Crypto Caselaw Minute #41–6/20/19
This week’s CCM is, frankly, all over the place. We’ve got a copyright case involving some big names in crypto, umm, some allegedly questionable legal advice, and an update on the bazillion dollar Tezos ICO lawsuit. Buckle up.
Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario and Stephen Palley. They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.
(As always, Rosario summaries are “NMR” and Palley summaries are “SDP”. Image credit: Cornelis Verbeeck, Dutch master, “Spanish galleon firing its cannons” https://commons.m.wikimedia.org/wiki/File:Spanish_Galleon_Firing_its_Cannon.jpg#globalusage)
Rice v. CoinTelegraph Media USA, Inc., Case №1:19-cv-5648 (S.D.N.Y. filed June 17, 2019)[NMR]
This week we have one of the first copyright infringement lawsuits related to crypto. The underlying subject matter concerns two of the bigger names in crypto. That said, as we’ve seen with many other cases around here, this case is a pretty standard copyright infringement lawsuit. Remember, just because you have new tech doesn’t mean you need new law. So, what’s going on here with Rice and CoinTelegraph?
John Curtis Rice is a Bronx based photographer who makes his money by licensing his photography to businesses and other interested parties. Way back in 2013 Mr. Rice licensed a photograph he took of Mr. Shrem to the New York Post for a delightfully titled story Coin of the Net realm. The New York Post credits Mr. Rice as the photographer on the article. The article is worth a quick read as it is a total blast from the past that includes that absolutely fantastic phrase “digital doubloons.” Digital doubloons. So good. In May of this year Mr. Rice registered his copyright in the photograph with the US Copyright office., and now Mr. Rice is suing CoinTelegraph for willful copyright infringement.
For those of you that don’t know, which if you’re reading something called Crypto Caselaw Minute the odds of this applying to you seem to be about zilch, CoinTelegraph is one of the main blockchain/cryptocurrency focused media sites. CoinTelegraph ran an Op-ed on its website with a list of convicted criminals in the bitcoin space that included Mr. Shrem. Allegedly, as part of that list under Mr. Shrem’s entry was the photo from the New York Post without credit to Mr. Rice. The Op-ed ran in 2015. There is a 3 year statute of limitations on bringing a copyright infringement lawsuit. It’s 2019. Wait, what?
So, there are a couple of things going on here. One, in March of this year the US Supreme Court ruled that an individual bringing a copyright infringement claim must have registered the copyright with the US Copyright Office before they bring their claim. That explains the registration in May. Second, although there is three year statute of limitation on bringing a claim, and the Op-ed originally published in 2015, the Op-ed is still on the website, although now there appears to be no image of Mr. Shrem in the Op-ed. Lastly, the plaintiff is alleging willful infringement in order to try and receive increased damages. Basically, they’ll have to show that the defendant acted recklessly in copying the picture. I’m very curious to see the defendant’s response in this suit.
United States v. Sohrab Sharma et al., Case №18-cr-340-LGS (S.D.N.Y. filed June 14, 2019)[NMR]
We’ve got a real wacky Centra Tech related update. For those that need a refresher, Centra Tech was the ICO out of Florida that had celebrity endorsements from none other than DJ Khaled and Floyd Mayweather. The idea behind Centra Tech was to use the ICO proceeds to build a crypto-backed debit card, and, well, that allegedly didn’t really happen, and now the two co-founders have been indicted for securities fraud and other related offenses.
This most recent filing in this criminal case is a motion to compel filed by the US Attorney’s office handling the case. In particular, the US Attorney is asking the judge to force the two defendants to “disclose whether they intend to assert any defense based on alleged advice of counsel to any of the crimes charged in the Indictment, and if so, to produce all discovery relating to such a defense.”
What is an “advice of counsel” defense? You can probably guess at the gist of the defense. It’s the argument you make that you were relying upon advice that your attorney gave you, and as such you shouldn’t be held accountable for your alleged criminal activity. Generally, there are a couple of catches to the defense. You have to give the attorney in question all the material facts related to your question, and you have to rely on said advice in good-faith. If you don’t do those things than you can’t later claim “legal cleared it!” Additionally, as the prosecution in this case argues to the judge in their motion, if you are going to assert this defense you are probably going to have to give up communications with the attorney that would normally be covered by attorney-client privilege, because how else can a determination be made as to whether you were justified in relying on that advice?
That brings us to our Centra Tech co-founders. The SEC began an investigation of the duo in Q4 of 2017, at the same time as the criminal investigation. Discovery commenced in 2018, and has continued into 2019. During the discovery process multiple contacts to an attorney in New York, and a purported attorney in New York were discovered.
At multiple times in the discovery process the defendants said they relied on the advice of the attorney, and the purported attorney. Who is the attorney in question? Turns out it was an attorney who had been disciplined by the NY state bar a month before providing The alleged above to the founders. As for the purported attorney, that is where things get nutty. The purported attorney is allegedly a former college student who gained prominence as a student organizer promoting the 2016 Trump campaign. Allegedly, as the individual in question has a co-pending criminal prosecution, the student in question attempted to parlay their success in politics into a fake law career at a fake law firm as a fake lawyer. If I pitched that in Hollywood I’d be thrown out on my you know what.
The US attorney’s office seeing this happening during discovering made multiple requests of the defendants for all relevant documents and communications between the defendants and the attorney and fake attorney. Those requests were not fulfilled, because the defendants claimed they were still going through the relevant documents. Now, not wanting to be caught off guard at trial, the US attorney’s office is asking the judge to force the defendants to disclose if they plan to assert the defense and disclose anything relevant to the potentially asserted defense.
There is a lot going on here. If the defendants plan to assert the advice of counsel defense it’s hard to see how the judge doesn’t grant discovery. Assuming the defendants do wish to assert the defense and end up having to produce the alleged communications at issue, that will be some interesting reading.
GGCC, LLC, et al. v. Dynamic Leger Solutions, Inc., “Order Regarding Discovery Dispute”, N.D. Cal., 17-cv-06779-RS, 6/10/2018 [SDP]
Order: https://www.scribd.com/document/413985566/Tezos-Discovery-Order
We covered a discovery dispute in the Tezos litigation two weeks ago. The Court ruled quickly, on June 10, 2018, in a mixed bag ruling that gave both parties something.
On the one hand, the Court rejected Plaintiffs’ broad demand for documents that were created after the lawsuit was filed, with an exception for communication with regulators, include the SEC. The Court reasoned that “[i]t is difficult to imagine documents created months after the Tezos ICO that are relevant to whether the Tezos tokens constituted ‘securities’ at the time of the July 2017 ICO.”
On the other hand, the court said “communications regarding communications between Defendants and the SEC or other governmental or regulatory agency” might be relevant. In particular, “[i] If Defendants characterized the Tezos tokens in those communications in a manner that conflicts with the manner they characterize them in this litigation, Plaintiffs are entitled to obtain those documents.”
It has been a matter of speculation by some as to whether or not the current defendants are subject to any sort of regulatory or governmental investigation. If they are, the Plaintiffs will be entitled to find out and to see relevant documents. If not, Defedants will simply respond that there aren’t any (though one expects they would have already said so, as opposed to objecting to the request).
Will this influence the outcome of the case? It’s hard to say for sure. If there IS an ongoing SEC investigation that is in progress, the Defendants would surely argue that the investigation and any resolution (if there is one) is wholly irrelevant to the outcome of this case. It’s not an argument without merit. Also, an investigation itself is typically confidential so it is certainly possible that responsive documents would be produced subject to a protective order (a confidentiality agreement) and not made public. At the same time, the absence of an investigation doesn’t prove much either, however much it might fuel speculation on social media.
