Chi-Ru Jou (Yale Division of Music 98), Blockchain and Securities Legislation Companion at Taylor English Duma – The Politic

Chi-Ru Jou (Yale Division of Music 98), Blockchain and Securities Legislation Companion at Taylor English Duma – The Politic

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11. August 2019. by adminBTC
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Chi-Ru Jou is a Blockchain and Securities Legislation Companion at Taylor English Duma. She makes a speciality of blockchain and cryptocurrency in addition to litigation affecting the monetary companies and know-how industries. Beforehand, Ms. Jou was a Companion at CKR Legislation, advising blockchain corporations with regard to federal and state securities legal guidelines, cash transmitter
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Chi-Ru Jou is a Blockchain and Securities Legislation Companion at Taylor English Duma. She makes a speciality of blockchain and cryptocurrency in addition to litigation affecting the monetary companies and know-how industries. Beforehand, Ms. Jou was a Companion at CKR Legislation, advising blockchain corporations with regard to federal and state securities legal guidelines, cash transmitter legal guidelines, and sensible contract dispute decision mechanisms. Previous to CKR Legislation, she was a Companion at Emergent, the place she was a member of the five-attorney Blockchain and Digital Forex Group and centered on offering authorized danger administration recommendation to blockchain startups. Amongst quite a few different positions, she started her profession working towards securities litigation and regulatory enforcement at Paul Weiss. Ms. Jou has revealed articles in CoinDesk, New York Legislation Journal, Bloomberg Legislation Reviews, Virginia Journal of Legislation & Expertise, and Virginia Sports activities & Leisure Legislation Journal, and she or he has been chosen as a Rising Star of New York Metro by Tremendous Legal professionals Journal for 2013 by way of 2016. Ms. Jou acquired an MA in Music Principle from Yale’s Division of Music.

The views and opinions expressed on this interview are these of Ms. Jou and don’t essentially replicate the official coverage or place of Taylor English Duma LLP. They’re for informational functions solely and shouldn’t be taken as authorized recommendation.

The Politic: What’s your background?

Chi-Ru Jou: I began my profession working towards securities litigation and regulatory enforcement at an enormous legislation agency referred to as Paul Weiss. I then ventured into working for smaller legislation boutiques, and in 2016, I joined a legislation boutique began by a few of my Columbia Legislation Faculty classmates. It was cool as a result of these had been folks in my community. They began a blockchain group, which initially had just one associate, they usually wished to increase the observe. In late 2017, they pulled me on board as a securities lawyer, as a result of they noticed the sector more and more heading towards securities legislation.

What work did you do there?

It was a boutique that principally did litigation, however in addition they had a few company attorneys. Our blockchain group was meant to cowl a broad base. We labored on some cryptocurrency litigation, however we had been additionally considering engaged on a few of the transactional work of advising blockchain startups on securities legislation and speaking to some crypto funds, too. The group was simply getting off the bottom after I was there. Then, I used to be recruited by CKR Legislation, a global legislation agency the place I labored for some time. Now, I’m a Blockchain Companion at Taylor English Duma, a big nationwide legislation agency headquartered in Atlanta.

What’s your day-to-day work at Taylor English Duma?

We intend to have a fairly broad-based blockchain group there as effectively. The agency simply began to enter the New York market and launch its blockchain observe. We anticipate advising on a lot of every little thing: token choices, cryptocurrency litigation, common platform compliance, and a few enterprise blockchain functions, too, such because the formation of a blockchain consortium. We additionally advise corporations that need to apply to the Securities and Trade Fee (SEC) for no-action letters pertaining to the mixing of utility tokens.

What’s a no-action letter?

The SEC took the place that a lot of the tokens issued by these blockchain startups are “securities.” Nevertheless, there’s a small subset of so-called “utility” tokens that will not must register as a securities providing. The SEC carried out a case-by-case software course of for evaluating token choices, the place they could say, “Go forward. Combine your utility token. We gained’t prosecute.” These are so-called “no-action” letters.

It’s important to watch out, although, as a result of these letters will not be binding on the SEC: They’ll resolve to prosecute you no matter whether or not they’ve granted you a no-action letter. What they actually imply is that they in all probability gained’t prosecute you. No-action letters are a kind of reassurance that you would be able to go forward together with your utility token, with out SEC registration as a safety token or an exemption. To this point, the SEC has granted two of those no-action letters. The method is slowly transferring alongside, nevertheless it’s thrilling to witness.

What number of functions have they acquired in whole?

I’m positive they’ve acquired numerous functions, however the course of is confidential so we will’t actually know the quantity. Folks ship functions to the SEC, and people functions are solely revealed in the event that they’re efficiently granted a no-action letter.

What are the 2 profitable corporations? 

One in all them was Turnkey Jet, and the newer one, prior to now couple of weeks, was Pocketful of Quarters. They had been each stablecoins, in order that they argued that there was no alternative to revenue and these had been due to this fact not investments. I might be cautious in pondering that you would be able to run to the SEC with simply any concept.

Have been there some other similarities?

That was the primary similarity, however one other argument {that a} startup may make can be that their undertaking can be extremely decentralized. All of those functions are analyzed beneath the Supreme Courtroom’s choice in SEC v. W.J. Howey Co., which entails the next take a look at: Are you placing in cash to spend money on a standard enterprise that’s yielding a revenue based mostly on the efforts of the corporate itself or its promoters?

A part of that entails figuring out whether or not the income are coming from these centralized actions on the a part of the corporate. One argument you would make is that the corporate isn’t including sufficient to the equation to trigger the token to understand in worth. That’s the decentralization argument, and that’s an element as effectively. 

Decentralization is an effective factor?

Decentralization is an effective factor for the needs of the Howey Take a look at as a result of it reveals that any acquire in worth of the token doesn’t come from the efforts of the corporate or its promoters. Whenever you spend money on a company-issued safety, you’re sharing within the revenues of that firm. If the corporate does effectively, the share value goes up.

You don’t need that to be the case if you happen to’re on the lookout for a no-action letter. You need to argue that the change within the worth of the token isn’t based mostly upon whether or not the corporate or its promoters are doing effectively.

May you consider all the collective of decentralized customers because the “house owners” of the corporate, and due to this fact when the token performs effectively, the “house owners” of the corporate are profiting?

Proper, so it relies on your token. Some tokens are basically a software program license. You go on the platform and also you take part in a variety of actions. Possibly you earn reward factors on the platform. However suppose the folks operating the platform are doing a minimal quantity of labor, and the entire ecosystem is run by the customers. You then’d have a a lot stronger case that it’s actually not like an funding in an organization.

What’s the final, industry-wide repute of the Howey choice?

There’s been a variety of debate about whether or not it’s higher to have a principles-based system or a rules-based system. The Howey Take a look at is a take a look at that’s been round since 1946. It’s a multi-factor-based take a look at. It’s based mostly upon ideas. The concept is that these ideas can and must be utilized over time to very completely different applied sciences, they usually’re supposed to carry up whatever the specific know-how in query.

Though principles-based assessments are extra versatile, there’s a variety of uncertainty, since you’re making use of a variety of components, and also you’re not given a variety of steering on the way to apply them. It’s important to stability that strategy with some choices by courts with guidelines of thumb specifically instances that contain particular know-how. These barely extra rules-based choices assist folks perceive the way to apply the principles-based take a look at. I agree the principles-based take a look at has extra longevity, however there must be extra readability as to how that take a look at applies to particular applied sciences.

As you talked about, these no-action letters aren’t unique to token choices/blockchain tech. In the case of earlier applied sciences, do you have got any sense of whether or not/how usually the SEC has in the end determined to prosecute after issuing a letter?

The Howey Take a look at has been utilized to numerous various kinds of funding schemes. I believe the unique take a look at concerned an funding in orange groves. It’s been utilized over time to a big number of conditions. There have been some no-action letters from the SEC prior to now outdoors of crypto, similar to involving memberships in organizations the place you’re utilizing that membership to take part within the group, however the place that membership isn’t an funding that may respect worth over time. It’s meant to be versatile.

What I imply by rule based mostly is the next: Proper now, there’s the Token Taxonomy Act that’s transferring by way of Congress. It could outline some digital tokens as not being securities in any respect. That might be an instance of the place Congress stepped in and put in place a rule that carved out an space for the Howey Take a look at. I believe there could also be some conditions the place it’s a must to do this, as a result of the principles-based take a look at will not be offering the readability that the {industry} requires.

Simply attempting to know higher: Let’s say the principles-based strategy covers 90 % of the instances the place you’re evaluating whether or not a token is a safety or not. Then, the remaining 10 % of those instances are funneled into the SEC’s case-by-case software process. 

In case you had the rules-based strategy as effectively, perhaps that will cowl one other 5 % of instances, and you then would solely have half of the regulatory burden current within the SEC’s present no-action latter process. Is that an correct psychological mannequin?

These tokens going by way of the no-action course of aren’t essentially falling by way of a crack within the Howey Take a look at. It’s simply that beneath the Howey Take a look at, they’ve probability of being deemed not securities. However as a result of the Howey Take a look at is somewhat fuzzy or too common, the businesses are searching for a definitive assertion from the SEC close to their case. They need the SEC to say that they’re not going to prosecute. They need some reassurance.  So, the issue is {that a} very case-by-case course of can take upwards of a yr to culminate in a no-action letter.

We’re hoping that the method will pace up now that two have been granted. It could be good to have a extra streamlined course of in place. I’m hoping the SEC figures out that there are extra tokens that match on this bucket than they beforehand anticipated, and accordingly, they perceive that these no-action letters aren’t ample.

These no-action letters apply to different applied sciences, as you talked about. How usually does the SEC return and prosecute after they’ve handed out a letter?

Anecdotally, I haven’t heard of the SEC prosecuting an organization that was already granted a no-action letter. Whenever you apply for the no-action letter, you agree to suit throughout the specific info and circumstances beneath which the SEC has granted you a letter. If you find yourself adopting a program that varies from what you promise to the SEC, they’re not going to be completely satisfied about that.

I haven’t taken a survey, however I believe that no-action letters are supposed to reassure folks. I don’t assume there was a widespread observe of the SEC going after corporations that they’ve already stated they gained’t prosecute.

I’m simply curious as a result of I learn a paper authored by Prof. Hoffman and a pc scientist at Penn Legislation, which seemed on the guarantees made by 50 ICOs (in whitepapers, social media, and so on.) and whether or not these guarantees matched the fact of what was written into corresponding supply code. The outcomes had been fairly discouraging.

Proper. In reality, my earlier legislation agency CKR mentioned this actual difficulty, and we determined that we needed to inform our shoppers to audit their sensible contracts on the time of the token providing. That approach, our shoppers would ensure they had been delivering what they promised of their whitepapers. That’s usually because we learn the examine you’re referring to.

Ultimate ideas? 

I believe we’re going by way of a very thrilling transition interval proper now the place we’re going to search out out if the U.S. will likely be a serious participant within the blockchain {industry} or not. That reply relies upon rather a lot on regulatory readability and whether or not the regulatory surroundings will stabilize. It is a very unclear time, and we need to cling on, undertake methods that may permit our shoppers to outlive this era, and discover out what the following yr will maintain for the U.S. panorama.

For instance, some blockchain platforms have been adopting methods the place they hold monitor of factors on their platform, however they’re delaying their token integration till the laws turn into extra clear. Startups are ready issues out to see what occurs subsequent.



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