference is in your requirements for your investors that are going to get involved in your program under 506 B the the investors who claim to be accredited and can self affirm their accreditation and under 506 C the investors that are going to get involved if you're selling to them you need to get some form of third-party proof either from an accountant or an attorney to certify that that that investor isn't backed accredited so there's a there's a few distinctions in that now the main thing that I think has been the biggest change in the last couple years is a reg a plus filing which is your your crowd crowdfunding filing which allows you to sell the non-accredited investors through an alternative portal but there is a mandatory one-year lock up on those securities that are sold to those non-accredited investors unless they're going to sell to an accredited investor so accredited investors are able to move reggae Plus issuances all they want and non-accredited are not allowed to sell to other non-accredited investors but they can sell to the credit that answer your question yeah it did I have one more though on how broad is their definition of not allowed to advertise so advertising is an interesting subjective term like you can do a podcast tone and you can say hey you know I I do this better together and I'm an expert in analyzing crypto assets someone may see that as advertisement if in the backend your motive is to get people to contact you to purchase your services or to purchase securities based on your advice if somebody says I'm an expert on on this side or the other or this is gray and contact me to buy that's clear advertising right so that line of what is and what isn't advertising is generally considered to be the kind of it's not a bright line test but it's a rubric of is this are the statements being made intended to motivate or influence the listener in order to acquire the thing that that is being sold so that's a very seductive yeah I got it so so on that episode where we you know like we're gruelling bruce fenton where we advertising raven coin no no no we're not associated with Raven coin so we can rip it apart all we want but if within that conversation where we were ripping bruce fenton if Bruce said look Raven point is great everybody should buy it that may be seen as an advertising statement and so if Raven was under a 506 b offering which they're not they would then violate 506 b because they may have engaged and advertised now to Bruce his own admission he spent months prior to the launch the Raven claim on a rogue show right going to conferences talking about Raven cawing talking about the project a roadshow is advertising so you know the rules are a little funky on on when that crosses over but to allow those private offerings and to allow TRO shows is why they created 506 C in my analysis again very high level not wanting to go into each year yeah no God no that's good because we could also go into or I guess which is the international stuff and now it's well that's what Main Street investments Jayson Granger and Charlie Shrem wanted to do was a red gas by selling shares of an American company outside of the US on the etherion blockchain right so we think I would talk from out of that one and what's that I said thank God we caught some out of duelin that one man I was so bad now keep in mind for any of these exemptions for any of the folks that are out there watching that are thinking that they're gonna file these exemptions or want to work with it there's two things that eliminate your exemptions one for a reg as if you're filing a radagast with a specific intent of avoiding US law you lose that exemption and I think in the Main Street investments deal there had been a an interview that Charlie had given in one of the coin magazines where he said the reason they were doing this was they were trying to avoid regulation in the US and that was just they just destroyed their exemption at that point but if you're committing fraud all of these exemptions go away as well and Bill knows this there is no exemption for fraud so the moment frauds involve any exemption that you may be claiming or wanting to to work with all of those exemptions are immediately denied on a fine so just a last thing there before I take give my take on this FINRA fraud is not only fraud in the sense that we all think of it that you are consciously trying to take money from people by false pretences the securities laws require you to be truthful and everything that you disclose so if you just post something and you omit a fact that is necessary to make what you said not misleading that's considered fraud as well so not only that brings us to Quadra CX right the guy never told anybody that he was actually a different person and was running under a fake name yeah it's surprising what the securities laws will will constitute what securities fraud can be construed as so it's it's it's based on what is material to a reasonable investor so if I if a reasonable investor would think that the identity of the person operating the exchanges is important and I think that most people would think that that's that is that would be it could be construed as securities fraud so it's really only what you disclose what you fail to disclose that would would put you in that box now I think I think this is all directed towards the the burgeoning sto market and the reason that FINRA is concerned about this or is focusing on this is because now we are in 2019 where the ico is you know at least in the united and so everyone is trying well then just say let me turn this down so I think I've got some echo in the background so everyone now is trying to find compliant ways to raise money for their projects and the sto is is the next big thing so what what defender is focused on is is really some very interesting issues in the sto market like custody of assets whether there are sufficient issues excuse me sufficient protocols in place to ensure that the smart contracts that form the basis of these stos are secured whether whether there's proper custody of the funds so I haven't gone into into detail on this but you know for me that's what it's directed towards and I think that's a good thing we need clarity that you know the sto market is something that's brand new I have people come to me a lot that want to do them and I although I've you know help clients do the offering and and raise the funds pursuant to the exemptions that Jason is talking about I haven't actually found a good case for an sto yet and it's because there are all of these issues that that don't necessarily make it beneficial for a founder or a start-up to use the sto market yet I think well a bit more clarity and a little bit more maturity in the market before I'm recommending that to my clients I looked and I had talked about that in in my q4 predictions that without liquidity in the market and the availability for these sto assets to be actively traded the incentive for a company to go down that path isn't there because what they're seeking which is you know an increasing value in that market just isn't there because there's there isn't the activity it's kind of a chicken and egg thing and until there's more people that are using it yeah the markets just not there for it to succeed I mean in the sense though if you if I'm if I'm an investor and I buy a share in a reg be offering there's no liquidity for that market now so I suspect that we're going to have an improvement in liquidity for you know these these sto these sto offerings the problem is is if you just put them on you know let's say T 0 or securitized I think those are the two I haven't heard of anyone else who has launched a platform yet if you do a reg D Sto it's got a lock-up period of let's say six months or a year and suddenly now you're an investor in one of these stos and you say okay awesome I'm gonna I'm going to trade my shares of X offering on t0 you may find yourself in a very lonely environment with some tumbleweeds rolling across your screen because there's no one there to invest in it and if in if there and if there is you're going to have I think it's going to be more of it's really going to be more even though it's automated and like an over-the-counter market where price discovery is not available and liquidity is not there so we're gonna have some really interesting now that doesn't mean it's not better than the system that we have but I could talk about all you know all the issues if I have my my coffee but I'll shut up now all right thanks guys yeah well it's uh we should probably get into our actual topics when I say hello David silver before we get to David just very quick one sentence answer should deliberate Ariens be hostile to FINRA the way they are to the SEC and the CFTC and every other government agency its FINRA like a friend of the free market and the people that like yeah I think you know remember dinner was not a government agency right but they act as an arm of the SEC in a huge way they've even contacted when we were running that crowdfunding portal FINRA wanted to know of anyone that had contacted regarding crypto and I think like there there's there's got to be memorandum of understanding with an information sharing between the two agencies and I think thin wrist primary purpose is to reach the same goal as the SEC which is to protect investors which means putting regulations in place that would be opposite to libertarians ideology it's a fundraiser and you're raising funds it is it behooves anyone who is an investor in those funds to have some sort of either SEC offender oversight no one wants why do you really want Wild West capitalism this is what caused the 1929 market crash in the US and the creation of the Securities Act of 1933 I don't think we want to go backwards ya know I kind of somewhat agree with that hey David thanks for joining us man Amen thanks for letting me on morning David morning everybody let's uh let's put finra to rest for a second and we are gonna move on with our actual stories while i did the introductions took longer than expected but there was a lot of really good information there so you know where's my next one okay so our first story let's try to make this one quick because the meat is coming in later on with a quadriga so this is a lawsuit filed by the Cato Institute along with the civil liberties group against the SEC versus like saying that the SEC settles like 98 percent of all their cases out of court and those that you know they do they don't admit guilt they pay a fine and then the SEC can enforce a lifetime gag order that they can't even talk about you know what was discussed now this is the actual or one of these the actual lawsuit a couple of things here for you which one is which so here is the actual lawsuit from the Cato Institute Sasha I think you look through it how's this looking how do you think they think they got a shot at this and the SEC will now have to go to court with everyone it's really high to say but I think the there's a lot of merit to what they're saying basically they're saying it's a violation of your speech to you know have a lifetime gag order they have standing because they're trying to publish a book where one of the people that would would be a contributor to the book is unable to make any comments because of this gag order and they're saying that it's a content-based speech regulation which is presumptively invalid because these type of content-based regulations are unconstitutional and less than narrowly searched narrowly tailored to serve a compelling government interest and you know in a lot of the interest in these ones of keeping people quiet it's gonna be hard to say that that's a compelling government interest compelling means it's like the highest priority like very very important reason to keep this person quiet like it's a matter of national security and usually in the sec things it's people have neither been like proven guilty they just they settle they paid the SEC some money and then they're told they have to forever remain quiet and it hasn't even been proven that they've done a violation of any securities laws so I'm really I really enjoyed reading this I thought Cato made excellent points and I'll be I'll be interested to see how the SEC responds you know David let's uh let's get you on this I don't know if you are familiar with this if you want to comment or we can get a comment on one of your cases which is point signal scam and then we'll see if Jason or Bill have any comments on the Cato lawsuit and then we'll move on to more crypto related I'll jump in on the caddos lawsuit for a second I mean the problem you know this is one side of the argument Judge Rakoff in New York has been a thorn in the side of the SEC for a while about similar things first let's talk about what about the gag the gag rule that is it's for settling defendant the main defendant that this case is talking about the Goff file does a guy who played plea bargain plead guilty to both the civil and criminal infractions you take a plea you know you can always you know dictate the terms the question is is the sec so big that they're intimidating people into taking a settlement agreement frankly all settlement agreements contain you know usually especially in my cases everyone always asked me how come i never talk about my victories well when I sign a settlement agreement in crypto I tell you every single time they make me include a confidentiality provision that is effectively the gag rule so it's not just the SEC who requires this defendants who require this to if they're gonna change the rule and you have to universally change the rule and then defendants aren't going to be allowed to have confidence yeah all the agreements so it's either good or bad you can't have it both ways and in the end of the day I think that if you voluntarily get into a settlement agreement you're gonna be have to live by the agreement you make so I don't think this is going to get very far David what do you think of the fact that SEC has the ability to freeze the defendants assets so they can't even hire an attorney in some cases versus in the civil one there's no like no one side has a lot more power over someone's financial assets well again I won't move on wait I have put in several motions at the beginning of my plaintiffs claims to ask the court to seize the assets of the defendant in order to keep my clients money from running out the door so that's not just a tool that the SEC has anybody in a civil case can do that exactly and I'm in New York tomorrow on the case that taunja showed the coin signals case where the guy ran a fake ten million dollar hedge fund and that wants to pay his lawyers at Ballard's far $800 an hour with my clients money I mean defendants wanted both ways they want to be able to say you can't gag me and you can't stop me I'm just saying it goes both ways at the end of the day you have to take if you want to to a settlement agreement to avoid litigation then you got live by the terms of that settlement why is it I'm not allowed to talk about my nano case and what you know that why we dismissed the case because we entered into a settlement agreement the difference David I mean this is this is a the First Amendment right so and that applies to government restrictions on speech so no restriction this is that this is an agreed upon contract settlement agreement between parties where they elect on an end result and they've contracted to say neither of us are going to talk about this well no III understand what you guys are coming from but but let's look at the government purpose behind this so the first amendment deals with you have to have a compelling state purpose now obviously what this gag regulation is supposed to do is to make sure that someone doesn't settle with the SEC and then later on go out into the into the investment industry and say well you know that I didn't really do anything wrong and you know it was just to get rid of get the SEC off in my back I think that's a narrowly what it is yeah I mean so I think that's the purpose that the SEC is attempting to to accomplish that so so one of the things that's happening here right it is the SEC – an administrative action comes in and they want to do an investigation they and they don't have the resources to put a hundred hours into an investigation before they start an investigation and start involving people so at that point if I'm a defense lawyer I appreciate the fact that all investigations are confidential anything that happens in investigations is confidential because the last thing you want if you're representing a company is the SEC on day one of their investigation to go out in the world and say company ABC is committing fraud if you're a publicly exchange company that impacts the price it reduces consumer confidence it impacts the market so having that level of you know confidentiality during the investigation phase works great for both parties it allows them to be able to exchange information come to some conclusion in the end and if there is nothing that's found wrong then nobody knows the markets not impacted if there is something and there is you know some form of a violation that occurs you can settle the market under interprets the settlement as there was something that's going on wrong yes you see did its job the market continued forward I see good and bad from that I've represented clients that have been involved in the SEC and are like I want to be able to talk about that I said great take it out of the administrative action tell the SEC to sue you in court and that everybody knows about all of this it's you have tools as a litigator as you know to take things out of the administrative world and put them into the civil court through the court rooms where it's open for the public estate so I think while this is an interesting interesting case of attacking the practice what I'm saying is that a good litigator can avoid all of these things by advising their client on how to move forward and not even getting themselves through the confidentiality scenario to give them so I think there's a misconception that this is somehow some oppressive thing that the SEC mandates or or gets away with all of these things happen at the end result a final basis of positions of Pat's won't the course of conflict well and I I don't disagree with that but I think that if you look at this dig because the analysis that the court is going to do under the First Amendment is whether the regulation is narrowly tailored to fit the purpose and I would not be surprised if the court looks at it and says that it's over broad and needs to be retooled and more narrowly tailored we'll see agree with that I mean I think at the end of the day there's hypocrisy in the rule and the way it's utilized but going on with Jason just said it since we're a crypto shell I mean right now the SEC the CFTC Vinson and everybody is investigating coinbase crack in Polonius Gemini every exchange out there and they've already come to some deferred prosecution agreements with some of the exchanges so confidentiality is part of the investigators war chest and how they're used and how the government uses it but it's also part of the defendants you know when they settle the cases that they get to go around making statements that are just blatantly false but there's a confidentiality provision that they made the people go away and don't even get me started on arbitration provisions where companies in crypto are lying about getting sued because all the cases are in our confidential arbitration the confidentiality and the gag rule is just a tool and I think a big they I think people better be careful about this might be be careful what you wish for room God wants to punish you he grants you exactly what you're asking for here if the courts eliminate the gag rule all of a sudden there is going to be a run on people who say well my First Amendment rights are being compromised in my confidential settlement agreements in in the tangential litigation and everyone's gonna be allowed to tell their side of this truth and southern way litigation is going to double in price and no one's gonna want to settle cases you're gonna want the SEC season to say well if we can't settle the cases now we have to drag on the investigations so all I'm gonna say is you gotta be careful what you ask for sometimes you get it all right but some hey let's stay with you David for a second I'm not very familiar with this case and I do need to read more about it but what's going on with coin signal because it sounds like they were like a like a group through telegram and I guess they got were they a pave group just just give us some background on this I'm very curious don't wait to read more about it so coin signals is run by a young guy named Jeremy Spence who you know had the right time was taking investor funds to invest in bit mechs mostly he was running this through bit mechs and investing trade on bit he was trading on bit mechs and a lot of the timeline goes to bid mechs shutting down accounts for US citizens so he raises he starts a telegram group he doesn't charge you to be in the telegram group but if you get into his private telegram group in order to stay you have to give him money to invest he starts a phone call the telegram always yeah yeah so he then he then raises and he claims to have a qualm pot the trades and is beating the market and it turns out when bit men shut down you know the u.s. logins and starts going after it stopping some of the US traders in about October he announces that he's been hacked it's a lot of the money's missing he then in December announces that he lied about everything it was it was a Ponzi scheme he literally puts out there you know mother the telegram chats that he used the he used new investor money to pay off older investors I mean everything you can say wrong he then says I've come up with a distribution for the fund I'm gonna liquidate the fund and distribute the assets and the way we're gonna distribute it is we're gonna give the early investors what their entitlement is based on what I promised them and not give the newer investors their principal back it's like everything wrong and then this shut up only in the crypto space like how old is this guy I mean like in actually that this isn't this isn't limited only to the crypto space that this happens everywhere see Jason I'm starting to agree with you more and more I say that all the time it's not just crypto it's just the you know a new area for old fraud so Jeremy is gonna be in Courtney we're in New York at the tiara he's actually stipulated to the permanent injunction but he you know he's really you know he keeps changing his story and admitting he's a pathological liar so it's kind of like I don't even know Alya I've never been a court before where the judge already ruled on the tiara motion and he's like I'm just relying on everything the defendant has said publicly and the opposing counsel was like yeah he said this judge we haven't that we he was wrong it's literally the opening line is I'm a pathological liar and I've lied about everything well I really wish you well on this one David I had a chance to look at this case and I because it was a Ponzi scheme and you know I hope that there's funds that are collectible for the investors and that it didn't all go to hookers and blow but it's it's shocking to me really and I just I have to everyone that's listening even even the most sophisticated traders at the most sophisticated investors on Wall Street rarely have a bot that can consistently beat the market so if anyone is telling you magic box bill it's the magic box it's a black of the magic box I mean money go ahead and more money comes out just don't be stupid I mean if it sounds too good to be true it is and if it's some idiot in a chat room on the Internet who's running a boilermaker whether it was a boiler room investment fund you're gonna lose your money and it's a scam they sent me bills questions to them and I told them cuz they want to build first they had to pay me more money cuz those leftovers I need to be paid I need to be paid more money to handle that that the case okay Jim Burke case we did together oh yeah of course that it's a great case I like Jim the guy literally the guy who clean the guy who stole the money on LinkedIn claimed to be a janitor who got our to give over a former NFL and Super Bowl MVP invested with yet special quant analysis and what we were doing the deposition is we pulled out his LinkedIn and we're like are you really a janitor he was like let's like maduro being the president of Venezuela and deciding economic policy it's the same thing yeah so so there are a lot of people that have magic boxes one of the cases that happen in Florida you remember David was valhalla funds in art Nadel and Valhalla funds claim that art Nadel was this genius and he had this magic box right what people didn't know is that art Nadel had been disbarred in New York for stealing client trust-fund money to pay off loan sharks and his magic box was taking new retirement money in the Valhalla funds and day trading penny stocks from losing it all so you know be wary of the magic box yeah in this case this case is especially interesting and one of the reasons you know it is that everything about the case and this is what separates it a little bit from other cases everything about it was Spain you know nowadays especially in crypto you know the icos they were pitching an idea without a company behind it here you know everyone's like well we were following the bomb we saw the numbers yeah it's just it's really it really is a sad way you know this is no different than bit connect there's no special you know bomb out there that can get you a 20% ROI on your money every two weeks anyone who's promising you more than a 10% ROI over a year they're doing something wrong all right scroll back up to that blank screen that's the one where he admits he was lying for the last two months wait this one no no it was the eighth full screen was dark he's like I've been lying to you for the last two months so all the money's gone sorry to tell you this was one of the easiest complaints I ever had a riot bad I don't worry about it there is no no yeah I've spent the past too much hi my Troy downs with lies and deceit I continued I was in to be able to in a better state but it never came I sincerely apologize you know David I just want to say something to everybody that's watching out there right now don't drunk text you're good especially if you're a scammer just don't drunk text your guilt right contact a lawyer you can drunk text your lawyer and it's confidential but don't don't put it on Twitter man just you know I I'm just curious and you may not know this yet but does he have funds to return to the investors of course he just hired balance bar I mean that's $700 an hour he's got somewhere to pay fancy lawyers I see this all the time I love when fancy law firms come into my cases it means the bad man has some money somewhere all right quick question ah two questions actually I don't want to move on to the next story and I think Drew is with us so everybody might so what does this do for you no other group there are other popular traders or rather see this is why I'm so careful I get text messaged every day somebody wants me to like retweet them because it will give them like instant popularity and I basically tell everybody that I don't do that because I'm not an idiot and so what does this do to other crypto people that were promoting this guy and my other question is how does this look on bit max considering they're no kyc over a bit max so on I don't know if you want to take this one day even real quick because we have about four more stories and I want to introduce you in here so we we have started suing the promoters and our law suits you know they're still working the way through the court system as to how much liability the promoters are gonna get Twitter thankfully is starting to work with us identifying promoters based on their Twitter handles but you know it's also easy to get around Twitter's kyc policies the bit max is not working with us yet so you know if that's problematic in and of itself but nowadays I pretty much had a process when I start one of these lawsuits that immediately we send we get a temporary restraining order against the defendants and we subpoena every exchange in the globe that's willing to work with the US courts and it's a pretty sophisticated process but I've got him really good at it over the last year of the moment I have a court order I know exactly across the globe what exchange is gonna freeze assets and which exchanges aren't which also gives me the ability to tell you which exchanges are legitimate and which ones are gotcha all right let me stop screenshare for a second I drew in cats thank you for joining us it's been a while since you've been on oh man give us a quick intro hey Cho thanks for having me I'm drew Henkes friend of the show occasional joiner thanks for having me very briefly I'm sorry I'm general counsel of Athena blockchain we're a US investment bank helping the folks to raise money by issuing securities in tokenized form I'm also an adjunct professor at NYU School of Law and anyway is school Stern School of Business where I teach a class with Professor David year Mack called digital currencies blockchains in the future of the financial services industry I'm not teaching this semester which means that I get to actually spend time at home and hope to be able to join you and our other scheme panelists a little more often now that I'm not constantly traveling sweet hey guys I have we've been out for about an hour I gotta ask who's got time restraints and who has to leave soon and we do have four more topics you guys know what they are so if you have to leave soon let me know which topic you want to go to next otherwise we're gonna pick up with Cindy axon and her Billy Jonah I've got to jump off about 15 minutes and and just wanted to talk about Espinosa is that okay if we do that that's great we can jump straight to Espinosa that's perfect no no no that's good this is why I ask let's let's get this Espinosa was gonna be our next topic so we'll go to it quickly so this workers so I I had known that Espinoza's trial got I mean I mean he won in local courts down in Florida for those who don't know I let the lawyers explain the story more but Mitchell Espinoza was charged with three counts one of them was a two counts of money laundering and one count of operating here they are so it was engaging in a business money transmitter business one count and then two counts of money laundering and he won the case and he got off and there was an appeal by the state to a higher court and that got overturned so now he's back in a lot of trouble I don't know who wants to weigh in first I guess Jason we'll start with you and then we'll see what the or what the others have to say on this so just briefly rolling back in time the the Espinosa case was taking place in 2014 and there was a lot of stuff going on there were a lot of questions about how Bitcoin was going to be treated by regulators by core in a shavers case we'd already had a federal court say that Bitcoin was money that was the shot heard around the world at that point and then one of the arguments that Espinoza made here in Florida was that Bitcoin isn't money and as a result that couldn't be money transmission or money laundering and just kind of summing up and as a result the trial court agreed and said Bitcoin wasn't money and you know that's a quick overall summary so now you had these conflicting jurisdictions where you know the the Eastern District of Texas and the Southern District of New York with Judge Rakoff could all agreed that Bitcoin could be money for purposes of monetary value exchange when when analyzing statutes and then you had this rogue Florida decision that said well it's not I recall having a conversation with the dela it's a shame that she's not on when that case came out she called me up said what do you think it'll be overturned on appeal yeah and and basically the reason I knew it would be able to turn on appeal and we can go into all the the specifics of the plain language of the law plain language of the statute intent everything else but from a political standpoint that this is kind of the reality and maybe you guys can comment or not maybe I'm giving it too much deference not very many judges in this country are willing to go against what Judge Rakoff says in the Southern District of New York mm-hmm drew do you want to comment on that what do you think am i right or wrong I can tell you that Judge Rakoff and like many of the members of our federal judiciary is incredibly smart and Judge Rakoff particularly viewed as very influential he has taken some views which I believe are appropriate they haven't always survived appeal and I'm thinking specifically of overturning a click-wrap agreement that was used were in a notable case a couple years back the Second Circuit overturned that one but rake-off is as smart as they come and particularly is attuned to technology specific issues so like many other judges his comments certainly are afforded a significant amount of respect yeah I think that's right very well said politically true yeah and speaking of the appeal drew you wrote you wrote in to the appeals court to some what on behalf of Espinoza correct or not necessarily let me help you out your tone therein in appellate courts there's the opportunity for people who are interested but not necessarily a party to the case to provide information to the court that they think is important for the court to understand in coming up with the determination of the legal issues that are before the court that that process is called a submission of an amicus curiae brief and that's a Latin word for a friend of the court essentially and I had interrupt I have to say goodbye thank you great hanging out with everyone thanks so much be well if you need to contact me you can reach me at Cybercom there's an information page fill it out I'll get back to you John great to see you get in bye everyone thanks appreciate it now if I could just find a disconnect button here on this screen where is it destroyed uh perfect by everyone so an amicus brief is something submitted to the court by someone that the court approves to provide their perspective on the legal issue in the case in this case I was fortunate to be chosen to write on behalf of the digital currency and ledger defense coalition along with two colleagues from the Greenberg Traurig law firm John Londa and Michael Murray I'm sorry Moody excuse me Michael Moody and basically the digital currency and ledger defense Coalition is a loose group of lawyers who know a lot about crypto who have volunteered to provide pro bono or discounted services for people who can't afford lawyers in the crypto world and that they're choosy about what they do in which clients they represent but a lot of what they focus upon is advocacy within the courts for common sense and useful interpretations of laws as they apply to crypto and so in this case the court approved the d c– LDC to provide an amicus brief speaking to the issues that were before the court in the Espinoza case and the brief is about 30 pages long and basically it says this is new technology the law as it existed at the time did not squarely encompass unique attributes of this technology in the court when reading the law should look at this as something new should not kill it before it has a chance to develop there are some arguments in there that Bitcoin isn't necessarily the best tool to use for money laundering or illegal money transfer and they argue something called the rule of lenity and the rule of lenity is a doctrine that says if a law possibly applies to some thing but it doesn't squarely fit the court should give the benefit of the doubt to the person accused of its violation because the law didn't say Bitcoin the law said funds in value and money and it's not clear whether Bitcoin fell within the definition of funds in value and money like Jason suggested the trial court order took a view which many people thought would not be sustained on appeal and in fact that's what happened here but the work through the digital currency and ledger defense coalition gives folks in the industry an opportunity to express to the court like they did in this case let's not throw the baby out with the bathwater here we've got new novel technology that has a purpose and a meaning and we should take a thoughtful approach in the interpretation of these laws to not necessarily come down hard even though in my view that I share with Jason coming down and applying the law as they had seemed to be a principled way to resolve the issue gosh and the other thing I was gonna say for Jason ran off but he had to go so in that case I believe David Oh David you're still with us so in that case of the trend on shavers this case when they were able to get a ruling that bitcoin is not a security but they lost that big the judge in Texas said that bitcoin was money and then it was that ruling was used to put Charlie away Jason tried to appeal that Bitcoin is money he tried making sure that it's not but that one didn't go through either and now we're and that's what is kind of a rose now yeah I'm not really sure I don't really know much about this case so I'm not gonna really talk about it but Drew and I normally you know share similar opinions except for we split on some of our who we consider friends it's always important to see who's writing the brief and what position they're taking you know the advocacy you know advocacy on behalf of the blockchain community versus advocacy on protecting investor rights we're on the flip side of our earlier conversation the brief and was the brief there you know we're kind of looking at and the advocacy that was utilized in for Espinoza you know kind of bail kind of went the other way here the court the court kind of the court kind of said now I'm not buying what these blockchain companies want we're gonna do we're gonna go back to the basics and hold people accountable I'm actually a fan of what the appellate court did here to be clear we silver and I pretend that we don't share a hive mind but we agree on those things if you if you pay close attention I believe that the appellate court got it right here and while I believe in the brief that was filed for the DCO DC I think that as a matter of law the ruling on the appellate court was correct now let the law meant at the time that Espinoza was arrested in charge is different than what the right policy is for the people of the state of Florida and how businesses and the government should look at these issues there are kind of three things happening here it's was the law mean it's what is the intention of the regulator charged with enforcing the law and what should the law be we've seen states go in a variety of directions on this issue Pennsylvania recently issued a memorandum that took a completely opposite approach and said we don't consider crypto assets to fall under their specific money transmission statute and so they issued an amazingly street friendly set of rules that govern businesses in Pennsylvania Florida so far has this state court order which was overturned on appeal we've got the Department of Financial Regulation that has an opportunity to establish its own policy and we've got legislators so now we'll have a chance to digest this and all these various folks can come out and say you know we saw what the third District Court of Appeals said the financial regulation come out with new guidance that says we don't agree and any legislature can offer up a new law that says we saw the way this court interpreted the law we disagree with it and we think this is what the law should be in Florida so for now we have an appellate opinion which is the best evidence of what that law means in Florida right now we haven't seen the end of the story and what's really cool about what you just said for people who don't know what Pennsylvania did about a week or two ago Pennsylvania basically said we adopt the federal language on what money is and money is a currency issue by the regular recognized government and therefore Bitcoin and crypto currencies don't fall under that ironically of all people people would assume I would disagree with that I actually agree with that I mean that's a very simple way they simply looked at what the federal rule said and they interpreted it that way well that's why I am a big advocate of we do need clarity in the space and clarity in a space will eventually mean that crypto is the equivalent of money now you can disagree with that either retrospectively or prospectively that's just my opinion but I don't necessarily I think it's good that states like Florida and Pennsylvania are fighting about this because in a year or two we'll get some clarity about what it actually is from the regulators and from the federal government if if it were dove you considered money they should also tax it like money Amen sister I'm with you Sasha Sasha gets the high-five from everybody on the panel in this opinion too was how they made the distinction between currency payment instruments and monetary value and they kind of pointed to the fact that the New York case the Mirchi Oh or is that how you say it yeah yeah they they kind of not made fun of Florida but like they certainly pointed out that the analysis that was done in Florida missed they kind of said they meant that we missed the boat when we didn't contemplate the fact that money qualifies as monetary value and that monetary value would be included in the payments instrument which would make it fall under the Florida money transmission guidelines or at least that's how I understood their argument I agree with that hey I so one quick thing so going back to the whole mitchell spells a case he was just like a local bitcoins dealer right like you didn't actually defraud anyone so the this my understanding of the facts is that he was the local bitcoins merchant he met with folks who were Undercovers they did series of transactions suggesting to him that the transactions were for the purpose of changing the quality or character of money so that it would not be traced back to either a retrospective meeting already happened to a prospective meeting about to happen illegal transaction and a lot of people have said hey that sounds like entrapment they're saying I need to change this in a Bitcoin because I need to cover up this crime that I did but the actual statute allows law enforcement to do that i bill you wanna throw a few words here you know I'm gonna have to my phone is starting to blow up my clients are waking up and I'm in the middle of a very high-stakes corporate governance dispute out here in California so I am this is very fascinating and I'd love to have an opinion and to jump in I'm gonna watch the rest of the podcast I really appreciate the appetite feel free to like stay on and then if you want to say something just say it I won't call on you well it's early I'm sneaky I'm still in my pajamas I need to get in the office but don't watch this later and every day hey we're all right sounds good yeah I want to get your thoughts on the manger 1 out of Canada but I will probably be talking about it next week as well some things no I just have a great day all right let's see one more thing I kind of wanted to ask you this about the Espinoza case so when I was reading this opinion it said that they did for transactions the first one was like for $500 and $1,000 they were saying they were kind of something involving Russia and fake credit cards like the Espinoza Espinoza was under the impression that it was illegal but then when they tried to do the big transaction for 30 grand they met him in a hotel room that was already wired and gave them 30 grand fake you know counterfeit money and he realized it was counterfeit or he had a lot of questions around it so he didn't accept that money or even do the big transaction is that is that true or did he did he take it and give them Bitcoin for the final transaction turned down that final big transaction yeah I don't have any personal knowledge of the facts so I don't know heading for that except to say facts are what you can prove in court and if the cops are sorry if the state can prove that through evidence then they're gonna have the Nets the evidence and if Mitchell's counsel can prove that that didn't happen then that will be the evidence provided to the to the finder of fact which in this case a jury I don't think it makes a huge difference anyway because the statute for the money-laundering like the criminal statute is if it was a transfer between $300 and $20,000 so he's even with doing around $2,000 which is what it looks like he did over a few transactions he's still over $300 but it seems like a pretty you know it sucks for him and doing a small transaction with these undercover agents in 2013 when there was a a lot less you know like he's running local bitcoins transactions probably not you know trying to do anything super illegal and then we got that nice ruling from judge polar saying if anyone wants to sell their own property that's not for us to weigh in on it's the matter of whether it gets transferred through a third party kind of like a Western Union situation and then now you know in 2019 we're still going back to this small thing that was you know had really not any victim to it and yeah it seems it seems I guess they wanted to create the law and this is the test case but that's your yeah there's no there's a lot of things going on in this case one of which is they clearly I think that the moving papers indicated law enforcement wanted to make this test case like they purposely sought this out it's not as though somebody to my knowledge anyway had complained to the police that somebody was victimized and that they were out there trying to remedy a wrong there was a joint task force to my this is by memory between local law enforcement and the Secret Service that did this so it was clearly an intentional program there are a bunch of really interesting statutory interpretation issues that I need to think about more there's a definition of what it means to transmit money which suggests that taking cash from someone and sending them crypto would be transmission because it's sending money or value to another place traditionally these statutes are interpreted as I take money from party a to move that value to another place whether it's another account on behalf of party a or another person say party B and so I need to think about and I apologize for being a little bit less prepared than it could have been for this I need to think about whether this is an interpretation of the statute that makes any sense or not it could be that the court is sort of straining into an interpretation to achieve the policy goal that it wants or it could be that the court is telling us that this is how they want the statute to be read however there are some there are some administrative opinions and some advisory opinions from the Florida Department of Financial Regulation that suggests a different reading so you know I think silver said it best stories not even done here and then we have the idea that the regulator to come back and say we view it a different way and then the legislators could come back and say we saw how the court ruled nice job we wanted to read differently so here's a new law which didn't they already kind of do that with the House bill that came out flat I think it was in 2016 when when the first judge poehler said that if it's his own personal property that he was selling it wouldn't he's not going to prosecute and she said some kind of language around you know the the statute was so difficult to understand that even legal professionals couldn't agree to a singular meaning from it and then we got a more clear I think bill came out of it was a thirteen seventy nine or something that but I think it focused more on the money-laundering side rather than now we're looking at the money transmission side so yeah there's money there's the the obligation to register and report to the state as a money transmission business and then there's the statute that talks about money laundering which immediately after judge Fuller's opinion came out what they call a glitch fill meaning a bill that changes one tiny nuance in a law to address the specific problem was a pass that expressly added virtual currencies to be money laundering statute not the money transmission statute again this may be a little bit too in the weeds for a lot of our viewers here I think the big picture takeaway is Espinoza got a really good ruling from the trial court the state appealed it the ruling went the other way and now there is some clarity as to how at least one appellate court wants us to look at this and for Mitchell specifically he's back in the trial court now where he's either going to try to win the case on the facts take a deal or potentially appeal this ruling to the Florida Supreme Court through what would be called a writ of certiorari which is way too complicated for non lawyers to understand the best way to say it is hey Supreme Court want you to take this case you're not obligated to but I'd like you to review this it's free if they decide to file a writ of cert as we call it then the court has a certain amount of time to accept jurisdiction or to decline jurisdiction over the case that's a really long way of saying total we'll probably be talking about this again 10-15 minutes world's fastest shower but I gotta get out of here actually go to work today uh why did David before you go I do want to get your comments on what the hell happening can't my dot and you got five minutes for me yeah absolutely I mean this is I think I said on Twitter this morning this is so shocking and so greater then we can't actually call this shocking and egregious anymore because I'm just not surprised now I saw I know you and I both saw this morning that they outed that the CEO is using a fake name was a convicted fraudster in the u.s. uh-huh I mean this can't be shocking anymore this isn't this is so commonplace for I mean this is this is almost an offshoot of what's 31 in California Boas Manor you know they apparently though as matter instead of coming from Canada to the US the Skywalk from the US Canada I mean is anyone surprised I mean how can you how can anyone be shocked that in this day and age if you want to use an exchange and I know some of the people I'm sure in the comment section when I made my comments about you know I can tell you which exchanges are illegitimate or not we're like you know I can use any exchange I want you know exchanges are all legitimate no this is where what exchange what's centralized exchange you use matters where the one thing I agree with with a lot of my colleagues who are on the other side of the aisle about kyc and regulations and whatnot we can all agree or disagree what kyc and what documents are important but the one thing and if you don't believe the regulations matter all you need to look is this so the CEOs real name was Omar – hi he was convicted for fraud in the United States apparently went to jail and now he's sitting here he's running an exchange and commits an exit scam this is nothing but an exit scam you know this guy's alive you know this guy had more and access then you know that other people have access I mean this is the equivalent of cripsy all over again I have a girlfriend and I'm gonna go to China and disappear I mean this guy is in India right now with 150 million dollars probably you know the able to liquidate he's probably hanging out with the big neck guys – man too many too many young people on this are kinda players that's all you know yeah like you don't know where to start and yes so somebody did like a big investigative piece by looking at the the actual transactions and he originally published it on medium and then he got suspended from medium nobody really knows why but yeah I mean like all signs point to like a fake death certificate if there even was one I might have been just you know though the widow saying something the guy he's probably still out there with whatever money he's got left but hey I mean like there there's uh they probably could have spend the majority of it you know throughout the years and yeah I don't really know what else to say other than uh there's been a lot of debates anybody you know let's look at this some more before we get on to Peter Todd it was a friend of mine so I don't want to piss him off much the one thing I will say that I thought was really uh-huh I mean am I putting my good friend Jesse Powell saying you know that there were a ton of quadriga accounts at Kraken I love that I mean seriously I I've been saying this I've been talking to a lot of people who had like half a Bitcoin there but found anyone who lost you know hundreds of thousands or millions of dollars even the Canadians I've smoked a lot of the Canadian lawyers reached out to me asking me if I wanted to team up on this I've kind of passed because there's not everyone keeps saying there's 190 million missing I hadn't found a whale yet who lost money and I can't imagine and small denominations so there's a lot of weird parts of this story that's gonna still is still yet to come but I'll tell you man this is this is cripsy just because you have a good looking website that shows your account status big connect that shows how much money you have in and out if you don't hold your own keys you don't hold your crypto even I believe in that it's a nice that's a nice segue to my article thank you for throwing that just beautifully out there David yeah I can't believe you didn't mention the largest case in the United States turning over crypto in your article I don't do marketing for your law firm data but this was like you know it was making your point for your article it cried out for what to do with those eleven thousand bitcoins but are we talking about this 37 pager ya know it's light reading for anybody who has insomnia issues let's talk about this paper a little bit and thank you for giving me a chance to chat about it here for your marketing purposes you know a baby's so academic writing for lawyers is particularly dry and agonizing experience for non lawyers to read and most lawyers view this sort of like reference material but I wanted to put some you know discipline thought into the problem of private Keys and litigation most people increasingly are holding their own keys they are not comfortable parking crypto assets on an exchange because as David just talked about exchanges get hacked all the time and your money becomes somebody else's value they just take it away and there's really recourse so if you're in a suit with somebody say a divorce and your spouse holds a whole bunch of crypto or if you're in a business where the business has a whole bunch of crypto assets and there's a litigation where somebody needs to get money get those tokens from somebody else you might run into the problem where the party that you're seeking to provide the asset says I lost the private keys I can't comply I can't even get to the assets anymore it's just like what's going on with quadriga CX and you may be surprised to know that in the United States and Canada and the UK in that situation the court will enter an order that requires you to compel that compels you to comply and says you have to turn it over and then you would get in from the court and say I can't because I lost my keys the court would likely then put you in jail and the court might put you in jail for 10 to 15 years under the theory that it would compel you to comply that giving up your freedom would make you think okay I'd rather give up my money than my freedom and so for a variety of reasons this doesn't work in crypto if you've actually lost your private keys putting you in jail isn't going to make them magically appear if they're actually gone and you don't have backups you don't have a seed phrase it's not with a third party that can recover it for you then they're actually gone I know that XI analysis is estimated there was more than two point three million Bitcoin that are gone forever so when you're thinking about circulation of Bitcoin 21 million is the number we all use it might be more like 19 or 18 something because that many bitcoins have been burned or lost so the question I tried to tackle is not what will happen but what should happen if you lose your private keys I come up with a conclusion that many people won't like and it comes from the basic idea that under US law they would rate rap the courts would rather take away your property than your Liberty they would rather take away a thing from you than put you in jail and there's a whole bunch of social reasons as well as constitutional reasons why that's preferable the conclusion that I reach in the paper is that if you lose your private keys in litigation and you have shown good faith efforts to recover them courts and Legislature should put together new laws that allows States to create new registries that will list transaction outputs in public keys that are associated with the lost crypto assets and they should instruct regulated intermediaries your your coin bases and your bit pays of the world that if they see transactions coming through that include those assets they should freeze them they should provide them to the court and allow the court to order them turned over to somebody else this is an efficient outcome for David I get standing ovations for the professor so the thought process is this it's efficient because if you actually lost your tokens if you actually lost your private keys and you can't get them back you're never going to get them back so it doesn't matter whether you have a limited ability to transact them they're never going to move and it doesn't matter whether doing this impairs their value or makes them non fungible because they're never going to move so it doesn't matter if you're a bad guy or a bad guy who's lying to the court to try to not have to give up your assets this gives you incentives to not do that because you're in your assets are going to become less valuable and less useful they functionally will only be available for black market now and thus they're not going to be easily transported out of the crypto world into the conventional banking world it's going to make it very difficult to monetize those assets back in a fiat and courts and legislators can go further and make it a crime to engage in a transaction with these marked assets which means you can't use the escape valve of something like local bitcoins and finally this is super efficient because if somebody does actually hack you and take away your assets there's the possibility that they can be recovered and so it creates a lack of incentives for somebody to try to steal from somebody else and it makes it harder for them to try to repatriate that back in a fiat currency so if an understanding of the court process as to how courts are gonna deal with private keys is interesting to you or if you're interested in sort of how these sort of things are punished this papers for you I suggest a lot of coffee because it's long and it's very technical but I think ultimately a lot of judges are gonna run into this problem and I hope that this provides a resource for the judges and lawyers and I hope this provides a resource for them to try to understand some problems they're gonna deal with okay so now that everybody now that group with everybody to sleep I'm gonna say you know as someone who actually had to read through this I was joking around with Drew when you started it's really simple if you look at this in the cripsy terms because my client the cab driver who had 3,000 Bitcoin they deposited on cripsy that big Vern ran off to China with and that 3,000 is in an identifiable wallet that we've identified and the Federal Court has ordered back to us under Drew's analysis we'd be able to freeze those Bitcoin and my client will be able to get his money back which is basically the rule of law in the u.s. it's the right result and it's the right result and while this will infuriate a lot of the viewers of this program and a lot of the more libertarian side of the viewpoint of government the end of the day the courts are there to help people get back their property and here there's no reason why my clients who have 11,000 Bitcoin held up in wallets that haven't moved in four years and are sitting there can identify literally we can show my clients buying Bitcoin on coinbase transferring that Bitcoin to cripsy cripsy then transferring it to the wallet that it's currently sitting in you know that's no different than when the guy steals my car you know if he drives off to the law of off to a combat op to a garage and it's sitting in a public garage once I go to the police and I reporting I get a judgment saying that's my car I get my car back I should be able to get my Bitcoin back and that was worthy of a standing ovation because I do think it's really important and I do think for crypto the mainstream you know we used to call krypter we used to call it we needed the crypto God or a crypto Jesus I never wanted to title my self I always thought Jason would be better but we need someone or somewhere to go to to make the system better moving forward so I got a bunch of questions but I do want to bring a deli in here adela say hi you could see go Athena yes you know all the way oh yeah and I really you know it's all fun and games until somebody loses a ton of their own you know assets no go ahead I was gonna challenge David for a second there but go ahead adela yeah so one good thing about you know getting the money transmission licenses they're really tedious it's horrible it's a it's an awful process but during and I feel like it there's so many things that can be done to simplify it at the state level right like for example you should not have to go through multiple applications of that and so what the animalists database does is you know it compels the applicant to to disclose a bunch of information everybody who has a more than 10 percent ownership in the company has got to be checked out and that's really important because if you are going to use a centralized exchange if somebody is going to have access to your your ships you you really need to know who these people are and that is a huge problem in this space and like I said it's all fun and games until it's your assets that are lost and gone and stolen by bad actors okay thanks are not really yours like who you are real quick because it's been a while since we've done this show and I probably picked up a bunch of new people yeah so my name is Dilla and I have been in space for a long time 18 years now starting with digital gold currencies now I consult for two law firms and I work with local bitcoins awesome all right hey David so here's my challenge to you right so let's say I don't know what big Vern looks like which I do do a lot of my viewers probably don't and let's I probably should use myself as an example right so a friend of mine happens to be in China and he happens to have you know a lot of money and cash on him and he happens to buy a bunch of meat someone that's selling a decent chunk of Bitcoin let's say let's not break international limits let's say maybe nine thousand dollars worth of Bitcoin and he buys them from big Vern in cash and then he goes to deposit that Bitcoin into an exchange all of a sudden is frozen and it's confiscated from him because those were the Bitcoin from one of your addresses like what do you tell a person that happens to buy Bitcoin like he doesn't have the ability to know that he's buying from a flag to count and this is one of the things that Bitcoin provides him give you the legal answer because he and Kaitlin long in Wyoming this has been a heavily discussed you know how we're gonna do the laws and we'll again just like Drew has some people I don't like I really like what caitlin long is doing in wyoming but she has a lot of friends I don't like also who are paying for the financial lobbying behind how they're describing the assets but the answer is there has to be some type of formal registry that's universally accepted you know if you want bit coin and crypto to be the universal money there's gotta be some type of universal acceptance of being able to flag the assets all about not proposing can ruin Bitcoin entirely because we were have to in order to make Bitcoin fungible or useful you're saying it has to go through a kyc process so then you know holy flags it's not saying that I'm asking it to be treated like every other form of money which is if every other form of property which is it's illegal to deal in it if it's stolen but the very nature of Bitcoin makes it so that it can't function as this kind of internet currency if there can be a big distinction between any coin that has been yeah I've been stolen basically because then like even with the OFAC stuff it's like it every person that uses Bitcoin or has it or is associated with one of those addresses when you go to put it on coin base and redeem it for cash it's quite possible you can't redeem it so it makes a it makes the government need to basically hold the Bitcoin for everyone through centralized exchanges like what's gonna happen maybe with fidelity getting you know the ability to hold these things safely with custody and then what if the government says oh bitcoins illegal all these addresses have been used for you know child pornography we're going to keep it all so it's very dangerous to to require it well if it is the law though I'm talking in some you know abstract disagree with you sashan it's it's to me it's pretty simple right if you have stolen property you can't transact it the the folks who talk about this breaking Bitcoin and this becoming a threat to Bitcoin as a going concern my response is as follows there's nothing about the cyberpunk ethos that says that we should resist laws that enforce property rights right there's nothing that says to be a cyber Punk you have to be okay with theft there's nothing in that says that cyberpunk is about not respecting property rights in fact privacy in its current form is very much about respecting other people's property rights so I'll start with that the second thing I would say is that there's really no reason that somebody who are sorry if there's if there's somebody who's supposed to turn over Bitcoin and they don't and their transaction outputs are marked on this list and it gets traded across five other people and then ultimately the white listing that would be required by an intermediary picks up that this is a transaction output that comes from a listed output they would be required as I argue in the paper to receive notice in an opportunity to be heard by the court and so those people wouldn't just be like whoa my stuff is gone what happened there would be an opportunity for them to argue that they have rights with respect to the assets and this would be handled the same way that any other sort of lien priority contest is handled it wouldn't be any different so it would work the same way that UCC interests Arjuna kated and so on but from a big picture where we talk about if you know Hank yes you're too strong fungibility of crypto and everyone's gonna hate you and you know look for the guys with the torches and pitchforks outside of your house yeah I don't like the idea that it's impairing fungibility but I like the idea that private parties property rights are going to be protected and I think that it's wrong to suggest that fungibility of crypto is more important than private property rights now what would happen if someone with one of those back addresses you know one of the banned addresses when a Bitcoin – every Bitcoin address in the world then everyone would own illegal or tainted Bitcoin and then the whole network would just be kind of shut down under that so you're conflating two things right the Oh fact list for those who aren't lawyers is the office of financial asset controls specially designated Nationals list this is a group of people that because of national security is not allowed to do business with us persons that means his voilá al-qaeda all sorts of you know North Korea all sorts of people who for national security reasons are banned by the you from doing business with us persons and they're on a list that circulates financial institutions who are supposed to block or depending on the nuance sometimes hold or sometimes allow and monitor transactions this is not the same sort of list this is not being this would not require the same sort of treatment what you would have is somebody who sees a u T XR aut XL or a transaction from a public key address coming in who freezes it gives everybody notice in reports to the court hey we've got this and then they would probably be the little evidentiary hearing in order to compel turnover of the assets we're the party that wants it turned over would have to give the evidence usually using a forensic expert and those assets are traceable to the private to the public and private key combo of the person who is supposed to turn over and the other side would come back and say no this is my stuff and then the court make a decision so everybody gets due process and ultimately it's uh it it works the way that the law works for all other kinds of assets it simply recognizes the fact that if a key is truly gone putting somebody in jail won't make the key up here one more question what if someone uses like a mixer or the lightning Network or some some way to obfuscate the transaction history yep this is limited for Z cash or Minero this is limited for grinning or beam this is limited for mixers and obviously this only applies to public network crypto assets because in a private network asset you can just go to the administrator and say here's pinna comply it's really a function of what the forensic people are able to trace if cipher trace or elliptic or chain alysus all the sudden can do Manero ring signatures then using Manero wouldn't necessarily be a limiting factor another thing that you bring up which is interesting is courts are gonna have to decide whether this impossibility of compliance is self-created or not there's a doctrine that says if the court tells you so sure that you have to comply with this order and you can't comply possible that becomes an absolute excuse it's an absolute defense but if the Court holds that you are the reason you can't comply that you created the reason then that's not an excuse you still have to comply and in the context of losing a private key if I lost the private key and it's truly lost I can't comply either way whether I'm the schmuck that did it or somebody else is the cause of the loss so I make an argument which I believe is a new argument under law that courts should look at badges of fraud that are used in fraudulent transfer law to see whether they can suss out from circumstantial evidence that this is self-created did you set up a whole bunch of unlock time transactions right before you lost your key so all your assets got transferred to a different set of private and public keys that you are somebody working with you controls you just set up a whole bunch of smart contracts that won't execute for 10 years where you may or may not have a relationship with the other parties to the smart contract did you make a whole bunch of transfers to insiders all the same things that a court would look at to determine whether a transfer is fraudulent the courts going to look at this and determine whether the impossibility of performance is self-created or not if you show evidence that you've hired every forensic expert that the computer died and you made great efforts in order to try to recover the private keys if you looked at the wallet that on your know that you're operating then the court might want to handle that accidental loss differently versus what it looks at as an intentional loss so I don't wanna get too far too much further into the weeds but if you're a lawyer and you eke out on this stuff the way that Sasha and I do or if you're a holder and you're really really really I'm sorry Hodler and you're really concerned about this issue I would be delighted if you would pull the paper down and give it a read you can send me comments or questions my email address is on the first page I would love to hear from folks about this all right no that was a that was great I think you answered my question I've been meaning to ask this whole time or just here at the end what happens if the court disagrees like with with my view of the the lost funds and also how does this work for let's say funds that were never on a KY seed system right so this is the other part that I'm not sure I mean yeah I'm sorry I didn't read the 37 pages but uh we're basically talking about contempt of court laws which allow the government to put you in prison I think for 11 months or 18 months if it's contempt of court for not testifying in a grand jury proceeding it's limited to the duration of the grand jury proceeding or 18 months if it's not and this is one of the things I talk about in depth in the paper they can hold you in jail without the same due process you get in a criminal action as long as they believe that it continues to compel you to comply they've I found a 16 year incarceration for somebody who refused to comply with an order and I mean what's that is that the one in Jacksonville there's like an attorney sitting in court for you know decades yeah I heard there was a there was a guy in Delaware who was in court losing jail for 16 years in my old law firm put a gentleman in jail for failing to comply with a bankruptcy court's order for more than eleven years and so this starts to butt up against the the law in the United States that you can't with people in jail for debt it's one of these places where I think there's a lot of room for examination of how the law works and I make some I make some arguments in the paper that putting people in jail for that the fiction of jailing people to make them comply with an order may not really be the best way to handle this problem Oh in this on I like tennis court all bad people should go to jail I gotta run I gotta go work a little bit so enjoy everybody and I'll see you guys on the next show DC silver on Twitter is the way to find me and I take all complaints and I even gave Athena a little shout out the della I think that's great I'm sending you a silver Miller hat neck wait what'd you say Adela daddy better send a check with that I'm sorry I don't you pay for play like Athena and that lay your slander sir Thanks confiscate able to thanks for playing the poker tournament and speaking it on the law panel thanks man all right hey so so so drew back to back back to this particular situation right the other thing I was gonna say was we've already had so much hack Bitcoin right between mountain GOx and BitFenix and everything else you can say that more than like half the Bitcoin at one point or another belong to another party so I like would close to the point where almost every Bitcoin can have a claim to somebody else's property so it's a concern and Sasha brought it up with what I call the spraying attack which was something that I wrote about in an article with Cho chikun Oh from bid AML when oh fak announced that they were gonna start listing crypto addresses the the idea is that somebody who's got a tainted utx oh and Bitcoin for instance could break it down to satoshis and spray it across hundreds of thousands or tens of thousands or hundreds of thousands of public keys addresses hoping that they can spread the taint across tons and tons of people to render it a useless function to make it so that people basically would not be able to use it that everybody would be considered tainted and I don't think that realistically that's a problem that that's a realistic concern I don't think that people are ultimately going to give up real value and instead decide that they want to break a system with it I think that ultimately these are assets that have real commercial value people don't want to keep their money and I think that courts are going to take a critical approach of all this we have taken for granted that forensic folks chain alysus and elliptical ellipticals and cipher traces of the world have reliable ways of showing who owned what asset we know that public addresses in state-based systems like theorem and transaction outputs in Bitcoin based systems are traceable but we've seen a move towards systems like Manero and these others that provide better transactional privacy so I think ultimately we're going to confront some problems in how traceable all this really is and then ultimately leads to policy concerns do people that make the laws in the country get comfortable with the idea of having means of moving around value that can't be surveilled or are we going to see a world where that sort of privacy that we're provided by these assets is allowed to persist Nadella do you have any thoughts on that oh no I'm just I'm listening and learning drew I'm actually working I think ok well I know you're you're about to take the bar aren't you done on behalf of players in the world I look forward to you putting this traumatic time behind you emerging with your paperwork intact and getting out there and doing the Lord's work in crypto ha ha hey congratulations adela and good luck yes so on no that was what you say finally decided to do it oh yeah I know because I remember like you don't know how to chap like six months ago you're like I'm never gonna take the bar I don't need to be a lawyer right well we're you admit you're a foreign lawyer right now yeah yeah just another test right right so I'm article examine um Wisconsin which has a ridiculously high pass rate so it was kind of like a scratch I'm not doing it to practice you know it's just sort of a precautionary measure and well an opportunity to kind of like hit a milestone I excellent yeah though I check so anyway if anybody wants to think more about the implications now cryptical assets are going to function in the judicial system take a look at the paper love to have any of your comments it's a king kiss it's turn that NY you got you yeah yeah so I just want to throw a couple quick comments on this so Bitcoin is gonna be significantly more fungible I expect it to be more fungible than Manero when you're properly using it I mean some of those tools are almost exist today idea the other thing that I was gonna kind of mention on this is it's interesting because what you're describing true is exactly what Craig Wright our resident face at though she wants for Bitcoin sv and this is kind of exactly how he's building Bitcoin has to be with almost this kind of compliance implied in there and I'm not familiar can you elaborate a little bit well he's all against like one of the one of the things that he's very he's against is Bitcoin being used for you know potentially illicit activity so this would be something right up his alley with the coin sv and something like this we are like if you don't like the how the transaction is being done you can kind of freeze it sure I see the appeal as the issuer as a major holder there's a land grab happening there it's the idea that you can be the coin that is a-okay with the regulators and then you can go and tell compliance and say hey everybody you have a lower chance of seizure using my asset in my system you have it's it's safer use it here and it's interesting my view of the world is you know the US has always understood that as long as they're issuing paper currency that paper currency is going to be used for all sorts of things both kosher and illicit the number one tool for money laundering in the world's the 20 dollar bill and I think I read somewhere and I'm not sure of this that the majority of us bills actually reside in other countries though you know as you see the growing digital economies and you see countries pivoting away from Fiat and starting to limit what Fiat can be used for we have an opportunity crypto to have this be in a system where it's not unilaterally controlled and we're monitoring doesn't exist government monitoring doesn't exist or this can be used in the dystopian manner to provide a hundred percent surveillance on all commercial activity undertaken by people who use the currency my hope is that this technology that I love very much and have invested my career in he's not used to create some bizarro version of the Chinese surveillance economy or some bizarro version of that really awesome black mirror episode with Ron Howard's daughter on it Bryce Dallas Howard I don't I don't want to see the world go in that direction and I think that crypto provides an amazing opportunity for people to preserve their sovereignty all right now thanks for that and we have an additional guests coming in welcome Stephen pally to the show yeah you've been on the show just once during our epoch I think it was like a six-hour marathon for the SEC stuff I think still coming back to the show and welcome so just I give a brief intro most of my audience are not familiar with with your work and we take it from there I'll try to get your comments on a couple of the stories we've already covered so my name is Steve pally I'm a trial lawyer with a law firm called Anderson kill I'm actually in our New York office today which is why I couldn't join I spend most of my time in DC but I practice up here as well and I've been handling commercial disputes involving just about everything for the last 20 years and on the side in the last couple of years I developed a practice involving software development which led me to Bitcoin and Bitcoin in particular as means of basically as being programmable money it solved his problem for me so what are the things that I do kind of for fun and also to keep up with things as I do a weekly blog post with another lawyer Nelson Rosario and we cover three new kipp crypto related lawsuits either new loss either new filings or cases that are being handed down what's interesting to me and I'm sure all the panelists will agree I actually have a hard time just picking three new cases each week there's so much law developing in this space yeah what's interesting about the law and it's great to see drew writing about this is the law is perfectly capable of dealing with this incredible new technology I have yet to see a judge say you know what this is too complicated that we can't handle it just like go deal with it yourself what I find is things that I learned 20 years ago or 10 years ago I see happening today so the case of the quadriga guy did I pronounce it right is a quadriga the Canadian exchange this reminds me of a case that I had 10 years ago where a guy ran up with a bunch of bonds that were supposed to fund structured settlements and he ran out to Bolivia he's a bunch of banks as intermediaries on the way and I can't remember if I told the story last time I was on your show I might have but I'm just reminded of that he ran away having stolen 150 million dollars to a country where he thought there was no where there was no extradition treaty and he was collected people they sent bounty hunters after him knocked him over the head threw him in a helicopter brought him back to the United States the thing that I'm reminded of too and I'm thinking about the Canadian exchange is one of the things that plaintiffs lawyers did I was on the defensive that's that case was they sued banks that had been depositories one of the questions that I have is thinking about who's culpable here for these losses you know plaintiffs lawyers suing people I'd be looking around for targets one of the targets to think about certainly our exchanges where it appears that some of this money has been parked so that's kind of sort of I've got an old-school practice but I have a very keen interest in the development of new technology always have you're so good yella he was on some of those cases you want to throw in some more opinion undercooked Riga case and what do you think is going on everyone like now that you know some of the code geeks are digging into some of the codes they're suggesting that there was never any cold storage and it didn't even exist and everything was just basically running a straight-up Ponzi scheme I don't understand how somebody can get away with that and actually I was told I was told this sort of as a journalist not as a lawyer but I was asked for confidentiality it was apparently an open secret three years ago in Canadian Bitcoin circles that the sky what's his name that Omar that Michael Patran and Omar da de Hani were the same person people knew and if you do yeah if you do a search if you use it's a subscription search but if you know how to look at public court filings you can see that Omar de Hani use the name of Omar patria in 2005 you can draw the connections pretty quickly between the co-founder of this exchange and somebody with pretty relevant criminal history it's kind of old-school gumshoe and best of the give work I'm surprised more of it wasn't done easy to do and also I'll say one other thing not to be not to judge people well the other thing is is like what David silver said the hundred ninety I don't know I was gonna say like the other thing as I did a hundred ninety million dollar number might be grossly overblown and it's not even close to that so that could be another reason why they've been sliding under the radar because there wasn't that got much my I'm sure there was a lot of money and there was enough money but on where I wanted to head with this and it's a slightly new direction though I do want to get your thoughts on the Mitchell Espinosa situation which was another big point of contention I do want to get to i Peter Todd little discussion let me do a spare to screen share wrong tweet this one so what happens is and and this will probably slightly apply to what happened in Texas and unfortunately both David and Jason are now I'm not had to run off and so a Ponzi scheme is taking money from new investors giving it to old investors and what Peter Todd is saying and I kind of agree with him that if you have if you actually have funds in cold storage which may not be the case in this particular exchange but if you have funds in cold storage it's not like very safe for you to constantly take those funds so you could still run a fully reserved exchange without you know doing anything shady but for security reasons you are literally taking new funds from new investors and and directly sending those to old investors that want to cash out just to avoid going into cold storage but according to the definition of a Ponzi scheme that's what you're doing so how how does this get resolved in the law so that you could move new investor money directly to old investors through hot wallets in order to maintain the security of cold storage so the question is what you're saying I think what you're saying is or what Peter is saying is the all investor fund all depositor funds were fully reserved and so it's not a question of sufficient resources being unavailable it's a question of where you're getting that money from I mean money is fungible right so well not not according to Drew's prior 37 page paper right Palli money is fungible meeting a US dollar bill is equivalently useful to a different US dollar bill generally yes Kalli no I'm here yeah the money is fungible generally there's you know if you have a fun seriously if you have a fun serial number on one it might be worth more the silver certificate that I have as like a piece of memorabilia is worth a little bit more than a regular fiat dollar because people collect it but the idea of fiat currency is that the government stands behind the instrument that issues and it's worth what it's worth right these crypto assets to a certain degree are already non-fun jables there's trace analysis available by all these vendors who are already able to tell whether it went through a series of known public private key combinations the idea of complicating the complicating fungibility by adding in this class of assets put on a list somewhere that would not be qualified or permitted to pass through some intermediaries would impact the fungibility but again if you're not dealing in stolen property and if you're complying with the law that I sort of proposed which is wallets need to pass transactions through this whitelist then you don't really have this issue you would be maybe do the same thing I mean I guess my my question is should we do the same thing with $20 bills and hundred-dollar bills all of which have serial numbers on them too we could but is there a practical way to do it with crypto there is a practical way to do it scan at curbside I mean practically yeah you can tell regulated intermediaries that they need to reference a whitelist by smart contract before they process a transaction same way that polymath for instance works or opponents vote is supposed to work for tokenized securities well so your answer there to Peter would be because the funds are not because the funds are not fungible in the same way as fiat currency you actually have to you can't do what Peter proposes what's what's the look Peter proposes and sorry he's basically saying look it's insecure I think perhaps in part what what tone was proposing the argument is look it's insecure to take funds out of cold storage so what we want to do so basically paying people in effect with paying old customers with new customer crypto should be permissible for security purposes but according to your analysis that would make it I think that would make it effectively a shell or a ponzi and the traditional analysis Andrew when you say regulated intermediaries who exactly talking about BSA I'm talking I'm talking about federal MSBs federal and TLS and state MSBs financial institutions money transmitters and you could also you could extend it through state level amendment to stolen property statutes to say you're doing a transaction where you're dealing in anything on the list then you violated the stolen property laws that's a way to extend the reach of this further to say you know you have to reference this list and again sounds like a whole big thing at the same time this is a smart contract thing that most wallets could easily integrate all right oh yeah well I think we're gonna get back to this topic another day pally any thoughts on the Mitchell Espinoza reappear we talked about it and like the other lawyers on the show said this was expected yes yeah this was the Florida case not the Michigan case right there was a Michigan federal case no I've been trying to get to the Michigan case let's talk about the Florida one first and that will lead us to the Michigan case I am I mean this was totally expected I was surprised and said so at the time two years ago when the case was dismissed I thought the yeah it said that's an intermediate appellate court right drew I thought that Court yeah I thought the analysis was correct and I didn't think much of the trial court opinion however I might feel and sort of emotionally about it I thought the analysis the trial court undertook was was not good and I would have been surprised if it hadn't been reversed then I said so two years ago yeah I think I think those lawyers have have skewed in that direction notwithstanding how promising the trial court opinion look for the crypto world I loved it I loved it and I knew I mean Jason and I have talked about this a lot that the you know the the facts were just yeah incorrectly applied to the outcome where the outcome was based on Spotty's legal analysis the defense counsel did a wonderful job convincing the court to look at this property instead of as monetary value and shout out to Professor Charles one of one of our collective adela foundational people he's he's short list on the reason that Adela and I are active at all in this industry but what's kind of interesting to you guys might have touched on this this case dates back to 2013 it's 2019 now so the gears of justice order injustice depending on how you do it they grind really slowly which I think you know we can assume we're gonna be looking at the tail of these cases for years to come it just takes a long time do you think drew do you think this is gonna be taken up but you may not be able to comment you probably can but I have no personal knowledge as to whether they it's going to be appealed or not if it's appealed it's a discretionary appeal it would be a cert appeal right and the Supreme Court may or may not want to take it and if it's not appealed and its remanded back to the court then Mitchell is looking at a trial or a plea it seems like a good case to take a play on my personal opinion depends on the offer right yeah absolutely the offer all right guys let's jump over to the Michigan case so so I want to just say thank you to everybody and tell them thanks for having me and letting me talk a little bit about my paper Sasha Dells Ally love you guys great to be able to share a screen with you and thanks a lot everybody take your paper by the way thank you so much guys I have to take off as wanna stick around for a little bit yeah sure I can take another few more minutes to talk we could talk about the statue case that's awesome yeah I'll be great all right thanks Hey I can't believe I missed short on compass skateable you were on all your and our pollsters you better come back here whatever use those bigger for me basically everything I know a lot I know that's what a lot of people said about it I I need to turn my light on as well yeah the next one I just put too much work stuff in there's no way it was gonna happen yeah now you'll have a six-months heads up even more alright I'm gonna I'm gonna turn on my light ah ladies thank you so much for joining I'm gonna go to a big screen by us to jc's people off the show so I have that effect on people oh we're so glad to have you on I've been following your work Holly it's a it's you know always one of the first places I look to find the news so uh bye guys take care have a good day awesome guys bye alright so let's let's briefly talk about this this is like my my life of live streaming this is like where we're going on for like two and a half hours now in total I do need to eat eventually and do some work as well I can't believe I'm getting like all this time from lawyers so let's let's jump on it so he says yes so basically there's a federal case in Michigan United States versus thank you it's any lawyers out there listening the docket number is 18 – 2 0 5 7 9 it's in the Eastern District of Michigan and I'm February 1st the court issued two rulings denying motions to suppress and to deny an indictment and basically it's honestly it's kind of embarrassing ly not that interesting what the court said was and I'm reading the court said even though the the Bank Secrecy Act so 18 USC 1960 even though it doesn't say what counts as money for purposes of determining a violation it's clear that it pertains to the transmission of funds and it's also says federal courts have repeatedly found that Bitcoin constitutes money and funds within the meaning of the statute it cites a mer geo case in the state's us versus faella so I mean anyone at this point who says they don't have to register as an MSB because bitcoin is wrong it's just not that it's honestly it's big it's getting to the point where this court cited two opinions so now we have three opinions probably more that say that for purposes of I must be registration here the question I have is how many other cases are we going to find but do you know what a string cite is tone have you heard the term buffet no no I have not a string cite is where you are you cite a legal proposition and then you cite a bunch of cases after it now 10 years ago I couldn't have offered you a string cite like multiple cases for legal proposition for anything having to do with crypto now just for purposes of BSA from an MSB case I can cite at least three cases that say Bitcoin is money for purposes of MSB registration so bad news for the defendant sort of good news generally I think go ahead yes so here here's the thing that we have to constantly keep clarify on a show because I do pick up new subscribers so if you are you know selling Bitcoin through local bitcoins which is how a lot of these people get nab selling your own Bitcoin is okay it's when you've made a business out of buying and selling Bitcoin and you're making money on the on percent between them transmission involving third parties but like what but what is the third party in this case you were the third party who's the third party you know I don't have the opinion in front of me I don't know that all the facts were laid out let me see let me look at the next little blurb here presumably there were other folks who were involved I think this is a I believe this was a case involving somebody who was not just buying and selling Bitcoin for himself but was acting as an intermediary for third parties I can't say that for absolute certainty gotcha but even if you are as an intermediary for third parties you have to be making a profit on that right because I know I've connected buyers and sellers in the past but I've never taken a cut on that I'd hesitate to offer an opinion on that actually you may be right but it's not that's actually MSB registration is not a core part of my practice so I don't know the ins and outs of that I wouldn't want someone to hear this and be miss be mislead I would honestly personally and Florida by the way doesn't have that third party transmission requirement which the SEC which said the Espinoza case I'm actually mentions I would be very careful be acting as an intermediary in any way for-profit or not-for-profit in connection with with financial transactions it's really easy to get dragged into things you don't want to get dragged into and then having to argue lack of pecuniary benefit they don't want to be part of other people's transactions yeah no that's really interesting that's why lately I've just been like sending people to like web sites because I've asked like some of the sellers of Bitcoin the illegal sellers a Bitcoin like the ones that KY see and I'm like hey can you just like make a site and then with someone asks me hey do you know anyone advise anyone at all like yeah sure go to that website for bitcoins yeah I mean gonna buy something a little more or like on a KY seaside but yes that's interesting so people in the chat are suggesting well maybe the exchange could service that third party that allows them to make that transaction which would be an interesting case so is has he been convicted and is he serving jail or court is it so he was a he was indicted so basically he was charged I think it was an indictment and not an information yeah it was he was indicted and the first two things that his lawyer did was he filed one of the things he did was filed a motion to suppress evidence and the other was a motion to dismiss the indictment saying you know it was the statute doesn't cover this because I guess he argued Bitcoin isn't money you know he tried he failed yeah yeah everyone seems to lose on that Bitcoin isn't money hey if I got you for like three more minutes the water popping I did not get a chance to get through with the other lawyers was I don't know if you know the bill does republic the representative Sydney acts action wants to pass through Congress about I guess spending more money and understanding Bitcoin transactions and specifically Bitcoin – Zeke a Sherman Arrow I mentioned because of you know for more privacy reasons I don't know if you read this or not I haven't no okay so in that case I never mind and the other topic that we talked about was no that's not even that like all that crypto related but I do wanna follow up the did you call did you take a look at Drew's paper I've only had a chance to skim it I have not had a chance to give it the attention that it deserves drew is one of the sort of brightest lights of the crypto law bar I'm sure that it's fantastic I highly recommend people giving it a read all right well pally thanks for joining us your hour group chat now so you'll be a pro all the topics that are gonna be mentioned in the upcoming episodes and you're right like we really have to do this show every week because when we don't it runs into three hours with like way too many cases but yeah we'll be back we'll try to do this more often and hopefully you'll be out more often with us keep all the work they either thanks man nice chatting with you alright thank you thank you hey guys hey thanks for joining us on this episode man the moral of the story is be real real careful with your Bitcoin transactions even when you are connecting buyers and sellers and we do have to get back to this notion of using cold wallets just for security purposes because you can also run into you know accidentally running a Ponzi scheme even with full reserves and you know if they want to get you they'll get you so you really want to you know be careful across the board on a lot of this stuff and I know it's gonna it's been a long episode I guess I can't I haven't looked at the price of Bitcoin myself all day it's like 5 o'clock in the US let me let me go ahead and take a look at it and I guess I'll screen share it since I well and I am I am in London please check out the calendar view the calendar is gonna look a lot better and cleaner but even for now you can go ahead and see where I am in the month of February which conferences I'm speaking at I'll be out advancing Bitcoin starting Thursday today is I think today's Monday is today Monday no today's Tuesday why is my calendar I should probably refresh it may be that that's why it's showing me that it's Monday it is Tuesday unless I'm well let me yeah there we go today is Tuesday and that's what got me confused right now so anytime there was a dot that means I'm doing something we're gonna actually display it right here you don't have to click on it to see what it is and the workshops coming up the UK this weekend then Thailand and Vienna there may be something else in between still working on my calendar corn every dinner is still happening so please check out the Eventbrite through Jimmy's Twitter and coins bank cruise I'll be speaking as well I love the fact that the price sticks up every second I gotta implement that on a lot of my stuff as well please use the affiliate links if you're gonna sign up with some of the stuff it does help out and support this for each channel alright price of Bitcoin I didn't really intend on doing price today but hey I want to I'm curious myself the weekly chart has not moved we're at 34 15 so we're still stuck at 34 nothing is happening the daily chart has not moved at all I do a 12 hour chart it's starting to get in a little bit of trouble be very very careful here you're moving averages coming down this is like the blue line of death ah if you go below this line I accept a major acceleration of the drop in prices the 4-hour chart is kind of useless bounced off this nine right here but now we're kind of stuck on a five of nine but I'll probably flip over we're just not moving so it's really not interesting a little bit of pressure off the long so that doesn't really mean much I'm actually more curious at the sp500 right now and gold gold continues pulling back off the nine let's see what happens they are really curious on on the S&P right here here's the de leus and P and it looks absolutely gorgeous I'm really liking this we are waiting for my sequential calculate so this this looks great it looks like we broke to a new high so what was the high Mirasol slow the high and so the close was 27 12 the high was 27 13 and the current candle the highs 27 1375 and the close is 27 12 25 but it wouldn't close yet right like the day is still active so if we can close at a brand-new high this is great again 2750 is the magic number and we do need to break above these moving averages currently sitting at 27 30 and 27 45 ish if we can break above that and close there this is gonna be absolutely sweet I again I'm running with limited bandwidth here in calculation so I can't calculate this sequential so this is pretty good on this one that's alright that's about it for me guys please support with the affiliate codes it's been a long episode of the Bitcoin law review hope you guys got a lot out of it I know I always do what we scared with everything I do in life after speaking to these guys but yeah it's really important show and hopefully I will be doing it more often and see you all on the next one I'm in London all week I think it's time I had an awesome nice little meet dinner last night I'm probably going back to that place I got it to tweet out more some of these awesome places all right I'm gonna stop screenshare thank you both for watching and see you all on the next one

24 thoughts on “Bitcoin Law Review – QuadrigaCX, Mitchell Espinoza, Civil Liberties Group vs SEC, & More!”

  1. It doesn't appear to be the case that many of these lawyers understand the damage done when flagging addresses due to fraud. If it's possible to taint these addresses, then the fungibility of the currency is destroyed and that is actually one of the few things that actually can kill bitcoin. Of course coin tumblers can obscure these to some degree, but eventually the damage spreads and puts a little taint on everything if enough fraud is committed.

    The short term benefit of the rightful owners getting back their bitcoin comes at the cost of destroying the whole crypto economy in the long run. This is why privacy technology will become so important in the future. The answer isn't regulation because regulation increases centralization and centralization is the true source of the increase of terrorism. Decentralization is about forcing authority driven psycho's to fight with something closer to sticks and stones rather than nukes because NO ONE CAN BE TRUSTED. That goes for western democracies as well as ISIS.

  2. Lawyer dude trying to destroy the fungibilty of Bitcoin didn't answer the simple question…what happens when Bitcoiners start deliberately contaminating all Bitcoin addresses from a white/black list Bitcoin address? Money needs to be fungible dumbass. There was a famous court case where a man had some cash stolen. Prior to the theft he had logged the serial numbers of the bank notes. He later found some of the notes held by a man who was not the thief. He tried to sue the holder of the bank notes but the court essentially ruled that because money needs to be fungible, he was not entitled to have his bank notes returned.

  3. And if Government managed to completely centralize Bitcoin to the point of tracking every single transaction and confiscating "dirty" tokens, they will never be able to use it themselves as a means of subsidizing and hiding their military and intelligence black ops. You do realize that Governments need a means of transacting in secret to hide their crimes far more than the average individual, right?

  4. Bitcoin isn't about Government permission… That is why it is called a decentralized permissionless and trustless system. If the government regulation turns Bitcoin into a centralized trusted network, it will be completely worthless. You morons need to recognize something, Bitcoin is about destroying centralized power structures, and that includes governments as well as banks. If that bothers you then you don't belong in this space. That is the only thing it is actually good for – i.e replacing the present centralized monetary system and in effect the centralized forms of government. We don't need government coercion for any reason at all. Especially not if we have decentralized trustless systems to function as the arbiters of trade and commerce. The US government has no constitutional duty to protect citizens or the property BTW. And the pretense they maintain to the contrary is just that, a legal pretense and a fraud.

  5. These fucking lawyers man… They dont understand the first thing about economics or decentralized protocols. Fiat currency can be stolen and traded without being tracked. So why isn't fiat currency illegal? Oh I realize they are trying to phase it out. But the whole point of Bitcoin is counter-economics. The developers dont care what the government wants. And neither does the community. The government can fuck itself in the ass. If Bitcoin ever become under the control of Government regulation, it will cease to be relevant and we will simply fork or start a new chain.

  6. Sasha Rules!!!! What? Adela never took the bar so not yet in full lawyer mode …. That answers a lot of questions.

  7. I'm from Toronto and quadrigacx was basically the only "decent" exchange to fund with fiat… so I used it for about 7-8 months and I didn't trade on it because it always had a hefty premium.. so I just used it to fund/withdraw to my bank account.. in the summer of 2018 it started having issues for withdrawals so luckily I took all the crypto and fiat of the site in June and never used the exchange again… I definitely dodge a huge bullet.. I feel sorry for all the customers that got burned.. it could of happened to me just as easy.. after this.. I'm always going to hold my own keys. Stay safe out there.

  8. these fucking rentseeker lawyers, sitting in their corner, nothing at stake, giggling about other people losing their freedom. FUCK COMPLIANCE

  9. The CEO of Qadrigacx was Gerald Cotten. He was the one who died—whether or not you believe that. This other guy Michael / Omar was a shareholder and was on the board. Might want to be factual during lawyerly opining.

  10. this show was awesome-it demonstrated that governments will/could unintentionally adopt BTC simply because of superior traceability. They will wake up one day and realize that BTC is the base layer of everything they do.

  11. Even if wallets adopted this white list strategy only some of them would adopt it there would still be plenty of ones that wouldn't. I could see coinbase doing it for example if this ever becomes a thing. Lightning and or tumbling completely circumvents this potential implementation.

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