Distributed Counsel 16 — Mediterranean Cruise Special Edition

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The single best travel essay ever written is by David Foster Wallace and it is called Shipping Out: On the (nearly) lethal comforts of a luxury cruise.  

Literary talent can be elusive to the reader.  Mine, I think you’ve found, is more elusive than water on Venus (I tried “water on Mercury” but it turns out there is some at the poles).  You have to dig in. You have to uncover it, find it. You have to chase it out of its little burrow. It doesn’t “leap off the page,” not always and not usually.

Most of the time it lurks then surfaces unexpectedly–maybe it’s an image from a book you read five years ago that was always there, its touch on your mind as delicate as well-cast fly on water.  The author who put that image there had talent, maybe not for the whole book, but definitely for that moment. If you want a lucid description of what I’m talking about, look up Stephen King’s On Writing, in particular the part about a toolbox.  I remembered it without even having to go back to the book.  That is one type of talent.  

The other just punches you in the face as you walk past it on the sidewalk. This is the David Foster Wallace kind. Read his essay.  It’s got stuff like:

  • The ship was so clean and white it looked boiled.
  • Temperatures were uterine.  
  • I have felt the full clothy weight of a subtropical sky.

This is just one page.  

The essay itself, in all its glory and self-fulfilling despair, is a paean to extravagance, irresponsibility, and the ultimately dehumanizing effect of unlimited indulgence.  It is brilliant.  I mention it because I’m sure nobody on this particular voyage read it.  That’s right, there is a Bitcoin cruise—oh, sorry, a CoinsBank Blockchain Cruise.  I want to meet the person who thought this was a good idea.  Then I want to meet the person who thought it would be a good idea to have Jimmy Song and Roger Ver (two, it must be said, exceptionally bright minds in the arena) engage in a “debate” about relative merits of Bitcoin and Bitcoin Cash—which is for all the world a theological dispute at this point—on the last day of a hedonist’s Ironman.

The CoinsBank Blockchain Cruise was a bacchanal upon the pristine seas of the Mediterranean, from Barcelona to Monte Carlo, on to Ibiza and back in time for tapas.  From the digital brochure: “onboard, guests will be delighted by scrumptious dinners, a nightly spectacular show, parties on the Pool Deck and 24 hour open bar reception. As if that weren’t enough, an unforgettable sunset BBQ party in the style of the legendary Cafe Del Mar, with celebrities and world-famous DJs, awaits guests in beautiful Ibiza. It’s guests’ last day together – so plan to party hard until you see the sun rise! The cruise then makes its way back to sunny Barcelona, where guests can disembark and go get some delicious tapas with all their newfound blockchain friends.”

John McAfee was there.  He “united with Coinsbene in order to prevent corruption in the crypto world and protect the community from scam,” according to the deceptively anodyne summary of the affair.  We’re safe now. 

Not to belabor the point, but the Song/Ver, which is what I’m calling it from now on because it sounds like a noun and has a lyrical quality, was on the fourth day.  After four days of buffets, shore excursions, casinos (probably), and the amount of drinking one would expect from a perpetual open bar (definitely), were we really expecting the crimsoned voyagers of the USS Whatever to sit quietly, on the fourth day, and take in a “Lincoln-Douglas” style debate about the relative merits of Bitcoin and its most famous fork?  

The video speaks for itself.  Let’s be blunt: good things usually don’t happen on cruises, and good debates containing reasoned and nuanced arguments before a quiet and contemplative audience never happen on cruises.  There are some good points made eventually, but I think we can all agree, this was not the forum.  Are you surprised to learn that certain of the stately ships in the Carnival fleet have something called a “library bar”?  Neither am I.  

ICOs are Securities (once a jury says so)

Another court has weighed in on the ontology of the token.  The government has charged Maksim Zaslavskiy with two counts of securities fraud and one count of conspiracy to the same, and Zaslavskiy moved to dismiss the indictment on several grounds.  Not all need detain us here. The most important argument was that the coins in question were not securities.  Zaslavskiy claimed that the two tokens in question: RECoin and Diamond tokens, representing investments in real estate and diamonds natch, were not investment contracts and therefore were not securities.  The Court let the case move forward, and left the final decision on the matter to an eventual jury.

At first blush, the question of whether a token is a security just sounds like a question of law, and it is well settled that judges decide law, juries decide facts.  But it’s not a pure question of law, it is a “mixed” question of law and fact.  And as the Court’s decision on the indictment points out, there are lots of facts to be decided:

  • Is there horizontal commonality?  These are just fancylawyerwords for “everybody in it together.”  The Court says it is where “the fortunes of each investor depend on the profitability of the enterprise as a whole . . . [with] a sharing or pooling of funds.” Horizontal commonality also usually requires a pro rata distribution of funds and according to the Court, that’s where the token comes in: “In this Court’s view, the Indictment makes clear that REcoin and Diamond profits would be distributed to investors pro-rata — given that investors were promised ‘tokens’ or “coins” in exchange for, and proportionate to, their investment interests in the schemes.”
  • Was money involved? Zaslavskiy actually argues this point–”glibly” according to the Court–and it is dismissed out of hand.  Actual American dollars are not required, basically anything of value can be invested. This argument was never a good one.
  • Third and finally, was there an expectation of profit derived from the managerial efforts of “Zaslavskiy and his co-conspirators” not the investors themselves?  

A jury needs to decide all of this.  It is important to remember that at this stage, where the Court is considering the indictment and whether the matter should go forward at all, all of these allegations are taken as true. But eventually they must be proved, beyond a reasonable doubt, to twelve people who are not experts in securities law.  The bulk of the Howey test isn’t up to a judge at all.

Getting to an actual jury trial is like getting home on a cruise—expensive and slow—so this has some fairly large ramifications.  First, it likely will hinder resolution of the core question.  This is because the precedential value of any particular case is diminished by reliance on factual findings.  Put another way, this question is going to be asked over and over again in subtle variations. Second, it makes it more likely that the government (the DOJ in criminal matters and the SEC in civil enforcement proceedings) will pick the “low-hanging fruit” (ahem, not Ripple), so as to create momentum from settlements and avoid the possibility that a jury could go haywire and find that a token with all the hallmarks of a security still isn’t one.  A verdict like that would be a significant setback even if it would likely have no precedential impact. Third, it means any genuinely contested case will take a long time and be expensive for everyone involved.

Just Plain Lucky

I have an embarrassing confession for you: I play the Lotto.  Not all the time, mind you. My general number is about $350 million.  Anything over that and I’m interested even though I know I shouldn’t be. When I do play, my wife always insists we review the numbers ASAP the next day, and she is always disappointed when we don’t win. We are lucky, we aren’t that lucky.

But somebody is.  From the always with it Next Web comes this story about EOS dice payouts.  Apparently, the luckiest guy in the World is playing EOSDice, a gambling smart contract on the EOS platform and has won so much money ($600k) the world was convinced he had hacked the game.  Not so. He was just very very very lucky.  Please don’t try to duplicate these results.

WSJ/Shapeshift

The WSJ has reported that, get ready, there is money laundering transpiring on cryptoexchanges.  I for one am shocked, shocked to learn that gambling is going on in here. The exchange in question is Shapeshift, which may help to explain the recent change of heart.   To their credit, they have responded, but the response basically points to one clear error by the WSJ and gives the resume of the Chief Legal Officer. Shapeshift may be right that there are better ways to prevent laundering than classic KYC/AML, but as is usually the case, the law has not caught up to the technology, thus their previously announced initiative.  Again, it is the right move for the exchange’s long term viability.

Follow Up on Chinese Data

More than a few regular readers of these pages have commented with fascination and perhaps a bit of dull terror at the pervasiveness of Chinese surveillance, as detailed in the prior post.  This won’t help. I cannot be certain of the sourcing for this story but the format, to say nothing of the photography, is terrific. If you are going to click one link this week, pick David Foster Wallace.  This one is number two.

As always, thank you for reading.

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