Kwon and his company Terraform Labs created two cryptocurrencies: Luna and UST. Luna was a typical cryptocurrency like Bitcoin. But UST was a stablecoin. Stablecoins are generally backed by legal tender currencies like the U.S. dollar which keeps its value stable.

But UST did not have a cash reserve to peg its value. Instead, its peg to the U.S. dollar was based on an algorithm that encourages trader arbitrage. For example, if the value of one UST becomes less than $1, people can buy UST, convert it to Luna, and then sell that Luna for a profit. Conversely, if the value of one UST is greater than $1, people can buy $1 worth of Luna, convert it to UST, then sell the UST for a profit. In theory, this adversarial relationship between the two coins were supposed to keep UST’s value in check.

Kwon also established the Anchor Protocol to incentive use of UST. Anchor was advertised as a savings platform where people would deposit their UST and receive a guaranteed 20% interest. At that time, high-yield savings accounts offered at most 1%. The unusually high return rate attracted investors, mostly people looking for alternative investments.

In May 2022, a very large UST trade caused it to lose its peg and stability. As UST’s value fell, more Luna coins were produced in an attempt to stabilize the price. But instead, the massive production of the Luna coin devalued that as well. This resulted in a death spiral of both currencies — now worth pennies on the dollar.

Kwon and Terraform Labs were hit with civil lawsuits and criminal investigations in both the United States and South Korea where he was based. During the UST crash, Kwon was in Singapore claiming that he was working on restoring the peg. But later he fled the country. He was finally arrested in Montenegro where he was caught using a fake Costa Rica passport to board a flight to Dubai.

A good portion of UST holders were retail investors. There are many stories of people who lost their life savings on UST. Some of these people cashed out investments, sold appreciated assets, and withdrew from their tax-deferred retirement accounts triggering taxable income.

Unfortunately, the IRS issued two pieces of guidance. The first is Notice 2014-21 which stated the basic tax rules for cryptocurrency transactions. It stated that unless someone is in the trade or business of trading cryptocurrencies, a taxpayer is only entitled to claim a capital gain or loss.

The second guidance from the IRS was a chief counsel memorandum released in 2023. This memorandum stated that taxpayers cannot claim a worthlessness or abandonment deduction for cryptocurrencies. This is because both of these are miscellaneous itemized deductions and these deductions have been disallowed for the years 2018 to 2025 due to the Tax Cuts and Jobs Act.

Some taxpayers had sufficient capital gains to offset their losses. But others sold business assets, withdrew from tax-deferred retirement accounts or took other actions that triggered ordinary income. In these cases, capital losses can only offset $3,000 of ordinary income, with the remainder to be carried forward indefinitely. This created the unusual situation where the taxpayer has to pay taxes on income he or she does not have.

There were some tax-planning options to minimize the sting. Those who kept their Luna or UST coins could follow the guidance stated on the IRS 2023 memorandum to claim either the abandonment loss or the worthlessness loss on January 1, 2026, which is when miscellaneous itemized deductions would be allowed once again. Unfortunately the Big Beautiful Bill which recently passed made the disallowance of the miscellaneous itemized deduction permanent.

Some have accused Kwon of running a Ponzi scheme. Indeed there is evidence that money from retail investors was used to pay earlier investors. Most of them were large, institutional investors who cashed out before the crash. If this is the case, then taxpayers can use the Ponzi scheme safe harbor explained in Revenue Procedure 2009-20, a ruling issued in response to the Madoff Ponzi scheme that year. This is normally considered a theft loss deduction.

There are two problems with using this safe harbor. First, the taxpayers using this procedure can claim up to 95% of the losses not covered by insurance. This is not a major hurdle for most people as they will simply accept the 5% loss. But the bigger problem is that the IRS has announced that Kwon engaged in a Ponzi scheme and may challenge this deduction in an audit.

The other option is to claim a general theft loss deduction for the money they lost. This would be considered a theft loss in connection with the production of income. This is because the taxpayer had a profit motive when they put their USTs into the Anchor Protocol. It is important that it is not labeled as a personal theft loss which can only be claimed if they live in a federal or state disaster area. A taxpayer claiming a theft loss must prove that the loss resulted from a taking of property that was illegal under state law where the theft occurred and was done with specific intent to steal. Generally, specific intent to steal was hard to prove in investment cases.

So what does Kwon’s guilty plea mean? It could show he had the specific intent to steal making it easier to claim the theft loss deduction. In court, Kwon said, “In 2021, I made false and misleading statements about why UST regained its peg. What I did was wrong and I want to apologize for my conduct.”

Despite this development, the IRS could still be reluctant to allow a theft loss deduction. However, the IRS seems to recognize that online cryptocurrency scammers exist and taxpayers should not have face adverse tax consequences in addition to their financial pain. Last March, the IRS released another chief counsel memorandum which allows taxpayers who were victims of phishing scams or pig-butchering scams to claim a theft loss deduction.

For people who lost money on Luna or UST, they were initially faced with limited tax relief options. But in light of Kwon’s recent guilty plea on fraud charges and the recent chief counsel cemorandum by the IRS, taxpayers may be able to take advantage of a theft loss deduction.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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Goldstein, the Supreme Court litigator charged with a number of tax and fraud claims stemming from an alleged second life as a high-stakes poker fiend, will resume his prior scheduled release with several additional caveats covering his use of electronic devices. IPPC, which is like ExamSoft but for proctoring pretrial defendants, will have its software installed on his devices to remotely monitor his computer activity. He will also have to report all cryptocurrency wallets he “owns, has access to, and/or controls” including “hard wallets and soft wallets” (whether it’s stored on hardware or software for the folks unfamiliar with fake money).

The focus on cryptocurrency is the story of Goldstein’s week, having gone to jail after prosecutors deemed him a flight risk upon discovering some $8 million in crypto and transfers involving $6 million of it all while he was pleading poverty as a pro se in an effort to convince the court to let him use his house — which the indictment identifies as a product of mortgage fraud — to hire lawyers.

Now represented by Munger Tolles, Goldstein argued that those wallets didn’t belong to him and the government couldn’t prove he did anything but send money to them in the past. Emails like “tom need to wire USDC to me, please give him a address,” Goldstein argued do not establish that he owned the wallets involved in these transactions and, if anything, proved that he didn’t because — basically — “If Mr. Goldstein shared ownership of the wallet, then
there would have been no need for the individual requesting the payment to instruct [REDACTED] to ‘give’ Mr. Goldstein ‘a address’ to send the payment.”

That proved enough for Chief Magistrate Judge Timothy Sullivan to grant Goldstein’s release with assurances that no one would be blindsided by additional crypto transactions. It goes without saying that the revised order includes an edict that the defendant not “access, receive, send, and/or transfer any cryptocurrencies.”

But, for now, Goldstein will have to put off any nascent jailhouse lawyer aspirations.

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter or Bluesky if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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Tom Goldstein, revered Supreme Court litigator turned cautionary tale, has officially traded his D.C. home — the one prosecutors say he secured by lying to mortgage lenders — for a spot in the Chesapeake Detention Facility in Baltimore. The move comes after authorities arrested the SCOTUSBlog co-founder claiming he posed a “significant flight risk,” which tends to happen when you fail to disclose millions in cryptocurrency transactions while simultaneously crying poor in court.

Honestly, the only thing shocking about this case is that Goldstein didn’t try to settle the whole matter double-or-nothing heads up Hold ‘Em.

The charges against Goldstein — tax evasion, mortgage fraud, and the general financial shenanigans — allegedly stem from a lifestyle that makes The Wolf of Wall Street look like an HR compliance video fueled by high-stakes poker and, (they say) multiple mistresses. Winning and ultimately losing millions all while routinely arguing before the Supreme Court.

Folks, I give you peak performance personified.

After initially lawyering up with some of Trump’s legal team — arguably one of his better decisions (we’re grading on a heavy curve) — Goldstein abruptly decided to represent himself. They say the lawyer representing themselves has a fool for a client, but if the coverage of Goldstein’s decision is anything to go by, the strategy might’ve been to play up his financial woes while arguing that it violated his Sixth Amendment rights if he couldn’t access his home to pay for legal counsel.

Of course his plea of poverty hit a snag when the federal government called his bluff, claiming that Goldstein had received $8 million in crypto and transferred $6 million of it. [UPDATE: Goldstein’s new legal team from Munger Tolles argues that the wallets in question don’t belong to him]

Unsurprisingly, Chief U.S. Magistrate Judge Timothy J. Sullivan was not amused by these allegations, revoking Goldstein’s bond, sending him straight to Baltimore’s maximum-security correctional facility.

Do Not Pass Go. Do Not Collect $200.

Or 4 DOGECOIN as the case may be.

Judge Orders Indicted SCOTUSblog Co-Founder Tom Goldstein Detained Without Bond [National Law Journal]

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According to reporting by Law360, the government alleges since Goldstein’s release he’s made millions of dollars worth of crypto transactions, a fact he kept hidden. As per government filings, Goldstein “fail[ed] to disclose the existence of two cryptocurrency wallets through which he received over $8 million in cryptocurrency and sent more than $6 million of cryptocurrency over the last five days.”

Goldstein is currently awaiting a bail review hearing.

Goldstein was first arrested January 16th. He faces a 22-count indictment alleging his side career as a high-stakes poker player fueled crimes of tax evasion and financial fraud. His release was initially secured by his residence, but Goldstein is seeking to use other properties as collateral, claiming he needs the assets in his marital home to fund his defense.

Prosecutors opposed that motion, claiming Goldstein posed a “significant” flight risk. I guess now we know why the government thinks that.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.

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Yesterday, an appeals court upheld Scott’s conviction and sentence, rejecting Scott’s claims that he was unaware of the nature of the OneCoin fraud.

Scott left his international mergers and acquisitions and private equity practice in Biglaw to work at OneCoin, and prosecutors say he had a key role in the plot to launder $400 million from the cryptocurrency. According to the government, Scott created shell companies, offshore accounts, and fraudulent investment funds on behalf of OneCoin to launder money in what has been described as, “classic Ponzi scheme with no blockchain or real underlying technology.”

Prosecutors said Scott made bank for his role at OneCoin, even bragging about making $50 million before he was 50 years old. U.S. Attorney Damian Williams said, “Indeed, Scott accomplished his goal, but by fraud and deception, and will now spend a decade in prison and has been ordered to forfeit all of his illegal proceeds.”

In 2017, as the scheme was unraveling and the investigation into OneCoin was heating up, “Cryptoqueen” Ruja Ignatova (the founder of OneCoin) disappeared after boarding a plane to Athens. Theories have circulated that Ignatova was murdered on the orders of Hristoforos Nikos Amanatidis, known as Taki, an underworld figure also linked to Ignatova’s escape. She remains on the FBI’s 10 most wanted list, and the agency has said they operate on the assumption Ignatova is alive.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.

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Recently, she promoted her new cryptocurrency called $HAWK. Unfortunately, soon after the coin’s launch, its value plummeted to less than 5% of the original value. People online have claimed to have lost their life savings and their children’s college fund.

$HAWK has been deemed a memecoin because it originated from Welch’s “Hawk Tuah” catchphrase. Almost all memecoins fall flat and eventually become worthless. The DOGE coin is one notable exception.

Welch and her crypto partners have been accused of “rug pulling.” In rug pulling, investors hype a coin (or similar crypto product), causing its value to initially skyrocket. Soon after, a key group of investors (typically insiders who received the coins before the initial coin offering) sell their holdings at the inflated price, causing the value of the coin to plummet. The remaining investors are left holding the bag with a nearly worthless coin.

An investigation showed that 96% of the $HAWK coin was held by 10 addresses. There was also a significant selloff of the coins.

Welch claims that neither she nor anyone else on her team sold any of their $HAWK coins, implying that they did not profit from the hype. They blame “snipers” — bots that buy designated cryptocurrencies to take advantage of price discrepancies or arbitrage opportunities. But skeptics questioned the high fees and who took those fees.

Welch also claimed that she did not intend to defraud investors.

At first glance, she does not seem to be the type to know the intricacies of cryptocurrencies. She has attended several cryptocurrency conferences, but she claims to have done so to better connect with her fans.

Regardless of her knowledge, she has a team. She partnered up with people who appear to be crypto experts. She hired an attorney after becoming famous, although it is not clear whether she consistently followed her attorney’s advice.

Until someone issues refunds or gets a court judgment, what can investors do to minimize their losses?

Aggrieved investors can file a complaint with the government. Given the intense publicity, an investigation is likely, and the government could take action to help investors get their money back and deter similar conduct in the future. Investors can contact the Securities and Exchange Commission, the Commodities Future Trading Commission, and the FBI’s Internet Crime Complaint Center if they think criminal activity could be involved.

Private law firms could also help investors. One law firm, Burwick Law has posted on X, requesting $HAWK investors contact them to learn about their legal rights.

So, can investors write off the loss on their tax return? The position of the IRS is that cryptocurrency-related losses are treated like a capital loss. Capital losses can offset any capital gains. Unfortunately for taxpayers, capital losses can only offset $3,000 of ordinary income every year, with the remainder to be carried forward. This hard rule has been around for years without adjusting for inflation and will provide a meager tax benefit.

A taxpayer in the cryptocurrency trading business full time can claim the loss as an ordinary loss.

In 2023, the IRS publicly released its Office of Chief Counsel Memorandum stating its position on the deductibility of worthless and abandoned cryptocurrency. A taxpayer cannot claim a deduction for worthlessness if the cryptocurrency can be traded on the open market, even if there is a significant loss in value. To claim a worthlessness deduction, the taxpayer must relinquish dominion and control of the cryptocurrency and take affirmative steps to abandon the cryptocurrency during the tax year. However, the memorandum does not elaborate on how to abandon the cryptocurrency.

The memorandum points out that even if the cryptocurrency became worthless or abandoned, taxpayers still cannot claim the loss because it is considered a miscellaneous itemized deduction. The Tax Cuts and Jobs Act (TJCA) disallowed the miscellaneous itemized deduction from 2018 until 2025. Whether the TJCA provisions will be extended for 2026 and later is not yet clear.

The taxpayer may be eligible to claim a theft loss so long as the transaction was made with the expectation of a profit, such as an investment. This nonpersonal theft loss is not considered a miscellaneous itemized deduction.

Generally, to be eligible to claim a nonpersonal theft loss, several requirements must be met. First, the theft must be connected to a trade or business or as part of a transaction made with an expectation of a profit. Second, the theft must be illegal in the jurisdiction where the victim lives, although a theft conviction is not required. Third, the stolen funds must go directly to the scammer and not to an unconnected third party (the people who lost money on Enron stock learned this the hard way). Lastly, there must not be a reasonable prospect of recovery.

From my experience on matters like this, the IRS is likely to disallow a theft loss. They will argue that the since the taxpayers are still in possession of the $HAWK coins, no theft took place.

Also, since some of the parties on the other side of the transaction — namely Welch and others who created and promoted the $HAWK coin — are still present, there may be a reasonable prospect of recovery either through voluntary refunds or a legal judgment. Until that is established, the taxpayers cannot claim the theft loss.

Welch’s fame will shoot down just as quickly as it went up. Hopefully this will serve as a warning for people thinking about getting into questionable cryptocurrencies.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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The crypto industry hates the SEC because the regulator routinely poked at the tension between crypto’s claim to be “just a currency” and its marketing as a surefire investment to the moon — the latter justification sounding an awful lot like a security. Sure, you can use crypto as a currency to launder money, but most crypto holders harbor no intention to use it to purchase heroin off the dark web.

Presumably.

As the Venn diagram of crypto fanatics and Elon Musk stans forms a perfect circle, this isn’t a surprising announcement. Armstrong’s call is reminiscent of Elon Musk’s ultimatum a couple years ago that Cooley LLC fire an associate for having previously worked at the SEC or lose Tesla’s business. Cooley told him to pound sand.

Weird, because I thought clients pressuring firms to distance themselves from partners was “cancel culture.”

The earlier Musk story presents a curious juxtaposition with his current legal crusade that encouraging customer boycotts of major X advertisers amounts to illegal tampering and that the advertisers then refusing to place their ads on the platform violates the Sherman Antitrust Act, if not criminal RICO.

It seems the “free speech absolutist” adheres to the rule of “boycotts for me and not for thee.”

Personally, I’d advise Coinbase, a crypto trading platform, that it’s not great optics to say “we refuse to work with anyone who cracked down on fraudsters selling crypto.” The New York Stock Exchange doesn’t boycott lawyers for busting Ponzi schemes for a reason. A more sensible statement would be, “At Coinbase, we strive to ensure our users are never scammed in the rapidly evolving industry and we welcome working with an experienced regulator who can help advise us to identify bad actors.”

But even if Armstrong’s proposed boycott is stupid, it’s entirely within his rights. It’s also within his rights to encourage others in the industry to join him (there’s a hypothetical point where this could become anticompetitive collusion, but despite the fever dreams of Musk’s advertising complaint — and the sycophants hyping it — none of these boycotts approach that). The nature of free speech and the free market is that you get to spend your money wherever you choose and if the crypto industry doesn’t want to work with senior SEC alumni, that’s their prerogative.

As long as everyone recognizes that door swings both ways.

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter or Bluesky if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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Seven years ago, however, the company was much more reliant on fake money than fake brains. And it may just have elided that fact in public statements, disclosures and communications with shareholders, at least according to the shareholders who are suing it. This alleged elision left said shareholders gobsmacked when Nvidia CEO Jensen Huang announced in November 2018 that the company had missed its revenue projections due to the crypto collapse of that period, and left Nvidia open to the aforementioned lawsuit.

Let’s set aside that said crypto-collapse seems positively quaint at the moment, given that it involved bitcoin dropping from just under $20,000 to just under $4,000 (the world’s leading fake currency hit an all-time high of $93,469.08 yesterday). And also the fact that robot-powered Nvidia shares have—to put it mildly—more than made up for it since: NVDA lost roughly half its value in the third quarter of 2018, bottoming out at $3 and change; yesterday, it closed at $146 and change. None of that is legally relevant. Nor, quite frankly, is anything about the shareholder suit, at least according to the Supreme Court.

The Supreme Court on Wednesday seemed likely to keep alive a class-action lawsuit accusing Nvidia of misleading investors about its dependence on selling computer chips for the mining of volatile cryptocurrency…. “It’s less and less clear why we took this case and why you should win it,” Justice Elena Kagan [told Nvidia lawyer Neal Katyal].

Hearing arguments in Washington on Wednesday, several justices questioned whether the court was right to take up Nvidia’s appeal, saying the case didn’t present the kind of broad legal issue that normally prompts Supreme Court review. Chief Justice John Roberts said both sides had made the issues too “black and white….” Justice Amy Coney Barrett said the Supreme Court could order reconsideration by the federal appeals court that said the lawsuit could proceed.

Swedish institutional investor E Ohman J:or AB argued that Huang’s focus on Nvidia’s sales data were the equivalent of “proctology exams,” and it looks like it just may get to order the company to spread’em in court.

Supreme Court seems likely to allow class action to proceed against tech company Nvidia [AP]
Supreme Court Wary of Big Ruling in Nvidia Shareholder Case [Bloomberg Law]
Bitcoin briefly tops $93,000 for the first time as investors digest postelection gains, inflation data [CNBC]

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Here are some of the key takeaways from our recent discussion:

1. Embrace Flexibility And Take Risks Early

One of Justin’s most striking pieces of advice is about the importance of flexibility in your career. He emphasizes that being willing to take risks and pivot when necessary is crucial, especially in an area like crypto, where the regulatory landscape and market conditions are constantly changing. Early in his career, Justin made deliberate choices that didn’t always align with the conventional path. He chose to prioritize learning and experience over simply hitting billable hours at his firm. This unconventional approach allowed him to build a broad skill set across various areas of law, including securities, commodities, and regulatory work — all of which are highly relevant to crypto.

For legal professionals considering a career in crypto, Justin’s advice is clear: don’t be afraid to step outside your comfort zone. If you’re stuck in a niche that doesn’t excite you, it’s worth taking a calculated risk to explore other areas. You don’t need to be locked into one specialization for the next 30 years. The field of crypto law rewards those who are adaptable and willing to learn.

2. Become A Lifelong Learner And Engage With The Community

Justin underscores the importance of continuous learning and engagement with the community as a vital strategy for success in the crypto legal field. Crypto law isn’t static; it’s an interdisciplinary area that spans multiple legal and regulatory frameworks. Whether it’s understanding the nuances of state regulations, securities law, or the latest developments in decentralized finance (DeFi), staying updated is non-negotiable.

But learning doesn’t happen in a vacuum. Justin advises aspiring crypto lawyers to actively participate in the community. This could mean attending industry conferences like Consensus, joining online forums, or simply reaching out to other professionals in the space for coffee chats. The crypto community is remarkably open and collaborative, making it a fertile ground for networking and mentorship. Engaging with others not only expands your knowledge base but also enhances your reputation in the field. You don’t need a long list of credentials to make a mark; genuine curiosity and the willingness to learn can set you apart.

3. Self-Publishing As A Strategic Move

In an unusual yet brilliant move, Justin chose to self-publish his book, “The Crypto Legal Handbook.” This decision wasn’t just about maintaining control over content; it was about making the book accessible and updatable — a crucial consideration in a field that evolves as quickly as crypto. Traditional publishing routes can be slow and expensive, with textbooks often costing hundreds of dollars and becoming outdated almost as soon as they hit the shelves. By self-publishing, Justin ensures that his book remains a living document, reflecting the latest changes in the industry.

For those in legal education or just starting out in their crypto careers, this approach offers a valuable lesson: there are always alternative ways to share knowledge and build a reputation. You don’t have to wait for a traditional publisher to validate your expertise. In the age of digital media, self-publishing can be a powerful tool for both personal branding and community service.

Final Thoughts: Control Your Career Narrative

Justin’s insights boil down to one powerful message: be proactive in shaping your career. Whether it’s taking risks, building a broad skill set, engaging deeply with your community, or finding innovative ways to share knowledge, there are countless ways to differentiate yourself in the fast-paced world of crypto law.

If you’re ready to dive deeper into this fascinating field, don’t miss my full conversation with Justin Wales on “Notes to My (Legal) Self.” You’ll gain even more insights into how to navigate the challenges and opportunities in the world of crypto, from someone who’s been on the front lines since the early days. Tune in to hear more about the future of law in the age of digital currencies and how you can be at the forefront of this exciting journey.

Olga V. Mack is a Fellow at CodeX, The Stanford Center for Legal Informatics, and a Generative AI Editor at law.MIT. Olga embraces legal innovation and had dedicated her career to improving and shaping the future of law. She is convinced that the legal profession will emerge even stronger, more resilient, and more inclusive than before by embracing technology. Olga is also an award-winning general counsel, operations professional, startup advisor, public speaker, adjunct professor, and entrepreneur. She authored Get on Board: Earning Your Ticket to a Corporate Board Seat, Fundamentals of Smart Contract Security, and Blockchain Value: Transforming Business Models, Society, and Communities. She is working on three books: Visual IQ for Lawyers (ABA 2024), The Rise of Product Lawyers: An Analytical Framework to Systematically Advise Your Clients Throughout the Product Lifecycle (Globe Law and Business 2024), and Legal Operations in the Age of AI and Data (Globe Law and Business 2024). You can follow Olga on LinkedIn and Twitter @olgavmack.

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Three Arrows Capital co-founders Su Zhu and Kyle Davies… have begun hyping the new ERC-20 token in a Telegram channel focused on trading. [Three Arrowz Capitel], intentionally misspelled to make it rhyme with that of their defunct hedge fund, has been relentlessly promoted via their official social media channels.

Failed 3AC Hedge Fund Founders Issue Controversial Memecoin Amidst Legal Trouble [CoinMarketCap via Yahoo!]

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It looked as if this request had met the same fate as pretty much all of his other requests to the legal system: SBF was sent off to Oklahoma City to await more permanent accommodations. A week later, the Bureau of Prisons—perhaps mindful that the judge the former crypto mogul would go on to call hopelessly biased against him had asked the Feds to pretty-please keep him at the MDC—returned SBF to the broken glass and moldy shower stalls alongside the Brooklyn-Queens Expressway.

Perhaps Bankman-Fried didn’t merely want to beaver away at a surely hopeless appeal during a sweltering summer at a jail whose HVAC system is as questionable as the alibis of many of its residents. Perhaps he had word that he might soon be sharing a sleeping space with someone who might well be among his all-time favorite artists.

Sean “Diddy” Combs has been moved to a section of the New York City jail where convicted cryptocurrency fraudster Sam Bankman-Fried is being held, sources confirm to NBC News.

The area of the detention center is reserved for detainees who require special protection…. The unit is described as a barracks-style area currently housing 18 to 20 inmates who require special protection, according to the sources, ranging from high-profile defendants to individuals who cooperate with investigations. It is considered general population in nature, but with added security.

Anyway, the women in Diddy’s life may yet send him up the river for quite a bit longer than the 25 years his new roomie got, and given the work of his lawyers so far, that seems more likely than the former rap mogul might like. Meanwhile, the woman formerly in SBF’s life, who helped get her ex-boyfriend/boss that quarter, will soon learn whether she’ll be joining them in Brooklyn’s least-desirable residential development.

On Tuesday afternoon, [Caroline Ellison] is set to find out if her cooperation with prosecutors will keep her out of prison…. Prosecutors and lawyers for Ellison have urged [U.S. District Judge Lewis] Kaplan to be far more lenient, citing her remorse and extensive cooperation with the criminal investigation. Her lawyers have asked the judge not to sentence her to prison….

“The Government cannot think of another cooperating witness in recent history who has received a greater level of attention and harassment,” prosecutors wrote to the judge.

Sean 'Diddy' Combs moved to same section of New York City jail housing as Sam Bankman-Fried [CNBC]
Caroline Ellison, Star FTX Witness Turned Romance Novelist, Learns Her Fate [WSJ via MSN]

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As reported by Law.com:

“Fenwick’s public pronouncement of its venture capital and regulatory expertise contributed to the misleading notion that Prime took regulatory compliance seriously and lent credibility to Prime’s claims of compliance, competence, and innovation,” the Monday complaint read.

Seven Peaks argues that without Fenwick, the Series A sale wouldn’t have happened.

The complaint goes on to allege misleading information was provided to investors, specifically that Prime Trust did not have licenses to operate in 22 states. The filing says, “The consequences of Prime Trust’s operation in multiple states without a money transmitter license were significant. Along with any regulatory penalty, state enforcement actions against Prime Trust eroded its reputation as a legitimate, well-run, regulatorily compliant operator.”

The lawsuit also alleges Prime Trust didn’t collateralize the stablecoin, and that in 2021, they’d locked themselves out of the wallet holding $45 million, largely in Ethereum. And that wasn’t the end of the issues for the crypto company:

At the time of the June 2021 Series A round, Prime Trust said it had “crossed $100 million in annual revenue-run rate.” But by August 2023 parent company Prime Core had filed for Chapter 11 bankruptcy in a Delaware district court.

This came shortly after the Nevada Department of Business and Industry placed Prime Trust into receivership after finding it didn’t have the minimum $1 million in stockholder equity to continue operations.

The complaint seeks more than $2.6 million in damages. Fenwick & West has not commented on the lawsuit.

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For example: It has been clear for some significant length of time that an Australian man named Craig Wright is not, as he has claimed, the fabled and possibly confabulated creator of bitcoin, Satoshi Nakamoto. For instance, while he first announced himself as such in 2016, he never once withdrew even a single bitcoin from the multi-billion-dollar horde controlled by Satoshi Nakamoto. He said this was because he’d smashed the hard drive containing the all-important keys to that wallet in an autistic fit.

If that sounds very much like a “dog ate my homework” sort of argument to you, well, it sounded the same to the British judge considering Coinbase and Block’s lawsuit against him. And since Wright said as much on the stand during that trial back in February, well, the consequences of throwing out such an (alleged) whopper could be quite a bit more serious that simply losing that case.

Which he, of course, did, back in March, when Mr. Justice Mellor ruled that Wright was unequivocally not Satoshi Nakamoto. The judge elaborated on that ruling in May, when he wrote that Wright “lied to the Court extensively and repeatedly,” including through phony documents. But, you know, deliberations must be definition, apparently, be deliberate, so it’s only now that Mellor has gotten around to suggesting to those who could actually do something about it that Wright might just be a liar in a criminal sense.

In a ruling on Tuesday, Mellor said he would refer “relevant” papers in the legal action to the [Crown Prosecution Service] to consider whether criminal charges should be brought against Wright.

“In advancing his false claim to be Satoshi through multiple legal actions, Dr Wright committed ‘a most serious abuse’ of the process of the courts of the UK, Norway and the USA,” the ruling said.

Mellor wrote that he has “no doubt” that CPS should look into Wright’s “wholescale perjury and forgery of documents,” no surprise given everything he’s said and written about it previously. But he may have something of a soft spot for the alleged Antipodean fabulist, because he gave Wright four months to try to get more money out of the U.K. ahead/in defiance of an asset freeze, time Wright allegedly used well.

The week after the ruling, corporate filings in England showed that Dr. Wright was transferring assets worth as much as 20 million pounds to an offshore entity….

Case of man who falsely claimed to be bitcoin inventor referred to CPS [Guardian]

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As reported by Reuters, since August of 2022 (through April of this year), Glueckstein has averaged ~11 hours a day, 5 days a week on the FTX bankruptcy. Over the course of those 18 months, he’s billed 4,000 hours — at a rate of $2,375 per — to the matter.

Now, that’s a lot of hours, but the FTX bankruptcy is a complex matter so it isn’t all that strange for a Biglaw partner:

The intensity required from bankruptcy practitioners depends on the case, and FTX is a “bet-the-company engagement,” said Nancy Rapoport, a fee examiner and law professor at the University of Nevada, Las Vegas.

Other experts noted that lawyers at large U.S. law firms often work eye-popping hours, with extreme workloads sometimes considered a badge of success.

“It brings to mind the adage that making partner is a pie-eating contest and the prize for winning is more pie,” Georgetown Law professor Adam Levitin said in an email.

But is is incredibly profitable.

Across all its timekeepers, Sullivan & Cromwell has billed 168,000 hours to the FTX bankruptcy. So far, $171.8 million in fees has been approved by the judge in the matter, plus the firm has an outstanding $26.8 million request.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.

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Of course, he doesn’t, or we wouldn’t be writing this. Of course, as well, Wright has an answer for everything, just not a very convincing one: Due to his autism, he said, he’d smashed the drive containing the private keys to access Satoshi’s billions. “You are making this up as you go along,” the lawyer hired by Coinbase and Block, who sued Wright in response to his suing them and other crypto players for copyright infringement and defamation, when Wright claimed that the company who made the pad on which he claimed to have sketched out the initial idea for bitcoin was wrong about when it started making it.

A sworn statement from Hamelin Brands, the parent company of Quill, revealed that the pad didn’t go into circulation until 2012, four years after Bitcoin was invented. Dr. Wright took the witness stand in the first week of the trial and insisted that the company was mistaken about the provenance of its own pad.

Given that Wright has spent the last nine years publicly proclaiming himself Nakamoto, including on the witness stand, that he is also a liar seems almost not worth saying. But Mr. Justice Mellor took the time to do so, anyway, in 231 pages.

Craig Wright lied "extensively and repeatedly" in both his written and oral evidence in the Crypto Open Patent Alliance case regarding his claim to be Satoshi Nakamoto, Judge James Mellor said in his written judgement on Monday….

"I am entirely satisfied that Dr Wright lied to the Court extensively and repeatedly," Mellor said. "Most of his lies related to the documents he had forged which purported to support his claim."

None of which really needed to be said, practically-speaking, but legally-speaking is important given that Wright now may have to foot Jack Dorsey’s legal bills and also go back into the dock on a criminal charge of perjury. (And, indeed, he’s allegedly moving money out of the U.K. in defiance of an asset freeze in expectation of the former.) This also didn’t really need to be said, given the volumes the evidence or lack thereof spoke, but it seems worth doing so, anyway.

“He is not nearly as clever as he thinks he is,” Justice Mellor wrote.

Craig Wright Lied to UK Court 'Extensively and Repeatedly,' Judge Writes [CoinDesk via Yahoo!]
This Man Did Not Invent Bitcoin [NYT]

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And you certainly might hope that if such a person existed—if there was a former FTX executive who still had liquid assets countable in the millions—that such a person might do something better, more noble or more restitutive in the wake of its collapse than buy such a thing for his wife. That he and she might be very grateful that their roles in one of the biggest financial frauds in the world left them with a large enough fortune to live comfortably and quietly without a criminal conviction or even a single day behind bars.

Well, as with so much else involving FTX, you’d be disappointed.

Patrick Gruhn, a German fintech entrepreneur and former executive at cryptocurrency exchange FTX, paid £1.175 million, equivalent to almost $1.5 million, last Saturday for the timepiece, the largest sum ever spent at auction on a piece of Titanic memorabilia…. Gruhn said he bought it as a gift for his wife, Maren Gruhn, and they would display the watch in museums.

Oh, well, that’s fine then. Certainly a better outcome than coughing up the $190 million he probably should have, so that he’s able to offer this wonderful to the country, but mostly his wife.

The FTX bankruptcy estate in February agreed to drop a lawsuit against Gruhn that had sought to claw back at least $323 million from Bankman-Fried’s purchase of the Swiss firm that became FTX Europe, alleging Bankman-Fried overpaid. As part of a settlement, Gruhn and other founders of the European unit agreed to buy back the European assets for about $33 million.

Former FTX Executive Pays $1.5 Million for Gold Watch Recovered From Titanic [WSJ]

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Bankman-Fried is appealing his conviction. I don’t like his odds.

Bankman-Fried’s journey through the appellate system may not look promising. Still, while SBF lacks any immediately apparent way of reversing his conviction on appeal, he does have something most other white-collar offenders could only dream of: a relatively good shot at climbing back to the top during his lifetime.

Consider, first of all, that 25 years in the American criminal justice system does not mean 25 years. I don’t imagine Bankman-Fried is going to start randomly shanking other inmates during his prison term, and federal inmates can typically shave up to 54 days a year off their sentences for good behavior.

There are also a variety of other measures that can help reduce the amount of time non-violent offenders spend in federal prison. “SBF may serve as little as 12.5 years, if he gets all of the jailhouse credit available to him,” former federal prosecutor Mitchell Epner told CNN.

Bankman-Fried is now 32 years old, which means he could conceivably be out when he’s 44-and-a-half years old. That would leave him with a lot of life left to live.

But it’s not just his youth that leaves SBF with a potential opportunity to turn over a new leaf. Elizabeth Holmes was convicted on four charges related to defrauding investors in her defunct blood testing company Theranos. Despite the fact that she was sentenced to only 11 years and is just 40 years old, nobody will ever let her anywhere near the leadership roles in a major company again.

That is because Holmes was a total fraud. Her company was not doing the things it said it was doing, and was nowhere near being able to deliver. Holmes built Theranos on hype sustained by lies. There was perhaps some promise to the general idea of expanding the tests which could be done on a very small quantity of blood, though it should not have been all that surprising that it would take rigorous, peer-reviewed science to get anywhere with it — that is not what Holmes was doing at Theranos.

SBF, on the other hand, lied about something very different. The jury convicted Bankman-Fried in large part because they were convinced he had taken billions from customers (without telling them) and used that money to make risky bets. The thing is, those risky bets kind of paid off.

While he was clearly extremely dishonest, SBF’s crypto empire was not based solely on lies. It had equity — a lot of equity. FTX’s creditors will very likely get all their money back.

Of course, this does not excuse anything Bankman-Fried did, nor does it assuage the righteous anger of many of his victims. What it does mean, unpalatable though it may be to articulate, is that in spite of his lies, his crimes, and his lack of remorse, SBF proved pretty adept at making money.

When has Wall Street ever failed to overlook a rainmaker’s grievous shortcomings? Before he ventured into crypto, SBF was a trader at Jane Street Capital. He left because he thought he could make even more money on his own, and he was right. Bankman-Fried has proven himself a successful capitalist in several contexts, and amorality rarely proves to be a total disqualification where finance is concerned.

As a convicted felon SBF will face many restrictions on his business dealings, and regardless of what happens after prison he will be very closely watched in any future business role. Yet, if SBF still has some fire in his belly when he gets out, there is probably some wealthy individual or entity out there with enough risk tolerance to give him a second chance.

All that being said, supposed wunderkinds are cheap these days, and whatever special insights Sam Bankman-Fried had into the financial world might very well be obsolete by 2036. Perhaps he’ll get the opportunity to pay back a chunk of that $11 billion, or maybe he’ll quietly fade away into obscurity like so many nameless convicts before him. We’ll see if SBF can successfully play the probabilities yet again in a few years.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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The $72,000 level was just the latest in a series of recent highs for bitcoin. For more than two years bitcoin struggled to approach the previous record of $69,000 set in November of 2021. Over the last few weeks, however, the price of bitcoin has climbed steadily.

Climbed steadily on average, that is. As has been the case since its inception, bitcoin continues to have wild price fluctuations, often with no immediately evident cause.

For instance, from March 3 to March 4, bitcoin’s price jumped by nearly 10 percent. By March 5, it had given back nearly all of that gain. Such a three-day swing is far from atypical for the original cryptocurrency.

Some of the recent gains can probably be attributed to the SEC’s January approval of the first bitcoin exchange-traded funds. Bitcoin ETFs make it easier and less risky for individual and institutional investors alike to take a financial position in the cryptocurrency asset class. With billions flowing into the new bitcoin ETFs, it is not so surprising that the price of bitcoin would swell.

Similarly, a major financial regulator in the United Kingdom just gave the green light to a new crypto-backed investment vehicle. This will mean even more money pumped into bitcoin and other types of cryptocurrency.

While those holding bitcoin certainly are not complaining about the new price record, this is far from unalloyed good news. Anything will go up in value if more people want it than currently have it, and if new entrants into the market are willing to pay a premium. Demand seems to be behind bitcoin’s new $72,000 price record.

Still, no one has really been able to satisfyingly articulate why demand for bitcoin should or will continue to go up and up forever. Yes, there is a limited supply of bitcoin — at some point there will be no more bitcoin mining. But there is a limited supply of lots of useless things that don’t perpetually go up and up in value.

Some financial firms are setting truly absurd price targets for bitcoin based on the recent price gains. A few even try to justify them: Ark Invest was among the firms approved to launch a bitcoin ETF, and Ark’s director of digital assets says use cases like serving as a hedge against inflation, making global payments, and being a “store of value” outside of central banks and governments will help to add to bitcoin’s market value over the next decade (Ark has put out a long-term bull case estimate topping $1.3 million per coin).

Except it’s logistically almost impossible to pay for anything other than a ransomwear attack using bitcoin, your value is much safer stored with central banks and governments than in cryptocurrency, and there are ways to hedge against inflation that, unlike bitcoin, have some kind of intrinsic value behind them. These same use cases for bitcoin were cited when it first came about well over a decade ago, and none of them have really played out in real life.

This April a so-called “halving event” will take place, and some analysts have cited this as another justification for ambitious price targets. In a nutshell, the halving event means that bitcoin miners will only get 50 percent of the supply of bitcoin they are being awarded today — instead of 900 bitcoin a day, within a couple months miners will only be able to sell 450 bitcoin a day.

A supply restriction like the halving event could indeed help temporarily prop up bitcoin’s price. Yet, again, if the price of bitcoin is based solely on demand having to outstrip supply forever, with very few outside the world of organized crime actually using cryptocurrency for anything practical, that is not a long-term recipe for success.

For now, though, congratulations to the bitcoin bulls out there on a new price record. Hey, you might even want to consider cashing some of that bitcoin out for actual currency which you can then use to buy something nice.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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Unsurprisingly, then, the 31-year-old isn’t especially keen on spending the next century behind bars, even if those bars are in a somewhat less-horrific prison than the MDC. Six-and-a-half years, at most, seems reasonable enough to the FTX founder when he’s sentenced next month, especially given his steadfast belief that he really didn’t go anything wrong. But that’s not the only reason his lawyers fear an effective life sentence. They say that given how weird and off-putting Sam is—even when he doesn’t reek from poor personal hygiene—that life might not be a long one.

The filing describes him as a “shy” child who “often struggled socially,” who in high school “realized he was anhedonic, or unable to experience joy or pleasure….” The lawyers wrote that Bankman-Fried has a “neurodiversity” that “greatly affects how he perceives and is perceived….”

The filing says that because of his condition, “Sam is uniquely vulnerable in a prison population.”

“Individuals with ASD are often at considerably greater risk of physical harm and extortion in prison than other inmates,” the lawyers wrote.

That Bankman-Fried isn’t like other inmates, especially at the MDC, which isn’t used to many white-collar criminals, was obvious enough to those he served time with. One, former gang member G Lock, said SBF is “a different kind of guy” and “odd.” But, apparently, in a lovable sort of way, given that when one inmate did attempt to extort him, other inmates banded together to protect him, possibly because he’s full of advice on how to turn $5,000 into $1 million. And if the court gives him the Michael Milken treatment he’s asking for, he promises to be just as good a boy on the outside as he is in the clink.

The attorneys argued that Bankman-Fried is “not at risk of committing further crimes,” and had already been harshly punished by the poor conditions in the Brooklyn, New York, federal jail where he has been locked up since last summer…. “Given the same chance [as Milken], Sam would dedicate his post-prison life to charitable works, finding the best ways to help others, and put them into practice, consistent with his commitment to effective altruism.”

FTX fraudster Bankman-Fried seeks less than 7 year sentence, claims he is at risk of ‘harm and extortion’ in prison [CNBC]
A crypto influencer has posted what she says is the first photo of Sam Bankman-Fried hanging out with his fellow inmates [BI]

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Scott left his international mergers and acquisitions and private equity practice in Biglaw to work at OneCoin, and prosecutors say he had a key role in the plot to launder $400 million from the cryptocurrency. Prosecutors said Scott bragged about making $50 million before he was 50 years old. U.S. Attorney Damian Williams said, “Indeed, Scott accomplished his goal, but by fraud and deception, and will now spend a decade in prison and has been ordered to forfeit all of his illegal proceeds.”

As reported by Bloomberg Law, the 10-year sentence Judge Edgardo Ramos imposed was a compromise between what the defense wanted and prosecutors sought:

Scott had sought a sentence of five years of imprisonment in a brief filed on Friday, opens new tab. He said he was a “broken man” who has spent the last four years in home confinement, unable to leave his apartment except for medical or legal reasons.

Prosecutors sought at least 17 years in prison for Scott. He was “motivated by greed” and was not satisfied with the “luxurious lifestyle afforded to him by being an equity law firm partner, living in a $1.5 million condo in Coral Gables and earning upwards of a million dollars a year,” prosecutors said in a court filing, opens new tab.

Additionally, Scott was ordered to forfeit $392,940,000, several bank accounts, a yacht, two Porsche automobiles, and four real-estate properties.

Scott was disbarred by New York state in 2020.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.

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It’s been a brutal few weeks in the headlines for the cryptocurrency industry following FTX founder Sam Bankman-Fried’s fraud conviction earlier in the month.

The FTX saga is far from over: Its customers are still waiting to get their money back, and its bankruptcy advisers sued another crypto exchange for nearly $1 billion. Elsewhere in recent crypto news:

• OneCoin’s compliance chief pleaded guilty to fraud and money-laundering charges.
• Another allegedly once-fraudulent crypto shop, Celsius Networks — which claimed to be safer than a bank — emerged from bankruptcy offering its customers a mere 67 cents on the dollar of their deposits.
• The SEC punted once again on allowing spot crypto exchange-traded funds.
• The war in Gaza concentrated legislative and regulatory minds around doing something about cryptocurrency financing for terrorism.
• The world’s largest crypto exchange, Binance, struck $4.3 billion settlement and pleaded guilty to violating money-laundering laws and sanctions, including those on Hamas, as did founder and CEO Changpeng Zhao, who also agreed to step down from the company.

It certainly looks grim for crypto. But the Binance deal may, in fact, be the best thing that’s ever happened to it.

While cryptocurrency enthusiasts trumpet the benefits of decentralization, the industry is, in fact, extremely centralized, with massive platforms like Binance cornering the market. It turns out that crypto-entrepreneurs may be more interested in getting rich than in the ideology behind the blockchain.

And that — as the Binance settlement shows — gives governments, particularly the U.S. government, enormous leverage to drive crypto into less free-wheeling waters. The exits of crypto bros like Bankman-Fried and Zhao may open the door to institutionalists hoping to embed the blockchain in the existing financial infrastructure rather than overthrowing it.

There certainly are plenty who seem willing to try.

Former New York Stock Exchange President Tom Farley bought crypto media company CoinDesk and hopes to buy FTX out of bankruptcy with an eye on resurrecting the company — a prospect that even arch crypto-skeptic and SEC chief Gary Gensler isn’t shutting the door on.

The world’s largest money manager, BlackRock, isn’t reading too much into Gensler’s refusal so far to sign off on bitcoin ETFs, making its first move toward launching one to hold Ethereum. Meanwhile, some FTX alumni are racing from the witness stand to launch a new crypto exchange.

The Binance deal may also save the crypto industry from some regulatory headaches: Failed Speaker candidate and third-ranking House Republican Tom Emmer — a crypto backer — says the deal shows that there’s no need for new crypto-specific legislation.

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The scammers follow a plan. They connect with a victim online. They find a hook to grab the victim’s attention, such as romantic affection, promises of an unusually large investment return, or both. After establishing trust, the scammers convince their victims to convert their money into cryptocurrency and then transfer the cryptocurrency into a fake investment app. The fake app would show the victims’ funds rising dramatically and the scammers would entice their victims to put in more money. When the victims try to withdraw, the scammers either force them to pay a nonexistent government exit tax or additional fees (further attempts to con money from the victim). At this point, the victims discover they have been scammed.

It has gotten so bad that the criminal investigation unit of the IRS recently issued a warning about pig-butchering scams to taxpayers. So far, the highest identified loss is $2 million. Personally, I know of people who claimed a loss much higher than that and have spoken with others who have lost more than $10 million.

The IRS isn’t the only government agency to warn people about this scam. The Financial Crimes Enforcement Network (FinCEN) issued a similar warning in September. Also, various state attorney general offices have issued alerts to the public.

The problem is that most people do not follow the activities of the IRS, FinCEN, and state law enforcement agencies because they are generally law abiding. So they will not see these warnings until it is too late.

As a consolation, the victims may be eligible to deduct the amount that they lost from their taxable income. According to IRS guidance, cryptocurrency-related losses are taken as a capital loss. But in certain cases, victims can claim a nonpersonal theft loss which can reduce or zero out their income taxes in the year they discovered the theft. In addition, if their losses exceed their income for that year, they can carry forward the loss to offset 80% of their income in future years. Individuals cannot carry back their losses to prior years to obtain refunds.

Generally, to be eligible to claim a nonpersonal theft loss, several requirements must be met. First, the theft must be connected to a trade or business or as part of a transaction made with an expectation of a profit. Second, the theft must be illegal in the jurisdiction where the victim lives although a theft conviction is not required. Third, the stolen funds must go directly to the scammer and not to an unconnected third party (the people who lost money on Enron stock learned this the hard way). Lastly, there must not be a reasonable prospect of recovery.

The hypothetical fact pattern provided in the IRS warning seems to suggest that victims of pig-butchering scams could be eligible to take a nonpersonal theft loss deduction. It says that a potential red flag is where an anonymous or fake online account guarantees profits or big returns if you invest with them. The Criminal Investigation Chief Jim Lee states, “Cryptocurrency scammers have become more sophisticated with their schemes. It’s a shame to watch people hopelessly invest their savings in crypto and earn returns on their deposits — to never see the money again.”

The Chinese government, with the help of several Southeast Asian countries, has taken action to arrest its nationals suspected of running these scams. In the U.S., the Department of Justice has made some arrests and seizures of stolen funds, including one in April 2023 where $112 million of stolen funds were seized. And just recently, there was another arrest where $9 million worth of crypto was seized. Despite the progress in capturing the scammers, most victims are unlikely to get their stolen money back as it will be difficult and time consuming for people to connect their loss to the scammer’s activities.

Not every pig-butchering scam victim will not be eligible to claim a nonpersonal theft loss. For example, if the money was given for a reason other than an expectation of a profit, then it will be considered a personal theft loss. Personal theft losses have numerous restrictions, most notably that the loss must have occurred in a disaster area and any losses exceeding income cannot be carried forward for future years.

By issuing a warning, it appears that the IRS Criminal Investigation unit could be going after online crypto scammers. It advises victims to contact local law enforcement or one of their 20 field offices. In the meantime, they may be able to claim a capital or theft loss to help ease their tax burden. As the theft loss rules are complex, they should consult a tax professional to see if they qualify.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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Turns out there wasn’t much to worry about. These non-HODLing normies filed into the jury room just after 3 p.m. yesterday, and within a half-hour made clear this would not be a difficult deliberation: They’d be needing cabs home that night. Then they sat down to a genial dinner, and a couple hours later they really were ready to go.

Bankman-Fried, the 31-year old son of two Stanford legal scholars and graduate of the Massachusetts Institute of Technology, was convicted of wire fraud and conspiracy to commit wire fraud against FTX customers and against Alameda Research lenders, conspiracy to commit securities fraud and conspiracy to commit commodities fraud against FTX investors, and conspiracy to commit money laundering…. Immediately after the guilty verdicts, Bankman-Fried’s attorney, Mark Cohen, asked jurors to be polled. They went juror by juror, and each was asked if their verdict was read properly. Each said yes.

U.S. District Judge Lewis Kaplan told prosecutors they had until Feb. 1 to decide whether to proceed with the other raft of charges, including foreign bribery and bank fraud, but given how easy the first round went, why wouldn’t they? Especially since they’ll have to wait two more months after that to learn how many of the 110 years in prison SBF faces he’ll actually serve.

The sentencing date is March 28 at 9:30 a.m. ET.

Sam Bankman-Fried found guilty on all seven criminal fraud counts [CNBC]
Sam Bankman-Fried’s final hours in court: Gasps, somberness, and despair [Fortune]
The Shearing of Sam Bankman-Fried [NYT]

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Allegedly.

The latest sketch from inside the courtroom at his trial appears to have accidentally captured the goofy boy billionaire’s alter ego Tyler Durden. You know what they say: the first rule of Fight Club is you do not talk about using client funds to bail out Alameda Capital.

Given the official sketches coming out of his criminal trial, it wouldn’t be crazy for Bankman-Fried to try to get some better images circulating. But there’s a fine line between sprucing up the public image and recasting yourself as an anime hero.

Winning the courtroom sketch battle is all the rage these days. Donald Trump recently shared this image:

That guy’s last trial was a civil disturbance charge that ended up with the death penalty so I’m not sure Trump should be too enthusiastic about this development. That the portrait is apparently the product of one Peter Gerard Scully, a rapist, sex trafficker, and child sex abuser sentenced to life in prison plus 129 years might be another reason to shy away from it.

As for Bankman-Fried, the new artwork definitely departs from the official iconography:

the courtroom sketch artist was definitely paid off by SBF pic.twitter.com/OTzfOy05f8

— litquidity (@litcapital) October 30, 2023

The above sketch of former Alameda CEO Caroline Ellison perfectly tracks courtroom artist Jane Rosenberg’s aesthetic of grim expressionism. Remember when Rosenberg caught Tom Brady deflating or Trump contemplating a raid on Whoville? Whenever Rosenberg tackles a courtroom scene the result is never a straightforward portrait, but a parade of bleak caricatures that capture the mood more than the look of the players.

So Bankman-Fried must have gotten a little tired of looking like this in all the trial coverage:

And overcorrected with his new sketch as a Phoenix Wright NPC.

Normally Rosenberg’s work captures the spirit of the proceedings, but this time it may be the artistic conversation she prompted that gets to the heart of it. Cultivating an image divorced from reality? Throwing money at a problem to disguise glaring faults? Does it get any more heavy-handed than this?

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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This should go swimmingly!

Bankman-Fried has suffered through a grueling case by the prosecution that included his company’s former general counsel saying that the defendant asked him to conjure up a “legal justification” for using client funds and the former head of Alameda Research — and SBF’s former girlfriend — testifying that he “directed” her to steal billions from FTX.

So now SBF is going to take the stand himself to clear his name.

For a preview of how this might turn out, let’s all remember what happened the last time someone pushed him to explain his business model honestly. Bloomberg’s Matt Levine, formerly of our sibling site Dealbreaker, hosted the boy billionaire on the Odd Lots podcast and asked him, “Can you give me an intuitive understanding of farming?”

In response, Bankman-Fried offered a detailed description of a box that does “literally nothing” that people might put money into. He continues:

So, you know, X tokens [are] being given out each day, all these like sophisticated firms are like, huh, that’s interesting. Like if the total amount of money in the box is a hundred million dollars, then it’s going to yield $16 million this year in X tokens being given out for it. That’s a 16% return. That’s pretty good. We’ll put a little bit more in, right? And maybe that happens until there are $200 million in the box. So, you know, sophisticated traders and/or people on Crypto Twitter, or other sort of similar parties, go and put $200 million in the box collectively and they start getting these X tokens for it…. And then everyone makes money.

Levine replied, “I think of myself as like a fairly cynical person. And that was so much more cynical than how I would’ve described farming. You’re just like, well, I’m in the Ponzi business and it’s pretty good.”

Yeah, this cross is going to go great!

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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Almost everyone has heard something of former president Donald Trump’s many legal troubles.

Specifically looking at the financial practices of the sprawling Trump empire, a judge has ruled that Trump committed fraud by repeatedly lying to banks and insurers as well as by habitually undervaluing and overvaluing numerous forms of property.

This ruling allowed the New York Attorney General’s $250 million civil lawsuit against Trump and his various associates and offspring to proceed on the remaining causes of action, and Trump himself appeared in characteristically bombastic form at the first day of trial.

When Sam Bankman-Fried, founder and former CEO of the once-massive crypto exchange FTX, was initially accused of ripping off investors to the tune of billions, it was difficult to imagine any trial overshadowing his.

That being said, Bankman-Fried’s trial also began this week, and though it may be of less national import than Trump’s, the outcome is sure to cause ripples across the entire cryptocurrency industry.

Bankman-Fried’s trial comes with some literary flare: famed finance industry journalist Michael Lewis wrote a book about Bankman-Fried’s rise and fall, which was timed to come out just as the trial kicked off.

We explore these trials and more in the latest Finance Docket newsletter.

Subscribe to read this week’s full newsletter, which also looks at corruption in DC and layoffs nationwide.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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Meanwhile, a lot of other people were making money. Tons of money, in fact, and not just the digital kind.

One of those people was Sam Bankman-Fried. Though he has not (yet) been convicted of any major crimes, he is now sitting in jail awaiting trial on federal fraud charges after U.S. District Judge Lewis Kaplan revoked his bail upon a finding that he had probably been engaging in a little witness tampering.

It was not always so. As a mere 20-something, Bankman-Fried started running the trading desk Alameda Research in 2017. Given his success as a trader, Bankman-Fried was able to easily parlay the buzz surrounding his name into a new venture: FTX. Bankman-Fried launched this new cryptocurrency exchange in May 2019 and never looked back.

In retrospect, it seems obvious that someone barely out of his teens who regularly played video games during work meetings probably should not have been put in charge of billions of dollars. At the time though, everyone wanted a piece of the action. Investors and celebrity endorsers lined up to overlook Bankman-Fried’s eccentricities — as long as they could get their beaks wet, that is.

Tom Brady, Stephen Curry, Larry David, and Gisele Bündchen are just a few of the A-listers who were happy to lend their names to FTX. The firm owned naming rights to multiple sports stadiums. In its heyday, FTX became the second-largest cryptocurrency exchange as it saw close to $30 billion in daily volume.

And then it all came crashing down. Shortly after a number of its shady business practices were exposed, FTX imploded into bankruptcy, and its founder found himself in a jail cell complaining about the food.

There is a lot more to this story. Fortunately for the reading public, we are about to find out just how deep this rabbit hole went.

Michael Lewis is probably the greatest financial journalist of his generation. You might know him as the author of “Liar’s Poker,” “Moneyball,” “Flash Boys,” and “The Big Short.” Very soon you will be able to read his take on Sam Bankman-Fried and the collapse of FTX.

The new book is called “Going Infinite: The Rise and Fall of a New Tycoon” (affiliate link). In his latest work, Lewis tells the story of this frumpy faux-Gatsby, this Millennial Bernie Madoff, whose meteoric rise to fame and money was outdone only by the steepness of his fall from power. “Going Infinite“ is going to be Lewis at his best.

And the best part about this soon-to-be bestseller? Lewis was embedded with Sam Bankman-Fried for months before the latter’s empire crumbled. That means Lewis was there as FTX went up in smoke. Not since “Liar’s Poker“ have we gotten a Michael Lewis book in which the author himself was so close to the action.

So, get on Bookshop, go to your favorite independent bookseller, or hit up your local library (I’m a library dweeb myself, in addition to being a finance dweeb). Pick yourself up a copy of “Going Infinite“ and join the conversation. Perhaps all it will take is Lewis’ deft prose to convince the world of finance that there’s no such thing as a person in their 20s who should have billions of dollars to play with.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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Probably the best use case that’s been described to me (other than as a medium of exchange for black market transactions) is that it’s digital gold. This sort of makes sense in that the value of cryptocurrency is derived at least in part from its scarcity.

Yet, unlike crypto, as a store of value gold has the benefit of millennia of history behind it, as well as quite a few proven utilitarian applications. Plus, gold is generally harder to steal than cryptocurrency in that any would-be thief must be physically located wherever the gold is.

I wouldn’t wholeheartedly recommend either gold or cryptocurrency as an investment. That being said, if you really like heavy metals and/or enjoy gambling in hyper-speculative markets, you’re an adult, have fun. But at least do the bare minimum in checking up on your human point of contact before you make any sort of investment.

The U.S. Securities and Exchange Commission runs a website where you can check out your investment professional. You can search for individuals or firms and find out whether they are licensed with the SEC, with one or more states, and/or with the Financial Industry Regulatory Authority.

Now, not all financial professionals have to register with the SEC or the states. But even exempt investment advisers may nonetheless be required to fill out certain disclosures about their business operations in what’s known as Form ADV; this information will appear in a search. You will also get information about past registrations with state securities regulators, criminal convictions, regulatory events, and involvement as a defendant in civil litigation.

It takes what, moments to click one of the links in the preceding paragraphs and then simply type in the name of the person asking you to hand over thousands of dollars to them? Don’t try to tell me you don’t have the time for this or are too bad with technology to figure it out.

Obviously, if a ton of scary sounding things come up when you run someone through the SEC’s website, you probably should not trust this person with your money. If nothing comes up at all about a person who is encouraging you to invest money with them, that likely signals a problem too.

“Unlicensed, unregistered persons commit much of the investment fraud in the United States,” according to the SEC. Well, let’s just go ahead and put that to the test.

The SEC recently charged Richard Heart, also known as Richard Schueler, with conducting unregistered offerings of cryptocurrency asset securities to raise more than $1 billion in crypto assets from investors. The SEC alleges that Mr. Heart misappropriated millions from his investors to purchase sports cars, luxury watches, and, of course, a 555-carat black diamond called “The Enigma.” Let’s see, nope, no “Richard Heart,” no “Richard Schueler” coming up in the SEC’s Investor.gov search tool. Bet the alleged victims wish they’d have taken 10 seconds to do that.

This system is not a silver bullet. Licensed and registered investment advisers occasionally engage in wrongdoing, too, and there seems to be a flaw in the system in that pending civil penalties do not immediately appear on an investment adviser’s report. Still, almost everyone who invests and needs someone else’s help doing it is going to be better off using a licensed, registered investment adviser, and almost everyone who uses a licensed, registered investment adviser is going to be better off knowing a bit more about that person’s background before turning over any funds.

If you’re reading this, you’re probably already in a demographic that is somewhat immunized against investment scams. But many retail investors don’t even know there’s a website where you can look someone up to see whether or not they’re a legit investment adviser. Maybe pass along the info to grandma or gramps before the next purported investment savant starts passing around the hat at church.

It’s quick, it’s easy, you’re out nothing by using this system. And hey, you might save yourself a lot of trouble.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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As Lewis Brisbois’s Sean P. Shecter told Law360, “I think this is a lot of, ‘Ok we know there is going to be a lot of evidence, we’re weighing whether we can win at trial, let’s create a record to preserve our appellate rights even if it involves throwing spaghetti against the wall.'”

But the truly interesting tidbit in the filing is SBF’s request to have FTX’s current leadership and Sullivan & Cromwell — the Biglaw firm advising FTX in bankruptcy who also represented the company on transactions and regulatory matters pre-collapse — designated as part of the “prosecution team.” He argues He argues FTX and S&C have offered so much cooperation that the government has “effectively deputized the company to aid the prosecution.”

The company has “already determined that Mr. Bankman-Fried is guilty and prematurely staked their reputations on it,” Bankman-Fried told the court.

“The FTX debtors have no incentive to look for or provide exculpatory material to the government, which is the only practical way the defense will ever receive it,” he said.

The filing went on to say the firm and FTX have become “public mouthpieces” for the prosecution, turning over “cherry-picked” documents that implicate Bankman-Fried. If the judge grants SBF’s request, both Sullivan & Cromwell and FTX will be obligated to turn over potentially exculpatory documents to Bankman-Fried, as if they were prosecutors themselves.

As reported by Yahoo!, while they haven’t offered comment about this specific filing, FTX and S&C have defended their cooperation:

FTX and its Sullivan & Cromwell team have accused Bankman-Fried of presiding over a shocking lack of internal corporate controls and said their cooperation with the government was crucial to securing a quick indictment against Bankman-Fried and guilty pleas from other FTX executives.

The role of cooperators has been hotly debated by the criminal defense bar. As Mark Kasten of Buchanan Ingersoll & Rooney noted, “I think criminal defense attorneys are going to look at how the court rules on this motion.”

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon 

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Swift was far from a cultural phenomenon at that point. Many people in the crowd had never heard of her. She was just a girl. There were crude comments shouted. Yet, listening to Swift sing and strum her heart out on that stage at the Mall of America, I thought, This girl is going places.

I suppose that’s a convenient way to remember it, given what we know now about Swift’s musical career.

On the other hand, maybe I just missed my calling as a talent agent. Swift’s music has topped the charts, smashed records, and won her millions of fans.

Honestly, I’ve lost touch with the newer music. Have still been keeping up a bit on T-Swift’s progression as a public figure though.

When Sam Bankman-Fried’s cryptocurrency exchange FTX melted down, a lot of celebrities were left looking foolish. FTX was known for its high-profile, high-dollar endorsement deals. Now some celebrities — including Tom Brady, Stephen Curry, Larry David, and Shaquille O’Neal — are facing a lawsuit accusing them of promoting an unregistered security.

Not Taylor Swift. When the superstar was approached by FTX for a $100 million deal to sell her concert tickets as NFTs, her response was reportedly, “Can you tell me that these are not unregistered securities?”

That was a pretty astute question, as it sure appears that FTX was hawking unregistered securities. That is illegal except under very limited circumstances. Swift never endorsed FTX, and, I’d like to imagine, told them where to shove their $100 million.

Swift herself has not yet offered a public comment on these revelations (what we know about her interactions with FTX comes from discovery in the lawsuit against its celebrity endorsers). Even reading between the lines, it seems like Swift is out ahead of the Securities and Exchange Commission on this.

Swift, based on her actions, seemed to have determined at least some of FTX’s crypto products were unregistered securities that she wanted nothing to do with. Yet, when asked six times at a congressional hearing on April 18 whether the second-largest cryptocurrency by market cap (ether) was a commodity or a security, SEC head Gary Gensler dodged the question six times. This is the guy who came into office promising more investor protections in the cryptocurrency space.

The SEC has warned about investing in crypto a bunch of times. Nobody listens to those nerds though. That’s the whole reason FTX was cozying up to all these famous people in the first place: people do listen to celebrities.

Swift has, somewhat notoriously, worked to avoid political issues for a large portion of her career. She has been criticized for not taking strong enough political stances (and for just about everything else).

And that’s fine. It’s not like there’s some requirement that every musical artist has to proclaim a stance on all political issues. In fact, I bet most of you, even when you agree with your favorite musical artists’ political leanings, would rather hear their music than their political diatribes. Plus it’s actually kind of refreshing to see a big celebrity remain circumspect about the massive influence she wields. If only Kid Rock would exercise similar restraint.

Swift is perhaps offering something even better than loudly voicing her thoughts on crypto regulation and other issues: a good example. Rather than ask about whether their product was a scam, Swift could have simply snatched FTX’s $100 million and ran like a Supreme Court justice boarding a private jet to Indonesia.

Instead, Swift demonstrated integrity. I’ll take a musician who has shown herself to be a relatively good role model over yet another preachy, out-of-touch celebrity shouting opinions at us anytime.

A few weeks ago, I agreed to provide some background music for a staff event. One of the tunes I picked out on the ol’ guitar was “Tim McGraw,” Swift’s first single. Sorry to say that a couple of the young associates who are self-professed Swifties had never heard it, being as how they were in elementary school when the song came out.

But I remembered. That girl in the mall 17 years ago who just wanted to sing her heart out is now a woman with the strength to turn down $100 million because she thought a potential sponsor might be taking advantage of people. Calling that “admirable” doesn’t quite do it justice.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

It is no surprise that Hermès will go to any lengths to protect its renowned Birkin trademarks. In Hermès v. Rothschild, Hermès filed a complaint against Mason Rothschild in the Southern District of New York, alleging that he was infringing its Birkin trademarks through his sale of NFTs called MetaBirkins. Hermès’ complaint accused Rothschild of federal and common law trademark infringement, false designation of origin, trademark dilution, cybersquatting, and injury to business reputation and dilution under New York General Business Law.

Rothschild sought dismissal, arguing that his NFTs are shielded from Hermès’ trademark claims as creative expression protected by the First Amendment. While the court denied Rothschild’s motion to dismiss, it determined that the NFTs should be evaluated under the Rogers v. Grimaldi test for artistic works. Under the Rogers v. Grimaldi test, an otherwise artistic work is not entitled to First Amendment protection if the plaintiff can show that either: (1) the use of its trademark in an expressive work was not “artistically relevant” to the underlying work, or (2) whether the trademark is used to “explicitly mislead” the public as to the source or content of the work. The second factor of the Rogers v. Grimaldi test requires that consumer confusion must be clear and unambiguous to overcome the strong First Amendment interests at stake. The court found that there is a genuine issue of material fact as to both factors and the case thus went to trial in the end of January 2023.

It is important to note that the Rogers v. Grimaldi doctrine is itself currently under scrutiny in the Supreme Court case Jack Daniel’s Properties Inc. v. VIP Productions LLC. Jack Daniel’s brought this case for trademark infringement against VIP Productions’ dog chew toys bearing the distinctive look of a Jack Daniel’s whiskey bottle alongside the slogan “Bad Spaniel’s.” The Supreme Court will review the Ninth Circuit’s holding that the dog toys were protected as artistic parody under the Rogers v. Grimaldi test. Brand owners expressed their concern about the Ninth Circuit’s decision for its protection of commercial products.

In arguing that his work is entitled to First Amendment protection under Rogers v. Grimaldi, Rothschild argued that his MetaBirkin NFTs, depicting faux fur-covered Birkin bags, are works of art created based on his interpretations of the world around him, even comparing the MetaBirkin NFTs to Andy Warhol’s Campbell’s Soup Cans. More specifically, Rothschild maintained that the faux fur on the MetaBirkins “comments on the animal cruelty inherent in Hermès’ manufacture of its ultra-expensive leather handbags.” In addition, Rothschild called the MetaBirkins an experiment to see if he could create the same kind of illusion that the Birkin bag has in real life.

Hermès introduced evidence of the Birkin trademark’s strong recognition and informed the jury that it has applied for a digital trademark for the Birkin. Since luxury brands are starting to enter the digital space, Hermès argued that it is reasonable for customers to think that the MetaBirkin NFTs are associated with the Hermès brand. Hermès also highlighted Rothschild’s motive to profit from his so-called “social experiment.” Rothschild sold his first MetaBirkin for $23,500, which later resold for $47,000. In total, Rothschild produced over 100 MetaBirkin NFTs, which sold for over $1.1 million. Hermès also introduced evidence of text messages from Rothschild to the developer of the MetaBirkins stating, “We’re sitting on a gold mine.”

On February 8, 2023, the jury returned a verdict in favor of Hermès, finding that Rothschild infringed the Birkin trademarks even under the stricter Rogers v. Grimaldi standard. Rothschild was ordered to pay Hermès $133,000 in damages.

This dispute did not cease with the end of the trial. Hermès is currently pushing for a permanent injunction to prevent Rothschild and his affiliates from continuing to promote or sell his MetaBirkin NFTs and to reassign ownership to Hermès. In his opposition, Rothschild argues that the type of permanent injunctive relief sought by Hermès is not appropriate in a case involving artistic expression and instead requests that the court simply require a “clear disclaimer.” The opposition states that Hermès has “produced no evidence of any concrete harm that it has suffered from Mr. Rothschild’s promotion and sales of his MetaBirkins artwork,” and instead Hermès’ sales have continued to increase. Rothschild also contends that the court should not grant injunctive relief due to Hermès’ unclean hands stemming from its “pattern of deliberately dishonest conduct throughout trial.”

If Hermès’ proposed permanent injunction is not granted, it is the view of brand owners that NFT creators may think they can continue to ride on the coattails of brands that have put significant time and money into building recognition just by paying a minimal damages award to the trademark owner. This view would be consistent with 15 U.S.C. § 1116(a)’s rebuttable presumption of irreparable injury that was codified in 2020 in the Trademark Modernization Act. However, if the permanent injunction is granted, some are concerned that this may place NFTs at risk. Some see NFTs as secure investments, fearing that if they can be destroyed by an injunction, buyers and sellers will be at financial risk and may be less likely to engage with NFTs.

As one of the first cases to discuss intellectual property rights within the metaverse, this case sets precedent that courts are willing to find trademark infringement between similar digital and physical commodities. While this case raises concerns for NFT artists whose existing work can be the subject of another infringement lawsuit, it is a big win for brands who are trying to connect with their customers in the metaverse. Gucci, for example, has already collaborated with Roblox to create a virtual garden exhibition celebrating Gucci’s 100th birthday, while allowing visitors to purchase Gucci NFTs. Brands are now running to file trademarks specifically meant for the metaverse.

We will continue to see more activity in this case unfold as the parties are still awaiting the court’s ruling on Hermès’ motion for a permanent injunction and Rothschild’s renewed motion for judgment as a matter of law or a new trial.

Nicolette Shamsian joined Above the Law as a fashion law columnist in 2023. Nicolette earned her B.A., summa cum laude, in Political Science and minor in Entrepreneurship from the University of California, Los Angeles and her Juris Doctor from UCLA School of Law. Nicolette is currently an associate in the Litigation group at Irell & Manella. Nicolette’s work at Irell focuses on intellectual property litigation. As Irell’s resident fashion law aficionado, Nicolette enjoys leading discussions to keep attorneys in the firm up to date on noteworthy fashion law cases.

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Elon Musk asked a U.S. judge on Friday to throw out a $258 billion racketeering lawsuit accusing him of running a pyramid scheme to support the cryptocurrency Dogecoin.

In an evening filing in Manhattan federal court, lawyers for Musk and his electric car company Tesla Inc (TSLA.O) called the lawsuit by Dogecoin investors a “fanciful work of fiction” over Musk’s “innocuous and often silly tweets” about Dogecoin.

The lawyers said the investors never explained how Musk intended to defraud anyone or what risks he concealed, and that his statements such as “Dogecoin Rulz” and “no highs, no lows, only Doge” were too vague to support a fraud claim.

This may actually be a rare W for Elon and his merry band of “hardcore” lawyers. Doge was meme money from the start and anyone who actually thought that its going to the moon was a shoo-in would likely be interested in buying a bridge in Brooklyn. As much as I love some drama at Wario’s expense, it is hard to not see the gut check merit in his counsel’s position.

“There is nothing unlawful about tweeting words of support for, or funny pictures about, a legitimate cryptocurrency that continues to hold a market cap of nearly $10 billion,” Musk’s lawyers said. “This court should put a stop to plaintiffs’ fantasy and dismiss the complaint.”

Am I calling this an open-and-shut case? I wouldn’t go that far. Maybe discovery will turn up some text message where, in between tired 420 jokes and poop emojis, Elon openly tells Grimes that he’s gonna do a little price manipulation to feel alive again. In the meantime, I’d like to give some financial advice to the Elon fanboys. Don’t rely on meme money to get you rich while you sleep. Do what everyone else does and find a way to siphon profits from the people working beneath you.

If you are interested in following the deets of the case, Johnson et al v. Musk et al, U.S. District Court, Southern District of New York, No. 22-05037 would be a great start.

Elon Musk Seeks To End $258 Billion Dogecoin Lawsuit [Reuters]

Chris Williams became a social media manager and assistant editor for Above the Law in June 2021. Prior to joining the staff, he moonlighted as a minor Memelord™ in the Facebook group Law School Memes for Edgy T14s. He endured Missouri long enough to graduate from Washington University in St. Louis School of Law. He is a former boatbuilder who cannot swim, a published author on critical race theory, philosophy, and humor, and has a love for cycling that occasionally annoys his peers. You can reach him by email at cwilliams@abovethelaw.com and by tweet at @WritesForRent.

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Do Kwon, the CEO of Terraform Labs, was arrested at an airport in Montenegro on March 23 where he attempted to use a fake Costa Rican passport, possibly to leave the country. He is currently wanted by the South Korean police for his involvement in the collapse of the Luna cryptocurrency. The crash wiped out $40 billion in value and created the 2022 crypto winter where numerous stablecoins such as Bitcoin dropped in value.

Last month, the SEC filed a civil lawsuit against Kwon and Terraform Labs charging them with fraud, selling unregistered securities and security-based swaps. He is accused of misleading investors with false statements about Luna coin which led to massive losses when the coin was depegged from the US Dollar.

Soon after Kwon’s arrest, the U.S. Department of Justice filed a criminal indictment against him, charging Kwon with securities fraud, commodities fraud, wire fraud, and market manipulation.

Samuel Bankman-Fried, the former CEO of FTX (which recently filed for bankruptcy), was criminally charged with fraud and violating federal campaign finance laws. He is currently under house arrest while awaiting trial.

A few days ago, he was hit with an additional criminal charge accusing him of violating the Foreign Corrupt Practices Act by bribing Chinese government officials with $40 million worth of cryptocurrencies.

And, on Monday, the Commodity Futures and Trading Commission (CFTC) filed a civil lawsuit against Binance and its CEO Changpeng Zhao. In its complaint, the CFTC accused Binance of selling derivatives without registering with the CFTC. The agency also accuses the company of secretly operating in the U.S. despite publicly stating that it did not do so. Employees encouraged U.S. users to use virtual private networks to hide their U.S. IP address. It has also directed trading companies in the U.S. to set up shell companies overseas to avoid regulations. And some of the senior staff at Binance acknowledged that terrorists may be using their exchange.

After the fall of many large crypto companies such as FTX, most crypto users believed Binance was the only remaining stable, reputable company left. Others believed that it was a matter of time before enforcement and regulatory agencies would target Binance.

Despite the serious government actions against these once well-known companies, the prices of stablecoins such as Bitcoin and Ethereum have not plunged dramatically. This was unlike the previous crypto winter when the price of Bitcoin fell to $27,000 from $40,000 due to the collapse of the Luna token.

So why hasn’t the price of stablecoins tanked despite the bad news? There are several opinions.

First, people are still reacting to the recent failures of some U.S. banks, including Silvergate and Signature Bank, both being known for being crypto friendly. They may be converting their real money into crypto until the government can stabilize the situation and restore confidence in the banking sector. Of course, cryptocurrencies may have wild price swings but losing some of your money is better than losing all of your money if the bank goes into receivership.

Second, there seems to be belief that cryptocurrencies can beat inflation. While that might be true for a little while, history shows that eventually the price will fall. But investors seem to be fine with accepting that risk.

Third, people are still using stablecoins for transactions regardless of the value. Not all of these transactions are good as some can be attributable to online scams or even criminal or terrorist activities. But as long as there is a seller and a buyer, the cryptocurrency will continue to exist.

So far cryptocurrency values have withstood recent bad news. But whether it will stay that way is anyone’s guess.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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For tax purposes, a collectible is treated similarly to that of a capital asset except that when it is sold after more than one year of ownership, any gain realized has a maximum long-term capital gains tax rate of 28%. This does not apply to people who held their NFTs for less than one year who would be taxed at ordinary income tax rates. Also, full-time NFT dealers will not only be taxed at ordinary income rates but may also be subject to self-employment tax as well.

In its announcement, the IRS defines an NFT as a unique digital identifier that is recorded using distributed ledger technology and may be used to certify authenticity and ownership of an associated right or asset. Owning an NFT may provide the holder with rights, privileges, and ownership of other assets.

Under the tax code, a “collectible” is any one of the following:

• A work of art
• A rug or antique
• A metal or gem
• A stamp or coin
• An alcoholic beverage
• Any other tangible property specified by the Treasury secretary.

Until further guidance is issued, the IRS intends to determine whether an NFT is a collectible by using a “look-through” analysis. This means that the IRS will deem an NFT to be a collectible if its associated right or asset is also a collectible. For example, an NFT will be treated as a collectible for tax purposes if its owner has ownership rights to one of the items listed above.

The IRS seeks comments on the following:

1. Whether there are more accurate definitions of NFTs.
2. The pros and cons of using its “look-through” analysis to determine whether an NFT is a collectible.
3. Whether there are other factors to consider when determining whether an NFT is a collectible. For example, how can an NFT be considered a work of art? Or whether an NFT is tangible personal property in the context of digital files.
4. What other guidance relating to NFTs would be helpful.

It is unclear why the IRS is making this announcement. From an investment perspective, most NFT owners obviously do not want “collectibles” treatment for tax purposes as it would increase their tax bill if they sold it for a profit. But others may welcome this development as it may bring legitimacy to NFTs and differentiate them from cryptocurrencies.

But are NFTs similar to other collectibles such as works of art, antiques, gems, coins, or the 100-year-old cognac from a totalitarian dictator’s private collection? Collectibles tend to be rare or unique, are considered very valuable and expensive, have a history, and have some form of aesthetic or functional value. Since they tend to be grown-up toys for the wealthy, Congress thought a higher tax rate for their sales would be justified. It is too early to tell whether NFTs will reach that status or disappear as last year’s fad or get-rich-quick scheme.

It appears that the IRS will get more involved in the digital asset scene. To their credit, they are seeking public comment on how to treat NFTs, which will hopefully attract a wide variety of perspectives. Comments will be accepted until June 19.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Add in that SBF is the child of two legal academics — Barbara Fried and Joseph Bankman, both of Stanford Law School — and you can see there’s plenty to hold the industry’s attention. Now that Southern District of New York judge Lewis Kaplan has unsealed the names of the two anonymous sureties who supplemented the $250 million personal recognizance bond (co-signed by SBF’s parents), it’s even more intriguing.

Former Stanford Law dean Larry Kramer signed a $500,000 unsecured bond (another for $200,000 was signed by Stanford University research scientist Andreas Paepcke) guaranteeing SBF’s return to court.

As reported by Law360, Kramer shared that his personal relationship with SBF’s parents motivated the move:

“During the past two years, while my family faced a harrowing battle with cancer, they have been the truest of friends — bringing food, providing moral support and frequently stepping in at a moment’s notice to help,” Kramer said. “In turn, we have sought to support them as they face their own crisis. My actions are in my personal capacity, and I have no business dealings or interest in this matter other than to help our loyal and steadfast friends. Nor do I have any comment or position regarding the substance of the legal matter itself, which is what the trial will be for.”

Kramer is currently president of the William and Flora Hewlett Foundation.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.

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The nine-person jury found Rothschild liable for trademark infringement, trademark dilution and “cybersquatting” (the practice of using a name in bad faith with the intent of making a profit) and awarded Hermès $133,000 in total damages (an estimation that at least includes the amount he is thought to have earned from the works) on 8 February, the third day of deliberations.

While the damages amount may seem modest, the impact of this case promises to resound loudly going forward. We have already crept into 2023, and we already have two big-time trademark jury verdicts out of the SDNY to ruminate on.

For those interested in the IP implications of the NFT phenomenon, the jury’s verdict in the Hermes case is a clear rejection of the idea that NFT projects are somehow immune from the same IP rules that other businesses and artists have to follow. It is true that a lot of the commercial hype around — and perhaps easy money that could be earned flipping — NFTs has died down a lot after a disastrous 2022 for the nascent industry. At the same time, there remains plenty of money invested in the NFT space, and the chances for the sector to get hot again can’t be written off. In that respect, for NFT owners and investors, the Hermes decision is one that is worthy of continued study and follow up, especially considering the likelihood that the jury’s verdict gets appealed. Likewise, it will remain important for brand owners to learn from the example Hermes set by filing the case against Rothschild in the first place, as companies of all sizes continue to refine their strategies for operating the metaverse going forward.

A little background is in order for those who may have been unfamiliar with the case. Hermes filed the case in January 2022, complaining that Rothschild’s release of 100 “MetaBirkin” NFTs infringed on its trademark rights related to the company’s iconic Birkin leather handbags, which can cost up to $50,000 for those brave enough to carry them. Interestingly, Hermes apparently also offered up testimony that Rothschild’s release of the MetaBirkins hampered the company’s supposed “progress … prototyping various NFT projects.” That fact alone, even more so when coupled with the use of the Birkin name and look in the Rotschild project, seems to have resonated with the jury and contributed to the verdict in Hermes’ favor. That result was achieved, despite less than 5% of the luxury buyer’s surveyed expressing any confusion over the source of the MetaBirkins, on top of less than 20% of the total surveyed believing that Hermes was behind the MetaBirkins project.

For his part, Rothschild’s post-verdict comments suggest that not only will an appeal of the verdict follow in short order, but also that he will continue to attack Hermes’ credibility publicly. In his view, his loss in court was to “[a] multi-billion-dollar luxury fashion house who says they ‘care’ about art and artists but feel they have the right to choose what art is and who is an artist.” In short, Rothschild has no problem painting Hermes as a hypocritical trademark bully, so obsessive about protecting its bottom line that the company was willing to make an example of someone making an artistic statement using an iconic luxury item as a reference point. Even if one doesn’t agree with Rothschild’s point-of-view, or believes that his own credibility is undermined by the fact that the MetaBirkins project was also a commercial one that generated profit for the artist, it is clear that he ran into a bit of a legal buzz-saw in taking on a company like Hermes that felt it had no choice other than to pursue him in court. At the same time, it is also clear that the hype around NFTs was an important factor in forcing Hermes into taking a strong stand, considering the potential value of the company of being able to exploit its trademarks and goodwill in the metaverse.

It is also interesting to contrast this result with that in the other recent SDNY trademark case. Here, the fact that this verdict led to a different result than in the Adidas/Thom Browne case helps illustrate the jury appeal of a trademark’s owner claim that is grounded in the defendant’s open use of the plaintiff’s marks, especially when coupled with evidence that in so doing, the defendant also encroached on a market opportunity for the trademark owner. Here, there was little daylight between Rothchild’s release of NFTs using Hermes’ marks and images and the fact that Hermes itself alleged that it was itself trying to get into the NFT release game. In contrast, Thom Browne showed that it was not using Adidas’ three-stripes, nor that it was really competing directly with the sportswear and sneaker giant with its eponymous fashion for the luxury buyer. Two different sets of facts, leading to two different jury verdicts spaced just weeks apart.

Ultimately, the deft handling of Judge Rakoff to get this case to verdict helps set up an important potential appeal that will be closely watched by those interested in the intersection between NFTs and IP. Together with the upcoming SCOTUS consideration of the Jack Daniel’s parody trademark dispute involving a dog toy, which could provide further direction on the application of the Rogers test under which this case was decided, the coming year could help bring some clarity to the scope of a trademark owner’s rights in the face of artistic efforts and parody by others. At the same time, this verdict will also embolden other IP holders to police their rights in the face of efforts by NFT projects to piggyback off their IP, thereby introducing an element of risk going forward for NFT projects involved in exploitation of IP rights owned by others — even if the use of the IP is in the furtherance of some artistic purpose or message. At bottom, anyone who may have thought that NFTs had a free pass when it comes to IP would do well to change their opinion. At least until we learn for sure who has the right to sell NFTs of luxury handbags, or chewy doggie toys poking fun at whiskey sellers. Because for now, NFT IP risks are now as real as can be.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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One of the first lawsuits of its kind, concerning a burgeoning industry that many (myself included) don’t fully understand, it’s getting a lot of chatter online, with some wondering if the verdict spells the end of NFTs-as-art.

Confused yet? So was I, so I consulted a couple of experts who know a lot about the issues at hand — intellectual property law, trademarks, fashion and NFTs — and asked them to explain it all to me like I’m five. Below, a hopefully easy-to-understand breakdown of the verdict and what it really means for the future of digital art and fashion IP.

What did Mason Rothschild do?

In May of 2021, Rothschild, a digital artist (and co-founder of Los Angeles concept shop Terminal 27), released his first Hermès-inspired digital artwork: The Baby Birkin featured a fetus gestating in a transparent Birkin bag and sold for $23,500 as an NFT, a “non-fungible token” that represents authentic ownership of a digital asset on a blockchain (meaning no physical version of this item exists). There was more to come, Rothschild promised.

“That controversial piece depicted a fetus as a Birkin bag, creating buzz for the larger collection of 100, and its high sale price drove speculation on the value of the MetaBirkin collection,” explains Rembrandt Flores, founder of 8Commas, a web3 amplification consultancy.

In December of that year, he followed up that buzzy debut with a new collection of 100 “MetaBirkins.” These colorful, fuzzy digital renderings of Hermès Birkin bags were revealed via platforms like Twitter and Discord and put up for sale as NFTs. Per Business of Fashion, they were priced at 0.1 ETH (ETH being the cryptocurrency for the Ethereum blockchain) equivalent at the time to about $450. After the initial sales, the owners of these tokens were free to trade them like stocks, with their value fluctuating based on demand and rarity — one went for as much as $46,000.

Why Was It Concerning?

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Experts were quick to question whether such NFTs could stand up against intellectual property law and Hermès’ was quick to publicly condemn the project (even before taking legal action), telling the Financial Times shortly after the launch, “These NFTs infringe upon the intellectual property and trademark rights of Hermès and are an example of fake Hermès products in the metaverse.”

“If Rothschild had stopped with ‘Baby Birkin,’ Hermès might not have sued,” explains Professor Susan Scafidi, founder and director of the Fashion Law Institute at Fordham Law School. “Artists often use famous logos in pop-art-style paintings and other traditional artistic media, and the brand owners rarely object to one-off, expressive creations. Rothschild, however, didn’t stop.”

Rothschild, who rendered the MetaBirkins in “faux fur” (again, these pictures were never real in the first place), told BoF they were, “my artistic take on an icon, my remix.”

“I think that Mason believed that he had two rules protecting him, one being the First Amendment, ‘Free Speech,’ and the second being an exception to copyright and trademark law called ‘Fair Use,’ says Flores.

“Many artistic works that incorporate others’ trademarks can claim free speech protection — as long as consumers aren’t misled into thinking those works are affiliated with the brand,” explains Scafidi.

Why did Hermès Sue — And Win?

The Hermès Birkin is one of very few fashion items that are recognizable enough to be legally trademarked — both the word “Birkin” and the bag’s shape are protected. When Rothschild sold his 100 MetaBirkins, indicating plans to launch hundreds more, Hermès was not going to look the other way.

“At that point, Hermès objected, since Rothchild’s actions looked less like free speech and more like the kind of commercial free-riding that could damage the image of Hermès,” says Scafidi. “The attention to the Metabirkins could also prevent Hermès from developing its own digital art and NFT strategy, something that had already proved very lucrative for other fashion houses. Dolce & Gabbana, for example, in 2021 created a collection of 9 NFTs that sold along with physical items for almost $6m.” Gucci, Givenchy and Burberry have also released NFTs.

“It’s not every day that fashion can make millions on a whole new product category, and the lawsuit by Hermès was intended to make sure that if anyone was going to profit from NFTs associated with its products, it would be the company itself,” Scafidi continues.

Hermès is a powerful, well-protected company, but there was still no guarantee it would prevail, especially once the case went to trial.

“Hermès took a risk in bringing this case before a jury, which could have decided instead that the MetaBirkins were artistic expression and that consumers were not confused as to their association with the brand,” says Scafidi. “Instead, the company argued that Rothschild was engaged in ordinary trademark infringement under the pretext of making art, and the jury apparently agreed — in their eyes, Rothschild was no starving artist, just a tech-savvy opportunist, even if his target was a luxury brand. In other words, Hermès got a New York jury that knew its bags from its BS.”

“The biggest reason why Hermes prevailed gets to the heart of why these laws are in place,” offers Flores. “Brand builders spend decades refining their products, courting customers, and building a logo that can be trusted for quality and unique value. They protect these brands by filing for trademarks so that they can rely on the court system to back them up whenever someone is selling using their name. Since Mason used Hermès’ iconic product, their name, and sold his collection for money to buyers, his defenses weren’t enough to persuade the court that he wasn’t trading on their brand with his artwork.”

Why Is This All A Big Deal?

“Every new medium or form of retail has its signature trademark lawsuit, and the Metabirkin case is that lawsuit for art and NFTs,” says Scafidi. “Every fashion lawyer in the world has been watching this case, and today was a red-letter day in the brand protection world.”

It’s one of the first lawsuits of its kind, and thus, its verdict sets a precedent. Some onlookers, particularly those in opposition to the ruling, worry about the fact that a jury decided Rothschild’s NFTs didn’t qualify for protection under free speech, determining that such digital artworks should be seen as commodities rather than art. Per the New York Times, one of Rothschild’s lawyers, called it a “great day for big brands” and a “terrible day for artists and the First Amendment.”

What Does This Mean for the Future of NFTs and Digital Art?

“The future of fashion NFTs depends on the art market and whether consumers would rather spend money on images of handbags or the real thing, but this victory for one intellectual property owner clears the way for brands to challenge at least uncreative commercial use of their trademarks in the digital realm,” says Scafidi, who believes that “true artistic or expressive uses” of a brand’s intellectual property could still escape similar lawsuits.

“This going to set precedent for all NFTs in the future, but with this could mean more litigation protecting art/IP ahead,” says Flores. “It opens the door for other lawsuits such as Nike v. StockX and brings the conversation back to the NFT community about what IP means, even if these collections are 100% digital.”

There’s also the question of what, if any, responsibility NFT marketplaces (where NFTs like the MetaBirkins are sold online) have.

“NFT marketplaces rarely monitor projects and have taken a hands-off approach generally,” notes Flores. “We may see greater pressure on NFT marketplaces to comply with takedown requests of trademarked and copyrighted projects.”

What Should Brands and Artists Take Away From It?

“Any brand that has artistic aspirations but has not yet registered its trademarks in the class relevant to NFTs should do so immediately,” advises Scafidi.

Meanwhile, “artists should proceed with caution when incorporating others’ trademarks into their work, asking themselves what statement they’re making and whether the trademark is relevant to that artistic expression. It’s also important for artists who use others’ trademarks to make an effort to ensure that consumers won’t think their work is affiliated with the brand, a common assumption in the age of frequent fashion/art collabs.”

Flores advocates for more education and communication between both parties — i.e., fashion brands working with digital artists in an official capacity to explore the NFT world.

“This is a call to legacy brands to understand what is happening with this next generation. They are comfortable with collecting exclusive things digitally and want to see their favorite products and brand names wherever they go,” he says. “Brands should encourage community collaborations and have a way to help plan for and reward user-generated content and artistic works that help shine light on their products. Many brands pay huge sums to films, musicians, and sports organizations for product placement. Getting a top brand into web3 and metaverse should be approached in a similar way. I would love to see more brands such as Tommy Hilfiger, Dior and Fenty Beauty lean in to web3, but work with a team that understands the space so they can enter the right way.”

What Happens Next?

As for the battle between Hermès and Rothschild, specifically, the latter can still appeal the decision. “What happened today was wrong. What happened today will continue to happen if we don’t continue to fight,” Rothschild wrote on Twitter Wednesday. “This is far from over.”

However, Scafidi argues that, “since the judge’s earlier rulings on which kind of trademark infringement standard to apply generally favored Rothchild, he would have a difficult time arguing that the jury verdict should be overturned.”

It’s also likely we’ll continue to see similar litigation pop up. Currently, all eyes are on Nike’s lawsuit against StockX: The resale platform known for selling sneakers like commodities launched a collection of NFT versions of Nike sneakers in early 2022 without the brand’s approval or involvement; Nike argues that StockX “almost exclusively used Nike’s marks to launch its Vault NFTs because it knew that doing so would garner attention, drive sales and confuse consumers into believing that Nike collaborated with StockX on the Vault NFTs,” per the filing.

“Trademarks are perhaps the most valuable assets of a fashion house — designers come and go, boutiques open and close — but, with apologies to De Beers, a trademark is forever,” says Scafidi. “At the same time, trademarks can become powerful symbols, compelling to both artists and con artists, from counterfeiters to techies minting NFTs. As long as brands have to defend their trademarks against others who want to exploit them, we will see similar cases arise.”

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Today’s column will look at whether these investors and victims could get some tax relief due to their losses.

The basic rule is that cryptocurrencies sold at a loss are treated as capital losses. This generally means that capital losses can offset capital gains realized in the same year and up to $3,000 of ordinary income. For noncorporate taxpayers, they cannot carry back the loss to offset prior capital gains and receive a tax refund. But the losses can be carried forward indefinitely under current law.

Abandonment and Worthlessness. A common problem for crypto holders is that when a coin crashes, its value can be minuscule to the point where it becomes unsellable. It is common for cryptocurrencies to be valued at fractions of pennies, and finding a buyer in the open market could be difficult. So taxpayers may be tempted to take a loss by declaring their cryptocurrencies worthless or abandoning them.

Unfortunately, the Internal Revenue Service’s Office of Chief Counsel recently released a memorandum stating that taxpayers cannot take a deduction on worthless or abandoned cryptocurrencies.

The memo stated that a cryptocurrency is not worthless so long it had liquidating value and continues to be traded on at least one exchange, which makes it possible that the value may increase in the future.

Interestingly, it also stated that the taxpayer cannot take a worthlessness security deduction under Section 165(g) of the Internal Revenue Code because it believes cryptocurrencies are not securities. Section 165(g)(2) defines a security as a share of stock in a corporation; a right to subscribe for, or to receive, a share of stock in a corporation; or bond, debenture, note, or certificate, or other evidence of indebtedness issued by a corporation or government.

As for abandonment, the Service’s opinion is that a taxpayer has to take affirmative steps to show abandonment of the property in order to claim the deduction. If the taxpayer exerts dominion and control of the cryptocurrency and has the ability to sell, exchange, or otherwise dispose of it, then it is not considered abandoned.

Finally, even if there is a worthlessness or abandonment loss, such losses are considered miscellaneous itemized deductions. The Tax Cuts and Jobs Act repealed miscellaneous itemized deductions from 2018 to 2025.

In light of the above, taxpayers wanting to claim a loss will have to take steps to sell the property, even if it is for literally pennies. It should not be hard to find a buyer for that price.

Crypto assets held in bankruptcy estate. If a crypto business has filed bankruptcy, its assets will be held in the bankruptcy estate until the court decides on how creditors will be paid. It appears that customers will be treated as general unsecured creditors which means they will be the last to be paid from the remainder of the estate, which will likely be pennies on the dollar. Generally, the loss deduction cannot be claimed until the determination has been made.

The problem for taxpayers in this situation is that they have limited planning options since they are not in control of the bankruptcy proceedings. They may opt to sell their claims to a third party if possible.

Theft loss. Claiming a theft loss deduction is an attractive option because under certain conditions, it can offset ordinary income and excess losses can be carried forward indefinitely as a net operating loss.

Sadly for some, claiming the theft loss is their only hope for avoiding a tax bill on top of a huge economic loss. Some people have taken out money from their tax-advantaged retirement accounts to purchase cryptocurrencies as investments. They will have to pay ordinary income taxes on the withdrawal and if capital losses are claimed on the disposal of the cryptocurrency, it can only offset $3,000 of the ordinary income.

To claim the theft loss, the taxpayer must be able to show that there was a taking of money or property with the specific intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and must have been done with criminal intent. Also, there has to be no reasonable expectation of recovery from a third party or insurance.

A drop in value of an asset is not enough to establish theft. Some of the more infamous crypto promoters have denied acting fraudulently, so it will take other evidence to show the requisite criminal intent.

Also, theft of personal-use property is not deductible from 2018 until 2025 unless the loss is attributable to a federally declared disaster.

Lastly, if the transaction was done through a brokerage or exchange, then the theft loss deduction will be denied unless the perpetrator used it as a conduit.

Despite the limitations, the good news is that the IRS seems to recognize that crypto thefts are not necessarily losses of personal-use property. In the above memo disallowing the worthlessness and abandonment loss, a footnote stated that casualty and theft losses are subject to special rules, citing Revenue Ruling 2009-9. That ruling stated that if a taxpayer entered into a transaction for profit, the theft loss is not considered a personal-use property loss and is not subject to the limitations described above.

Investors who lost money on cryptocurrency have some ways to reduce their tax bill but it will depend on their own facts and circumstances.

For those living in Southern California, I will be giving a presentation to the Pasadena Bar Association’s Tax Section on this subject in more detail on February 17th. More details can be found here, and CLE credit will be provided to those who attend.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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There are some clear differences though — NFT aficionados have a much deeper hatred of the Ctrl + C and Ctrl + V functions than crypto snobs do. Thankfully, that obsession with novelty and protection of that individuation has led to much more interesting legal grounds.

In June 2022, Yuga Labs Inc., the parent company of the Bored Ape Yacht Club non-fungible token collection, filed a federal lawsuit against artist Ryder Ripps…Ripps created his own NFT project around May 2022, which he called RR/BAYC, using online digital images from the BAYC NFT collection by generating new NFTs using URLs embedded in Bored Ape Yacht Club smart contracts.

Look, I know that reading NFT-related stuff can immediately make some people’s eyes glaze over. I’m some people too. Trust me, it gets interesting.

Yuga claims that Ripps and co-founder Jeremy Cahen used some of the same digital art images as the BAYC collection, and relied on Yuga’s trademarks for promotion in an alleged scheme to mislead consumers, harass Yuga, and enrich themselves.

Yuga’s complaint asserted causes of action sounding in false designation of origin, false advertising, cybersquatting, trademark infringement, unfair competition, unjust enrichment, conversion and tortious interference against RR/BAYC founders. Notably, the complaint doesn’t mention copyright infringement.

There it is! If you were hearing about this story at the watercooler or company-compelled Zoom socializing effort, you’d expect copyright infringement to be at the top of the list, no? You learn something everyday. This case spins on if RC/BAYC has any merit-bearing defenses rooted in artistic value or free speech. The US District Court for Central District of California held a resounding “Nah”:

A notable development came from the court’s decision on the defendants’ motion to dismiss Yuga’s suit, where they argued that RR/BAYC was protected free speech under the test of Rogers v. Grimaldi, as well as that the project is entitled to nominative fair use protection.

In deciding the motion to dismiss, the US District Court for Central District of California held that the defendants failed to meet the threshold showing under Rogers because the Ninth Circuit requires the “artistic expression” be at issue and the allegedly infringing use must be part of the expressive work.

The defendants argued that they meet the artistic relevance element under Rogers because their activity, taken together—website, NFTs offered for sale, social commentary the NFTs entail—should be viewed as an expressive artistic work.

The court disagreed, observing that the defendants’ NFT sale was the only conduct at issue and that the conduct did not constitute an expressive artistic work meriting First Amendment protection. In fact, the court found that RR/BAYC does not express an idea or point of view and only uses an exact copy of Yuga’s BAYC marks without any expressive content.

This is what happens when you copy other folks’ homework, people! Imagine spite copying a competitor’s work and then getting your ass handed to you in court about it later. And while this does not constitute a final say on the matter, this ruling should strike some fear into the hearts of people looking to copy NFTs for a quick buck and hide behind the aegis of fair use.

The Yuga Labs and Hermes decisions are important because many creators are often quick to duplicate successful projects without considering the potential legal ramifications. In light of decisions in Rothschild, and now Yuga Labs, NFT copycats are on notice that their First Amendment defenses may not succeed at the motion to dismiss stage and that they cannot easily escape litigation at an early stage.

The holding in Yuga Labs may act to dissuade copycats from stealing intellectual property for use in other NFTs for monetary gain. The Yuga Labs court also held that the defendants were not entitled to the nominative fair use defense…An NFT copycat therefore may have difficulty being protected by the nominative fair use doctrine unless they are selling the works on behalf of or in conjunction with the original project—i.e., the trademark owners—rarely ever the case in the NFT space.

Bored Ape or not, it is hard to be in the NFT space and not be excited about how this case — and ones like it — will turn out.

Bored Apes, Hermès Suits Foreshadow What Is Coming in NFT Claims [Bloomberg Law]

Chris Williams became a social media manager and assistant editor for Above the Law in June 2021. Prior to joining the staff, he moonlighted as a minor Memelord™ in the Facebook group Law School Memes for Edgy T14s. He endured Missouri long enough to graduate from Washington University in St. Louis School of Law. He is a former boatbuilder who cannot swim, a published author on critical race theory, philosophy, and humor, and has a love for cycling that occasionally annoys his peers. You can reach him by email at cwilliams@abovethelaw.com and by tweet at @WritesForRent.

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In 1966, while the established crowd thought rock music was a passing fad — mere dance music for teenagers — the Monkees went on to sell more than 75 million records worldwide. And here we are almost 60 years later with the “smart money” laughing at a new set of monkeys, non-fungible tokens (NFTs) known as the Bored Apes and their Yacht Club (#BAYC). To most lawyers, bankers, and accountants, and other smart folks, NFTs are just another passing fad. Silly monkeys!

Columnists at Dealbreaker's sister site, Above the Law, are a case in point. Joe Patrice, recently wrote: “It’s not that NFTs are dumb, they are incredibly dumb.” Olga V. Mack, while not engaging in such ridicule, tends to focus on NFTs merely as digital art. The reality is that NFTs are the new digital contract (#legaltech). Routine Process Automation (RPA) and its ability to automate the drafting of paper contracts is of course still interesting because most lawyers still haven’t learned to apply it to their practice, but that doesn’t mean RPA tools like ContractExpress are still cutting edge. Cutting edge is a technology that completely eliminates the need for the paper contract. NFTs do just that. They embed legal relationships and legal terms into code and automate the entire life cycle of the associated transactions. Let’s consider some use cases.

First of all, the silly monkey pictures that appear on the tokens associated with the Bored Ape Yacht Club are actually no different than the cover of a book. Open up the book, look at the underlying token, and you will find that the holder of the NFT has purchased membership rights to a club that includes access to physical venues and events as well as future distributions automatically received in digital wallets in which the NFT is held. The rules and processes for the transfer of the asset and the benefits (the club membership, distributions, etc.) are immutable, transparent, and free of transaction costs (#frictionless).

Since we are talking about music here as well, let’s talk about concert tickets. Neonox.io offers proprietors of events a blockchain-based platform on which to issue event tickets as NFTs. The NFTs offer a transparent and guaranteed method of transferability, enable the event owner to participate in resale proceeds, eliminate transaction fees, ensure authenticity, remain connected with the event attendee, and leave the event attendee with digital memorabilia following the event. The event ticket NFTs eliminate the question of authenticity and the middle layers controlled today by Ticketmaster, Stubhub, and others. Sure the NFTs, like paper concert tickets, will display some relevant artistic design. Imagine if someone thought a paper ticket to a Rolling Stones concert was just a silly picture of a funny looking man with a big fat tongue. Worthless before the concert? Worthless after the concert?

Balaji Srinivasan, a Stanford University technology professor, and author the book, “Network State,” talks about the concept of “soul-based NFTs” a token that is permanently associated with an individual with a specific purpose of non-transferability, say for example, your passport. Consider the legal rights controlled through today’s passport system of paper books and inkpad-based stamps. Say you need a record of what date you entered a country and what date you left, for tax residency purposes or visa authorization purposes among other reasons, and you are still flipping pages trying to decipher faded date stamps. An NFT-based passport paired with a biometric marker (fingerprint or iris scan) provides a mechanism that ensures authenticity, traceability, immutable records, and eliminates the friction associated with today’s paper book and inkpad stamp records. Joe Patrice, it is this antiquated paper-based system that is incredibly dumb.

I remember a late-stage law firm partner in the 1990s when I was a summer associate telling me how ridiculous email was — how unreliable and silly it was as he fed his document into a fax machine. I am pretty sure he found himself barely treading water but the time we got to 2000. Are you going to make it to 2030?

Sanjay Kamlani is the founder and CEO of Maker5, a law firm innovation advisory and software development business with a legal industry Venture Studio. Sanjay serves on the Duke University Innovation & Entrepreneurship Board of Advisors and is an active member of Duke Capital Partners. You can reach Sanjay at SK@Maker5.com and follow him on Twitter @SanjayKamlani.

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But now, The Stanford Daily reports that SBF’s SLS parents are MIA from the upcoming schedule.

For Barbara Fried, this isn’t necessarily surprising. Fried has already taken emeritus status and doesn’t have to endure the grind of constant teaching. She informed the Stanford Daily that her decision to forego teaching this session was “long-planned” and that she hopes to teach again in the future.

That said, she might not have been able to teach even if she’d wanted to. Joseph Bankman had a tax policy course this winter, but that’s since been canceled. Whether this is the decision of the school or the professor isn’t clear, but shouldn’t come as a shock either way. With his son facing serious allegations that his multibillion-dollar empire always rested on shaky foundations, it’s hard to see how the professor could commit fully to serving the students.

Add in that the parents owned a $16.4 million property purchased for them by FTX and let’s just say “how do you report a multimillion-dollar vacation home bought with company funds?” wasn’t going to make it onto the final.

Sam Bankman-Fried’s parents will not be teaching at Stanford Law School next year [Stanford Daily]
Sam Bankman-Fried’s parents no longer on the Stanford Law School roster [Cointelegraph]

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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So, if you’d like to hear what the Senators charged with keeping an eye on farming and a guy who’d like to be in charge of the blockchain space but isn’t think, tune in to C-SPAN 645 or whatever at 10 tomorrow. Alternatively, you can just hear it from the horse’s mouth at 5 p.m. today.

Andrew Ross Sorkin, the founder of DealBook, will interview Mr. Bankman-Fried on Nov. 30 at 5 p.m. Eastern at the DealBook Summit live event. The interview is available for anyone to watch online live. No questions will be off limits, and topics may include the collapse of the company, allegations of fraud and mismanagement and how Mr. Bankman-Fried intends to pay back customers, investors and creditors.

Which is great news, because BlockFi’s bankruptcy proceedings will go a lot smoother once it knows where it’s $1 billion has gone.

BlockFi loaned $671 million to Alameda and had an additional $355 million in digital assets that are currently frozen on the FTX platform, Sussberg said.

Exposure to both firms prompted client withdrawals, but it was FTX’s plan to acquire BlockFi that ultimately led it into bankruptcy proceedings….

Speaking of Alameda, co-founder Tara Mac Aulay probably doesn’t need to watch either spectacle, as she—and a number of her former colleagues—have a pretty good idea of what happened.

Mr. Bankman-Fried placed huge bets on crypto assets but paid little heed to the risk of those bets, brushing off the staffers’ concerns, according to people familiar with the matter. The firm commingled trading capital with operating cash and had poor record-keeping that left its profits and losses unclear, they said.

“He didn’t want to feel constrained,” said Naia Bouscal, a former software engineer at Alameda who left with Ms. Mac Aulay and the others. “But as a result we ended up not really knowing how much money we even had.”

Watch a Live Interview With Sam Bankman-Fried [DealBook]
FTX collapse to be focus of Senate hearing Thursday — here’s what to watch for [MW]
BlockFi lawyer tells bankruptcy court that the priority is to ‘maximize client recoveries’ [CNBC]
Early Alameda Staffers Quit After Battling Sam Bankman-Fried Over Risk, Compliance Concerns [WSJ]

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Although cowrie shells didn’t have any utility in the way that flint and steel would have been considered to have utility during much of the time period when each were in use, cowrie shells do have a few interesting attributes. They are durable. They are small and portable. Even today, it would be difficult to construct a passable fake cowrie shell. Plenty of people throughout history have passed one metal off as another — not a huge concern when trading in easily identifiable shells. A 19th century king of Dahomey said that he preferred payment in cowrie shells to payment in gold.

Today, you can buy cowrie shells in bulk for less than ten cents apiece.

What happened? Cowrie shells only had value as long as enough people believed they had value. Too many people stopped believing.

Pretty much all currency works this way. There is nothing that makes an artfully printed slip of green paper or a string of numbers on the screen of your phone inherently worth more than a cowrie shell. Yet, because we all believe in the value of U.S. dollars, they function pretty well as a medium of exchange.

Cryptocurrency, its name notwithstanding, has never really functioned well as a medium of exchange. Even though cryptocurrency is portable and doesn’t wear out over time, its wild value fluctuations have never made it of much use to buy things with. Few merchants accept crypto.

Plus, cryptocurrency seems pretty easy to steal. Just a few days ago, the FBI seized $3.36 billion in Bitcoin that had been stolen from the Silk Road marketplace a decade ago. In a separate incident, $3.6 billion in stolen cryptocurrency was linked to the 2016 hack of Bitfinex. At least to steal cowrie shells the thief would have to be in the same geographic location as the victim.

Despite the disadvantages that have plagued cryptocurrency since its inception, many of the well-heeled have poured money into it. As of this writing, a single Bitcoin is worth just shy of $17,000 — still obviously quite a lot of value. Yet, Bitcoin was worth almost three times as much at the beginning of this year.

The latest blow to the legitimacy of Bitcoin and other cryptocurrencies is the collapse of cryptocurrency exchange FTX. On November 11, the company announced that it had filed for Chapter 11 bankruptcy. The 30-year-old founder and CEO of FTX, Sam Bankman-Fried, started the week with a $16 billion fortune, and ended the week with nothing.

Investigations are currently underway concerning as much as $473 million in crypto assets which may have been stolen from FTX. With investors already jittery in the wake of falling cryptocurrency prices, FTX’s customers started to flee at the first whiff of potentially compromised accounts. It was the cryptocurrency equivalent of a bank run. A plan materialized for FTX to bail itself out by selling to the rival cryptocurrency exchange Binance. The lawyers couldn’t get the paperwork finished fast enough before the deal fell through.

Not surprisingly, the price of Bitcoin and other types of digital assets fell on news of the FTX implosion. The fallout seems likely to amount to more than a temporary price drop, however.

While cryptocurrency thefts are nothing new, the FTX collapse is unique. FTX was a pretty big deal. Until last week, FTX had naming rights to the Miami Heat’s arena. Faith is what gives cryptocurrency its value, and a lot more people are going to be losing their religion after such a rapid, high-profile implosion.

Cowrie shells lasted for centuries as a currency. I’m not sure that in modernity we have the ability to sustain belief quite so long though.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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“It’s a Ponzi scheme. It has no real function,” he says. “But there are moments in time when investing in Ponzi schemes is perfectly good. When they’re inflating, they’re very profitable to own….”

“About every 18 to 24 months, one industry freaks out and you get to buy one industry cheap,” Kupperman says. “That’s the story of my life. I’m patient—I wait until they completely lose their minds and then buy it.”

Meet The Investor Willing To Put His Money Into Ponzi Schemes. His Fund Is Up 593% [Forbes]

Like some of its other promises, notably that it would be unshakably pegged to the U.S. dollar—hence the misnomer stablecoin—Tether hasn’t quite been able to live up to its audit pledge. This is not for lack of accountants: Last year, it hired MHA MacIntyre Hudson’s Cayman Islands subsidiary to start offering quarterly attestations. These are not exactly audits, per se, but then again British regulators are looking into whether MHA can properly be called an auditor, precisely.

And, of course, Tether’s been pretty busy with some regulatory matters of its own: It’s been in federal crosshairs for only slightly less time that it’s been promising that audit, due to questions about how, exactly, it (usually) maintains that dollar peg, leading to last year’s $41 million CFTC fine—on top of the $18.5 million deal with New York State. Then, of course, it had to deal with the whole not-being-as-stable-as-promised, when $1 became $0.95 for a bit there. Now, however, maybe it’s time for that audit. Maybe.

BDO Italia took over Tether’s quarterly attestations in July.

Yes: Italia as in Italy. As is common for Hong Kong-based companies (allegedly) dealing in American dollars.

Tether said it is working toward releasing monthly attestation reports, but didn’t provide a timeline…. Tether declined to specify whether it will use BDO Italia for its long-promised full audit, which the company said is a priority.

Five years and counting for something most companies manage to do annually? Sure sounds like a priority.

Biggest Stablecoin Issuer, Tether, Switches Accounting Firm to BDO Italia [WSJ]

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Ever wanted to rule an empire, build on it and make money while doing it? Now is the time to claim your spot by minting one of the countries on the world map or trading on the secondary market. Once the map is full, you’ll be able to bolster your position on the leaderboard by trading land on the map, building out your cities military and avatars. Soon you’ll also be able to parcel your land for other users to buy.

There has already been immense growth in digital real estate over the last year. A single plot in Decentraland recently sold for $2,000,000. The smallest slivers of land available in Sandbox started at $12,000. Entrepreneurs like Andrew Kiguel of Tokens.com understand that there is not an infinite amount of prime space available in the Metaverse. Demand is skyrocketing for concepts like Crypto Conquerors which have the ability to turn a savvy collector into a multi-millionaire if they manage to strategically build out and monetize their parcels.

The game takes place in a Scifi Dystopia where Earth has been destroyed by climate change and alien species have visited, unintentionally making things even worse. Similar to the well-known strategy, board game Risk, Crypto Conquerors is based on a Global Map of the world. Like other play-to-earn games, each piece of land is an individual NFT that can be purchased and then built upon with future releases. Unlike other 1:1 scale earth-based projects like Earth 2 and Upland, Crypto Conquerors has a strong focus on story, collectibility and aesthetics. Each NFT is carefully crafted by a professional designer/artist using a GAN (Generative Adversarial Network) AI. Owners of specific avatars and countries will even be able to unlock unique bios, storylines and bonuses. Once established there will also be opportunities to acquire assets by not just buying them but by playing for them. This way anyone has a chance to grow regardless of their current real-world wealth.

There are only so many countries on Earth, due to the very limited space, Crypto Conquerors is expected to see huge growth over the next 12 months. As a result, early players will have greater stakes and capabilities in the future.

Imagine a world where conquerors in the game can set governance and strategy for their land while subplot owners can focus on developing the land. The leader of a handful of European countries can enable another player to build hotels and virtual cafes in Paris and a casino at Monte Carlo. The owner of Brazil can build out their own private beach club in Rio De Janeiro. The possibilities are endless and the opportunities to build alliances and rebuild Earth.

The idea of Crypto Conquerors was initially hatched over 10 years ago by entrepreneurs Marc Levinson and Richart Ruddie. Given new developments in Crypto and excitement around Metaverse, now was the right time to build the game and launch. They’ve previously worked together on several tech projects in Silicon Valley. They’re very passionate about emerging markets. Most notably, they founded the 3-D printing startup Protos Eyewear. Now the co-founders are focused on building a product and community that will greatly reward their players with art, experiences and earning opportunities. The very limited run of countries are currently minted on the Ethereum Blockchain and are listed on Opensea. The map and leaderboard are available at app.cryptoconquerors.com. More assets will be available in the coming months and the game will soon be available on iOS and Android as well.

Start conquering today at cryptoconquerors.com

Crypto Conquerors: It’s time to take over the world!

Blockchain creates trust between two parties who don’t know or trust each other by providing proof of ownership for digital assets in the form of cryptographic keys. This tamper-proof system makes it ideal for managing sensitive data.

E-government is the use of electronic communications to provide public services to citizens and businesses. It’s a convenient way for government agencies to offer services online, and it can make it easier for citizens to access government services.

Blockchain is a technology that’s transforming the world and revolutionizing how people exchange money, goods, and ideas. There are also many ways it can revolutionize government.

Blockchain creates trust between two parties who don’t know or trust each other by providing proof of ownership for digital assets in the form of cryptographic keys. This tamper-proof system makes it ideal for managing sensitive data.

E-government is the use of electronic communications to provide public services to citizens and businesses. It’s a convenient way for government agencies to offer services online, and it can make it easier for citizens to access government services.

However, e-government systems are often complex, resulting in slow and cumbersome services. They’re also vulnerable to hacking and data breaches. Blockchain can help e-government systems address these issues, making them more efficient and secure.

Blockchain can make e-governments more efficient in a number of ways:

1. By Automating Processes

Smart contracts can automate e-government processes such as benefits claims and tax returns. Smart contracts are self-executing contracts that use blockchain technology to function. This means they can automatically verify and enforce the terms of the contract.

This could save government agencies a lot of time and money by removing the need to manually process claims or applications. It would also reduce the risk of human error.

2. By Improving Security

Blockchain can help to improve the security of e-government systems in a number of ways. It can make data more tamper-proof and help secure communications between government agencies and citizens.

Additionally, it can be used to create digital identities that can’t be forged. This would be especially useful for government services that require identity verification, such as passport applications or voting.

3. By Reducing Costs

Blockchain can also reduce the costs of e-government. For example, it could be used to create a single, tamper-proof database of all government records, eliminating the need for duplicate records, which would save time and money.

Blockchain could also streamline the process of issuing passports. Currently, each country has its own passport-issuing system, which is costly and inefficient. If every country used a blockchain-based system, however, it would be much cheaper and easier to issue passports.

4. By Increasing Transparency

Blockchain can also help increase e-government transparency. For example, it could be used to create a public register of all the government’s contracts, making it easier for citizens to hold their government accountable.

It could also track how government money is spent. This would assist in detecting and preventing corruption.

5. By Empowering Citizens

Blockchain can empower citizens by giving them more control over their personal data. For example, someone could use blockchain to create a digital identity, which would then be used to access government services.

They could also use blockchain to store and manage their personal data (e.g., health records and tax returns) and to create a secure online voting system.

6. By Improving Interactions Between Government Agencies

Blockchain can also improve interactions between government agencies. For example, if it is used to create a shared database of all government contracts, agencies would have a much easier time finding and managing contracts.

Using blockchain to create a shared government record database would make it easier for different agencies to access and share data.

7. By Creating A Single Source Of Truth

Blockchain can also help create a single source of truth for government data. If it is used to create a tamper-proof register of all government contracts, for example, it would be much harder for a corrupt government official to change or delete a contract that is stored on a blockchain.

8. By Enhancing Collaboration

Blockchain can also facilitate and enhance collaboration between government agencies. For example, creating a shared database of all government records would make it easier for agencies to access and share data.

Let’s say that a natural disaster strikes a city. The police, fire department, and hospital would all need to access the same data to coordinate their responses. If each agency is using its own separate database, however, it would be very difficult to share data quickly and accurately. However, if they are all using a blockchain-based system, it would be much easier to share data and coordinate their responses.

9. By Improving Cybersecurity

Blockchain can play a role in improving cybersecurity for e-government. It would be much harder for hackers to change or delete contracts thanks to the blockchain’s tamper-proof register of all government contracts.

It could also be used to create a digital identification system for government employees, making it much harder for hackers to impersonate them.

10. By Improving Access To Government Services

Blockchain can also help to improve access to government services. For example, it could be used to create digital identities that citizens could use to access government services.

Even if a citizen doesn’t have a physical ID, they would still be able to access government services thanks to their digital ID on a blockchain.

Conclusion

Blockchain has the potential to transform e-government in terms of efficiency, transparency, and security. It could also empower citizens and improve the interactions between government agencies. However, it is important to note that blockchain technology is still in the early stages, and there are many challenges to address before it can be widely adopted. Nonetheless, blockchain’s potential e-government applications are very exciting and worth exploring further.

Olga V. Mack is the CEO of Parley Pro, a next-generation contract management company that has pioneered online negotiation technology. Olga embraces legal innovation and had dedicated her career to improving and shaping the future of law. She is convinced that the legal profession will emerge even stronger, more resilient, and more inclusive than before by embracing technology. Olga is also an award-winning general counsel, operations professional, startup advisor, public speaker, adjunct professor, and entrepreneur. She founded the Women Serve on Boards movement that advocates for women to participate on corporate boards of Fortune 500 companies. She authored Get on Board: Earning Your Ticket to a Corporate Board Seat and Fundamentals of Smart Contract Security. You can follow Olga on Twitter @olgavmack.

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Meanwhile, last week, the EU struck a provisional deal on a groundbreaking set of crypto rules. Known as Markets in Crypto-Assets (MiCA), the landmark law is set to come into effect in 2023 and become the world’s first regulatory framework for digital assets.

[T]he EU’s watchdogs will closely monitor crypto for signs of market manipulation and insider trading to protect investors from Ponzi schemes and so-called “rug pulls”. Crypto providers will have to comply with strict requirements and will be held responsible for any market abuse.

…

On top of that, the European Parliament agreed on a separate set of rules on crypto traceability that imposes traditional finance-like reporting standards on crypto. The bill aims to ensure that all crypto transactions are traceable “from the first euro sent”.

Much like GDPR, I suspect that the EU’s legislating will impact our shores as well. Given that much of the crypto market banks on its untraceability as a major selling point, the coming regulations may put a damper not only on the economic value of the coins, but the philosophic grounding for their use. Such ground was already shaky, anyway.

This Landmark Law Aims To End Crypto As We Know It In 2023- As Price Of Bitcoin, Ethereum, BNB, XRP, Solana, Cardano, And Dogecoin Rebound [Forbes]

Chris Williams became a social media manager and assistant editor for Above the Law in June 2021. Prior to joining the staff, he moonlighted as a minor Memelord™ in the Facebook group Law School Memes for Edgy T14s. He endured Missouri long enough to graduate from Washington University in St. Louis School of Law. He is a former boatbuilder who cannot swim, a published author on critical race theory, philosophy, and humor, and has a love for cycling that occasionally annoys his peers. You can reach him by email at cwilliams@abovethelaw.com and by tweet at @WritesForRent.

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So why are lawyers still flocking to the blockchain banner?

To be clear, there’s nothing wrong with blockchain technology. It’s actually pretty useful for its intended purposes. Those purposes just don’t include Galt’s Gulch Bucks or Ennui Caterpillars or whatever they’re hawking to gullible investors now.

But the folks driving the rapidly bursting crypto bubble are stockpiling lawyers in a desperate bid for credibility.

Like Munger Tolles & Olson’s Don Verrilli. Digital asset manager Grayscale just tapped the former solicitor general to join its legal team — along with Davis Polk — as it tries to convince the SEC to let it convert its Bitcoin Trust into an Exchange Traded Fund.

Speaking of Davis Polk, DPW-trained Senator Kirsten Gillibrand just announced a new bill laying out a regulatory framework for cryptocurrency driven by industry lobbyists hoping for government-approved legitimacy.

While these may be the highest-profile crypto shilling announcements in recent days, they’re hardly alone. As Benjamin Pimentel details in this in-depth Protocol piece, there’s a full-on revolving door at work as crypto stockpiles insider D.C. lawyers.

The Tech Transparency Project identified more than 200 former government officials who occupied “key positions in the White House, Congress, federal regulatory agencies, and national political campaigns” and have moved on to roles in the crypto industry.

These former officials range from the former acting head of the Office of Comptroller of the Currency Brian Brooks becoming CEO of a crypto outfit to former DHS Secretary Kirstjen Nielsen becoming a “strategic advisor” to a “decentralized compliance solution for the crypto space.” Ah, it seems like only yesterday Nielsen was overseeing government-sanctioned child kidnapping.

Government officials and staff leaving to take private-sector roles — called the “revolving door” — is common in major industries such as energy and finance. But the trend has become even more pronounced in crypto, said Jeff Hauser, director of the Revolving Door Project.

“I’ve never seen an industry go from no revolvers on payroll to this quantity of revolvers as quickly as crypto,” he told Protocol. “Crypto has invested in hiring swamp creatures more rapidly than any other industry in history.”

Now some people might say that a situation where a small number of investors with massive holdings aggressively market an entirely made up asset to new investors in order to offload their portfolios at a profit before the market collapses under the weight of its own hype is just a souped-up Ponzi scheme, but….

I must have lost my train of thought there. Anyway, moving on, if Senator Gillibrand really wanted to do something to keep cryptocurrency honest and add an air of authenticity to these insiders turned crypto-reps, maybe propose mandating that all alternative currencies must pay their employees and vendors in crypto.

Because while I’m sure a lot of these people have crypto holdings kicking around as part of their compensation packages, I don’t think many of these lawyers are planning to start billing out in Dogecoin anytime soon.

Which is kind of telling.

Crypto’s aggressive bid for more DC firepower [Protocol]

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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Fidelity said it's the first in the industry to allow such investments without having to go through a separate brokerage window, and it's already signed up one employer that will add the offering to its plan later this year…. "We have been developing this, anticipating some of the workforce trends that we see coming," [Fido head of workplace retirement offerings and platforms Dave] Gray said. "Our clients expect us to be ahead and developing innovative solutions."

Yea, well, Dave: The Labor Department has expectations, as well, and those included being listened to by those it regulates.

“We have grave concerns with what Fidelity has done,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration, said in an interview with The Wall Street Journal…. Mr. Khawar said he received a heads up from Fidelity the day before the company disclosed its plan to give the 23,000 companies that use its 401(k) services the option to put bitcoin on the menu….

Mr. Khawar said he and his colleagues have scheduled a conversation with Fidelity to discuss some of the concerns that were highlighted in the March 10 guidance. Among the department’s specific concerns was the 20% figure, according to a senior department official.

Labor Department Criticizes Fidelity’s Plan to Put Bitcoin on 401(k) Menu [WSJ]
Fidelity will start offering bitcoin as an investment option in 401(k) accounts [NPR]
Fidelity Boosts Staff Again to Keep BlackRock, Vanguard at Bay [Bloomberg]

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