Cryptocurrency Regulation: An Interview with Blockchain Lawyer Chetan Phull



good afternoon everyone it's Jack here welcoming a good friend of mine a legal consultant for the Gwacheon industry mr. Chayton pool he's here to talk to us halation regarding crypto currency in the blockchain space I had the pleasure meeting but a stock books little kitchen he overheard me talking about crypto and we decided to connect further ado I'd like to introduce Mike Carla chick how are you today sir hi I'm doing well thanks good well thanks for coming around and talking about crypto with me but people in the community looking to get questions answered regarding the future of crypto and blockchain and all things related to regulatory issues so I appreciate you doing this for those that don't know you why don't you tell me a little bit about your legal experience and you to get involved with blockchain to call yourself as far as sure so I had some stints I'll start from the beginning I had some stints as a teenager with software development and I went through University and decided to target the law as a career and I graduated from law school in 2010 from Queens University went on and did a masters the next year at UCL in London and then I helped judges for a year at the Nova Scotia Court of Appeal rendered decisions so that involved a lot of research and trying to navigate in uncertain legal territories thereafter I I wrote the bar exams in Ontario New York State Massachusetts and got admitted in those three jurisdictions so I'm licensed to practice there and I spent the next five years litigating in Toronto for insurance companies and condominium corporations and that work also involved the regular taury aspect of dealing with all the corporate issues and the debt financing issues and the you know corporate meeting issues faced by condominium corporations and then fast forward now to 2017 I started getting into the crypto craze and wanted to understand what was behind blockchain technology purely as an outside interest not looking at it professionally at the time at the beginning of 2017 and I just got soaked you know it seemed to be an area that was very interesting not only for you know the implications that had to the banking world but the implications blockchain technology has over all and I looked deeper into the legal aspects of the technology and how companies building block chains would have to deal with certain regulatory concerns and there seemed to be an area it seemed to be an area where there's a lot of uncharted waters that needed to be charted so it became a little bit of an obsession and then at the beginning of 2018 or into 2017 I decided to go in a hundred percent and I commenced I started smart block law professional corporation and here we are today so smart block law professional corporation deals with the three main areas of of blockchain tech and and that is the funding and capitalization phase and then the operational side of the business and then litigation arbitration so I'm just so I know Jake are you mainly focused on representing like initials and watching based companies or individuals who main they have concerns about their legal standing with regard to their crypto currency holdings well I I do both so right now I have a fair amount of clients in the blockchain technology side I also get clients that are private individuals that have related crypto concerns and I'm seeing more civil litigation field sorry civil litigation in the crypto space so I cover the entire gamut okay interesting on I'm sure you and I both have a lot of might be worried about their taxes or their I didn't crypto myself thing one of them so to be able to pick your brain is great for the community Oh what is the Canadian government's stance on initial Koyna offerings as far as to cure thirties or nonprofit contribution in ski he maybe shed so a lot of us in the cryptos space let's face it we wanna make money and I SEOs are a great way to try to to me willing to take the risk I yeah that's but the Keeney government may say about that or how they want I see all right sure so you've touched on a variety of areas within crypto law you've touched on icos which deal with the capitalization of corporations or the capitalization of you know gals you've touched on tax issues and you've touched on anti-money laundering concerns and the operations of businesses so those are three separate areas and I can't give an in-depth you know detailed opinion without knowing more of the facts but what I tend to do in the course of my work is I focus in on one of those areas for example and I provide an opinion specific to the client circumstance so you begin your question with crypto tax I believe in you know the government's approach so that also is a loaded legal question because when you say the government there isn't just one government organization or one government body that that that conceives of cryptocurrency in a certain way you've got the Department of Finance you've got the Bank of Canada you've got the CRA to name just a few and they don't all have alignment and how they view crypto currencies as of 2014 or 2015 the CRA was actually looking to the Department of Finance to help define whether cryptocurrency is money or whether cryptocurrency is in fact a real currency so right now various heads of government are passing the buck to each other to try to answer the question first my sense is that we will probably follow what happens in the u.s. UI she wanted to ask what are such stakes or some of the advice that were seeking from a legal standpoint how can they how can these businesses me make sure they're operating sure so again there are three general heads to blockchain law there's you know corporate capitalization on the one hand and funding and then there's operations and then there's litigation and enforcement so I'll deal with the first one because that seems to be what most people are interested in at the very beginning when they start their business so I cos are popular means of funding these days but although we're operating in a largely unregulated environment it's not as legally uncertain as it was say this time last year and it seems like every month there's a new development that that lawyers need to account or when advising clients so the biggest problem I'm seeing today when clients come to me is that they want to open up their ico to investors all over the world and they want money immediately and that's just not possible it used to be but today you've got a lot more work to do when you're trying to raise money through a public token distribution and the reason is because you have to ask the initial question of is your token you know the digital asset that that is used in conjunction with your blockchain is that token a security subject to securities laws and that question may be different depending on the jurisdiction you're in and moreover if you are a security in any given jurisdiction there are certain requirements you have to follow in that jurisdiction so you can have a situation where the securities laws of multiple jurisdictions apply all at the same time you know if you've got your company your issuer here in Ontario and you've got investors in England France and the US well now you're having to deal with four different sets of securities laws so my my advice to clients at the very beginning today is to restrict the operations or at least the funding campaign for the ICO to a select few jurisdictions so that you can manage a compliance plan it's a lot easier to attempt to obtain compliance and say for jurisdictions or even one jurisdiction as opposed to every jurisdiction in the world that's a good point I think what you're saying in the beginning there ICO is basically one across the world probably is the most pragmatic the sense that these these organizations or start production Christic to where they're familiar right right it used to be almost acceptable particularly when you think would hear about the success stories like aetherium but we're in a different world right now and there's much more regulatory scrutiny and my sense is that if you continue to act as if it's 2016 you're gonna land yourself in a lot of trouble yeah absolutely I agree with you I think there have been too many ICT O's that have cost investors money I've stood that you recognize that I did want to ask you change a big legal issue with the coin called teos and I know that you're not an expert on Swiss law but he's those ico oh they're their language as far as conditions stipulated that basically sure you were making that donation that it wasn't really an investment and now I've been sued in the United States for presenting as a security so I'm what it would but certain laws by registering Switzerland are using certain languages as far as contribution I'm had an IC o—- and I understand whether it's just from a legal standpoint what are the things that we should look this or any other approach you'd recommend sure so to start off with I'm not licensed to practice law in Switzerland so I can't give an opinion on Swiss law but your second question of how to spot an IC o—- scam I can provide some guiding principles for so if you receive documentation about the business model of a particular blockchain business usually in the form of white paper and that that document indicates that there's going to be an ICO to raise funds for the corporation but it doesn't say what the funding goal is it doesn't say what it needs to funds for it doesn't say how much it requires that to me is a classic sign of a pump and dump scheme so you've got you've got a blockchain corporation requesting money in exchange for its tokens and you really have no idea what it's going to be doing with that money there's no security in my mind that the investor has that that money is going to be put toward a legitimate purpose the investor in that case is just being sold on a dream that the token that they're buying is going to increase in value and they can suck they can sell it on some secondary market and that just isn't you know a certainty when you don't know what your money is doing in the hands of the corporation you've just funded so I basically what I want to know just you law is potentially becoming more refined that marching companies are particularly startups or look to maybe go on the stock exchange and normalize things that way through proper breath I guess auditing is an ICO particularly here in Canada just for the sake of avoiding potential lawsuits or any growth because it seems like that might be an easy tier approach yeah one of the long later approach sure so the question was it came in a bit dinner but I think I got it look Nico in selling a token it's a it's a token distribution and that token may or not be a security in most cases it probably is a security but it's not a security in the traditional sense that we might colloquially think of a security it's not usually stock in a corporation and so it may be difficult from a practical point of view to sell a token that has a certain utility on a stock exchange and it may be even beyond being impractical and it may not be appropriate so for example if your token that you're attempting to sell is a token that contains health records and as you use the token it's associated with more and more personal data in that circumstance you certainly wouldn't want that token to be sold publicly on a stock exchange it just doesn't doesn't work that way in terms of that kind of business model so what I'm saying is uh sorry aside from the information itself I understand what that example but but in your example data the management would be the business model where if it was health records you'd be charging the government and or what but that the company itself would raise funds through an IPO rather than a YCO baby want to avoid headaches gone IPO who might be the better approach I know that is the the popular thought out there but the reality is in in this present regulatory climate which is not what it was last year more and more tokens are being labeled as securities and so therefore you have to in most cases proceed on the assumption that your token must comply with securities law in the jurisdiction where your company is as well as the jurisdiction where your investors are and most tokens although then they have to comply with securities laws if they have any utility that has any dimension of a privacy law attached to it it makes it difficult if not impossible to sell such tokens on a traditional exchange those tokens can be monetized in other ways but in my opinion in most cases it's not appropriate to sell those tokens on on a traditional Stock Exchange but let's show no it really depends on your token it depends on your token because not all tokens are created equal and they all have different uses functionalities and features and so if your token is a security in the most traditional sense it being that your token represents some sort of equity in a company then that kind of token for that kind of token it may be appropriate to sell on a traditional Stock Exchange so I have to give you the classic lawyer response to your question which is it really depends it depends on on your token so just before we lose kid I just wanted to ask you about marketing and advertising it seems like just Facebook and Google are inclined to limit what they the fact that they can advertise their ico is period so I know those are company then necessarily reflective of the law but can you give me an idea what are I SEOs are allowed to say there are advertising and marketing here in Tanana like are there certain ways that you can promote yourself certain things you can't say is that an area that you know about I yeah so so again every legal situation requires its own consideration on its own particular merits but but generally speaking your question goes to an endorsement of an ICO whether or not there's any liability attached to endorsing an IC o—- and I'll take this opportunity to raise the recent case of an IC o—- that Stephen Segal had endorsed and it unfortunately was shut down by by the SEO SCC I use the term unfortunately very loosely I think any company endorsing an ICO needs to be very careful and make sure that they do their due diligence to ensure that they're not party to a scam and so that is why I think you may have platforms out there who are very reluctant to have an ICO advertised because they just don't know what implications that might have for them and whether or not their facilitation of ICO advertising they attach liability to them down the road so their shorten my response any platform who participates in the advertising or who facilitates advertising of an IC l I think should be very careful and ensure that it does its due diligence to you know make sure that it's not participating in a huge pump and dump you know one of the classic pain points of icos today or I should say one of the reasons why I see O's has come under such regulatory scrutiny absolutely I appreciate that response sheet so I'm right your website of your services but you'd probably do a better job nice oh and intelligent out there where we can reach you if we get into legal issues with an ICO or our launch want contain space we might be able to help pure thanks so I have focused my practice in blockchain cryptocurrencies IT contracts and litigation and what that means is that for any planning regarding blockchain related activity or cryptocurrency related activity that's where my specialty comes in now because blockchain involves you know a network of nodes all over the globe a lot of the times the law that your business model implicates will invoke the laws of multiple jurisdictions so when necessary I also correspond with with lawyers and other jurisdictions to make sure that there is compliance everywhere where your business intends to operate and in a nutshell that's what we do on the blockchain and cryptocurrency side we also do IT contracts and so that's important for any business that for example has dealings with third party platforms or other third party vendors any any situation in which you have a relationship with other parties that your business relies on so I draft those agreements and I negotiate those and then finally I also do litigation so to the extent that you have an agreement or just the fact scenario that has resulted in damage to yourself or you need a defense because another party has stood you alleging that you have caused them damage I take care of of that as well perfect well cheap man just once more Oh III late you know what I forgot one of the most important things which you know go for it the name of my law firm smart block law professional corporation and we are accessible at WWF art block law calm and I encourage you all to have a look at the smart block law blog where I provide an overview of various legal topics that are relevant to the blockchain cryptocurrency communities perfect cheating I'll go ahead and link to it in the description when we post this video so it's smart Blackwatch calm and directly to the blog for the valuable resources they put together so with that said Chayton I appreciate your time I know becoming such a busy man but I'll be back sometime as the industry continues to evolve we'll talk about some other issues that have come up in his face sounds great thanks jack thank you so much this is Jack signing off please do subscribe to my youtube channel thanks for watching and we'll see you again soon take care

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