Drew Hinkes Profile picture
Partner @KLGates |AdjunctProfessor @NYUStern / @NYUlaw |No legal/financial advice |#Bitcoin |#SmartContracts |#Miami |#Phish
JennyfromBlockchain #GetVaccinated Profile picture ROY Profile picture 2 added to My Authors
24 Jul
There has been lots of talk about #uniswap front end interfaces blacklisting #tokens that might be #securities. This is not an attack on #DeFi or regulation of #DeFi specifically, but instead a logical example of how existing regulation applies to legally addressable entities /1
including those that facilitate the use of #decentralized systems- in this case, legally addressable interface providers. And this isn’t new. Quietly, many front end providers are also engaged in #sanctions compliance. While laws obviously apply to legally addressable actors, /2
this does not mean that regulation has applied or will be applied directly to protocol code, at least not yet. This is b/c code itself is not legally addressable. It has its own rule-set governing its environment, & law cannot change code, although law can act on people /3
Read 12 tweets
19 Jul
Today I published "The Limits of Code Deference" papers.ssrn.com/sol3/papers.cf… Inspired by #theDao, #Dapps & #DAOs, this article explores whether #decentralizedventures can absolutely bind their users to their code’s execution. Not surprisingly, the answer is no. Why? A quick🧵:
These ventures use code to enable groups of people to act collectively to affect rights to #digital assets. We call these “decentralized ventures.” These decentralized ventures enable transactions among their participants in accordance w/rules created and enforced by their code;
human participants in these decentralized ventures interact with the venture, & sometimes with each other, using #smartcontracts. Smart contracts may break, or behave in unexpected ways. What happens when a smart contract defect /error harms a decentralized venture user?
Read 20 tweets
20 Apr
@CaitlinLong_ @uniformlaws @Prof_CarlaReyes I'm very proud of the work done by the brilliant members of the @uniformlaws Digital Asset Working Group incl. @Prof_CarlaReyes @Andrea_Tosato to create this draft. For the twitterati who don't practice law, you may wonder, what's this? & Is it important? YES. A quick #thread
@CaitlinLong_ @uniformlaws @Prof_CarlaReyes @Andrea_Tosato The proposed new article 12 of the UCC would include rules for commercial transactions of what we’ve termed "controllable electronic records" or CERs. This would include a wide variety of #digitalassets including what we generally call #cryptocurrency along with /2
@CaitlinLong_ @uniformlaws @Prof_CarlaReyes @Andrea_Tosato #digitalassets that are related to other assets or legal rights such as precious metals-backed assets, certain types of #NFTs etc. /3
Read 12 tweets
13 Apr
We've got a new proposed #SEC #token #safeharbor that would let issuers offer tokens in the US. It's big. But, what's new? How is it different from the prior proposal? What's new? You guessed it. It's unavoidable, It's inevitable. It's a #THREAD. Let's dive in/1
Right off the top, we have the elimination of the "good faith" provision that was previously implied upon the issuers in a(1) & of a(4) which required the issuer to act in good faith to "create liquidity for users." /2
New section a(5) includes reference to the new "Exit report" which is a new requirment defined and explained further down but tldr; its a report issued by the issuer's counsel that asserts whether the tokens will be a security or not after the 3 year period. Good inclusion /3
Read 31 tweets
13 Apr
released on #github. here's the link: github.com/CommissionerPe…
3 most significant changes: mandatory semi-annual updates to the plan of development disclosure and a block explorer; exit report requirement with analysis by outside counsel explaining why the network is decentralized or functional, or an announcement that the tokens will
Read 4 tweets
25 Mar
Is #FINCEN coming for #NFT #Art markets? A thread about the #NDAA, Anti-Money Laundering Act of 2020 (AMLA), its expansion of BSA coverage to include “dealers in antiquities,” & what it might mean for the #crypto art world: (link to notice here: fincen.gov/sites/default/… ) /1
Why regulate transactions of antiquities (&maybe art)? The concern is that art & antiquities can be used for money laundering, to violate sanctions, & “have been linked to ...criminal networks, ...terrorism, & the persecution of individuals or groups on cultural grounds.” /2
On Jan. 1, 2021, Congress passed the NDAA, which expands existing anti-money laundering (AML) requirements on a variety of fronts, including the addition of “dealers in antiquities” to the definition of “financial institution.” /3
Read 18 tweets
17 Mar
Yesterday, at the conclusion of my #NYU class discussing #Governance of #Bitcoin and #Cryptocurrencies, I posted this slide, summarizing my thoughts about what the #US can do to improve its #law and #policy related to #Crypto. A #thread on what we can and should fix:
First, establish an government wide-policy. What do we want? Are we pro -innovation? Do want to protecting consumers? Do we want to strike a balance in the middle?Do we want to facilitate experimentation? How much control will the govt take over these experiments? /2
Do we want to make it easier or harder to launch businesses/reach consumers? To make an effective policy, we either need an interagency group, or a new freestanding group focused on the subject. Whoever tackles it, step 1, what do we want? /3
Read 29 tweets
30 Dec 20
OFAC settlement w/@BitGo for apparently failing to prevent users accessing their online hot-wallet service via Crimea, Cuba, Iran, Sudan, & Syria IP addresses; service appears to be a non -custodial online wallet. Violaton of OFAC regs, NOT BSA . Let's look at the regs: /1
31 CFR 515.201, (i.e. Cuban Assets Control Regulations) prohibits transactions by foreign countries and their nationals including "...transfers, withdrawals, or exportations of, any property," /2
31 CFR 560.204 regarding Iran (defined as the Territority of Iran) also prohibits "exportation, reexportation, sale, or supply, ....from the United States....of any goods, technology, or services to Iran or the Government of Iran" /3
Read 11 tweets
26 Sep 20
🚨🚨🚨BREAKING: clarity on how broker dealers should handle non-custodial digital asset securities transactions on ATS. 🚨🚨🚨 THREAD coming atcha /1
/1 since the Joint Staff Statement (July 8, 2019) which addressed BD custody & handling of trades of digital asset securities (sec.gov/news/public-st…) which emphasized consumer protection, it has not been clear how transactions on ATS should be conducted:
/2 The Joint Statement did not make clear how BDs should conduct these trades. Today's letter provides no action relief (i.e. if you do this specific thing, the SEC will not enforce against you) for a specific process flow for digital asset securities transactions by BDs
Read 17 tweets
24 Sep 20
Should #smartcontract code execution always be dispostive? Can code execution actually bind participants if litigation is always available? Does extrinsic goverance of #blockchains that may alter #consensus governance weaken, or strengthen a protocol? Who should care? /1
Short answer- everyone. #Developers #investors & #lawyers all need to understand #blockchain & #smartcontract governance to understand what it means to build on top of others' tech. Can you patent new art built on a blockchain? Will your software work if the underlying chain /2
upgrades its code? What if the underlying blockchain forks? How can a #smartcontract advocate for or against software changes to underlying #blockchain system functionality? Is it worth investing in a project built on a frequently shifting foundation.... /3
Read 4 tweets
12 Aug 20
Another place where #bitcoin tends to show up in litigation is in divorce, when married couples divvy up assets. In DeSouza v. DeSouza, a spouse was held to violate his fiduciary duty to his spouse by concealing #bitcoin. /1 ImageImageImageImage
Here, the divorcing spouse had some #bitcoin tied up in #MtGox and some held on private wallets. One spouse did not disclose the holdings until after the divorce, and the other spouse immediately sought an award of 1/2 and attorney's fees. Court agreed, noting that divorcing /2
Spouses owe statutory fiduciary duties, & failure to disclose the existence of the #bitcoin, payments to Mt. Gox, some bitcoin's ties to #MtGox & the forks of #bitcoincash and #bitcoingold amounted to breaches of duty; Court disagreed that capital appreciation mitigated /3 ImageImageImage
Read 6 tweets
11 Aug 20
#California appellate court affirms summary judgment in favor of @coinbase as to claims for #conversion #breach of contract & negligence; related to #coinbase not supporting #bitcoingold fork for its users; since it's precedent in CA, let's dive in /1 ImageImageImageImage
Court ruled that there was no agreement to give Plaintiff #Bitcoingold; there was no "contractual obligation to support or provide services for any particular cryptocurrency." Merger clause barred parol evidence & there was no contractual duty. That's breach of contract /2
Conversion of crypto is a pet issue of mine because it requires the Court to determine that the thing that is allegedly converted (i.e. the civil version of theft) is legally recognized property. Fun Fact- property rights are mostly created by state law. Only 1 state (Wyoming)/3
Read 11 tweets
6 Jun 20
@CQRollCall reports the Boston Options Exchange (BOX) reworks its plan to use #Ethereum to record ownership of securities, says it resubmitted plan after meeting with regulators; would use #blockchain as an "ancillary method of recordkeeping" with official data kept by DTCC /1 Image
New proposal limits trading on exchange to listed items, not to provide unlisted trading privileges, which would allow transactions in securities whose home is on another exchange.
Notably, @SIFMA is reported to have asked the SEC to "take its time to consider the proposal," /2
given its novelty. SIFMA did not oppose it, but "said the prospect raised many issues. For one, the plan would allow an options exchange to have an effect on the securities markets, it argued." also expressed concerns about security token technology and unlisted trading privs./3
Read 5 tweets
2 Jun 20
Claim by Q3 v. Tran et al re: alleged #ponzi disguised as #crypto trading venture remanded to state court by M.D. Fla after being removed to Fed. Ct. under Securities Litigation Uniform Standards Act (SLUSA); issue is if investment was in "covered" or "uncovered securities" /1 ImageImageImage
"Covered security" (needed to trigger federal court jursidiction over the matter)= Traded nationally & listed on a regulated national stock exchange. If doesn't involve covered securities, no SLUSA, no federal court jurisidction on that basis. /2
Here, the argument was that the LP interests sold by Tran et al were not covered securities but the things to be owned by those LP interests described by Partnership Agmt. included crypto & covered securities, so SLUSA should confer Jurisidiction. /3
Read 6 tweets
30 May 20
Court affirms terminating sanctions & default (aka, case over, you lose) against Ringgold for submiting false declarations to defend against the SEC’s case, finding the dec's were false, they were submitted willfully and that terminating sanctions were appropriate under Malone /1 Image
Ringgold and #Blockvest marketed an #ICO selling BLV tokens falsely marketing them as “registered” and/or “approved” by the SEC, CFTC, NFA, and touting “partner[ship]” with Deloitte, and createda fictitious regulatory agency, the #Blockchain Exchange Commission
Defendants filed declarations in opposition to govt's motion for preliminary injunction; in later discovery, it was revealed that declarations were forged, included misrepresentations and false statements were made in Dorsey and Vaculik’s declarations.
Read 17 tweets
28 May 20
NEW #SEC consent order with #BitClave related to $25.5mm ICO of . A few interesting points in this settlement (h/t to @collins_belton for the eagle eye) sec.gov/news/press-rel…
BitClave raised $25.5 million selling 9,500 investors (called it a fundraiser), incl. to US persons. Issuer was a US entity operating via Singapore PTE LTD. to be used to pay people to watch ads, ICO (July 25, 2017 (date of #TheDao rule 21 report!) -Nov 29, 2017)
CAT sold directly & distributed via bounty program. Sold 680mm CAT, held 1.32bil CAT. Issuer emphasized expectation that CAT would appreciate in value in WP, on social media channels, youtube. Issuer arranged for CAT to be listed on exchanges.
Read 6 tweets
8 Apr 20
Important thread for #crypto users, lenders, borrowers & intermediaries. Unsurprising result, given prior Singapore (Quoine) & UK (Robertson) authorities holding cryptocurrencies to be property; US has been there for (via twisty path) for a while now:
#Cryptopia like many other early #crypto trading platforms had quickly changing terms of service- i.e. it's contract with its customers. early T&C stated that the site took no ownership right over any customer's contributed #crypto. ImageImage
later amended T&C's expressly appointed #cryptopia as the agent of its users, created expressly custodial accounts, gave the platform the power to close accounts, expressly states that the platform holds assets on the customer's account. This contract matters- a lot. ImageImageImageImage
Read 9 tweets
11 Mar 20
#Oklahoma SB 1792 "Financial Technology Access and Improvement Act" sent to house; would create a regulatory #sandbox w/in State Dept. of Commerce; includes, defines "#blockchain technology" as part of "innovative" technology. why, why, WHY? . legiscan.com/OK/text/SB1792 /1 ImageImage
Bad def of "#blockchain technology": the use of a digital database containing records of financial transactions which can be simultaneously used &shared within a decentralized, publicly accessible network &can record transactions btwn 2 parties in a verifiable and permanent way/3
problems: a "technology" is defined as the use of technology? Limited only to financial transactions? What's "decentralized" mean? What's "publicly accessible" mean- read? write? "participate"? "Can" used in last part of sentence renders most of what comes after it meaningless.
Read 4 tweets
2 Mar 20
US brings In rem forfeiture claim vs. 113 #cryptocurrency accounts based on an investigation by @IRSnews , @DHSgov & @FBI into money laundering/MSB violations; alleges "peel chain" (new term!) transactions used by North Korea to disguise funds; details NK hacks of exchanges/1 ImageImageImageImage
used to steal customer #crypto/funds, resulting in value ($234mm) transferred via other exchanges eventaully to NK, allegedly used to develop WMDs. Alleges altered photos used to game AML/KYC (both worse the same shirt, lol), /2 ImageImageImageImage
LOOK AT THIS DIAGRAM: If you are still using #crypto to commit crimes you're not very bright. /3 Image
Read 5 tweets
28 Feb 20
Appeal of summary judgment entered in favor of Coinbase in Archer v. @coinbase case regarding #bitcoin and @bitcoingold fork; complaint alleged conversion, negligence & breach of contract related to non-recognition of BitcoinGold fork; all claims dismissed on summary judgment/1 ImageImageImageImage
includes discussion about what a holder of someone else's cryptocurrency actually has- is it "ownership" "posession" or "control"? What rights are delegated to another under ? here it's a contract interp. issue. what rights were delegated to Coinbase? Image
the contract argument advanced is that if there's no agreement as to interpretation by the parties of their agreement, and parol evidence is admitted to help understand the meaning/intent, then it is not ripe for adjudication on summary judgment and has to go to the jury. Image
Read 6 tweets
28 Feb 20
#Lawyers, if you're thinking about learning about #crypto and incorproating it in your practice but you're not sure if it's oversaturated....look below. There will be opportunities for all.
Take these Gents in the picture below. They are building #DeFi platforms which are systems and products that emulate existing centralized financial products and systems, but in a “decentralized” way. What kind of lawyer will they need in the future?
No one knows for sure, but they may need Transactional lawyers to receive investment, to buy other platforms, to license their products and services, to potentially register as companies, where to wind down. Even if they don’t incorporate, they still need help with governance.
Read 11 tweets