The Back of the Envelope (a blog)

Not Legal Advice, 10/13/19 – Ethereum has a good week; Facebook has a bad week; Bitfinex has a worse week; Telegram has a terrible, horrible, no good, very bad week

Welcome back to Not Legal Advice, my weekly crypto and crypto-adjacent technology law newsletter-blog-series-thing! Subscribe via e-mail, WordPress, or RSS at the bottom of my homepage.

This week:

  1. SEC, CFTC and FinCEN remind everyone that money laundering is bad.
  2. Ethereum has a good week.
  3. Facebook has a bad week (Libra on the ropes, with withdrawals by Mastercard, Visa, eBay and Stripe adding to last week’s departure of PayPal).
  4. Bitfinex has a worse week (getting sued for $1.2 Trillion (with a T)).
  5. Telegram has a terrible, horrible, no good, very bad week (gets sued by the SEC in federal court).

1) SEC, CFTC and FinCEN remind everyone that money laundering with cryptocurrency is bad

Read their joint statement here.

I doubt that Jay Clayton, Heath Tarbert and Kenneth Blanco (head honchos of the SEC, CFTC, and FinCEN, respectively) would issue a statement just because they were hanging out drinking beer one afternoon and said, “hey, you know what would be cool? An announcement. That’s nearly as fun as interagency softball.”

What seems more likely is that this statement is framing a narrative that will be relevant for future enforcement. Keep your eyes open for what comes next.

2) Ethereum has a good week

The CFTC’s comments that Ethereum is to be treated as a commodity seemingly confirm that, despite robust securities enforcement by the SEC against Telegram, Eos, Sia, Paragon, and dozens of other projects, Ethereum is getting a free pass.

Read my write up where I argue that if Ethereum were launched today, it would be a security.

3) Facebook has a bad week (Libra on the ropes, with withdrawals by Mastercard, Visa, eBay and Stripe adding to last week’s departure of PayPal)

This was inevitable. As I wrote back when Libra broke cover in July:

If Facebook raised an army, this would be only slightly more hostile to the people of the United States than what is currently proposed. Big Tech doesn’t share American values and doesn’t care about American users. It doesn’t care about the unbanked. It cares about money. It cares about building defensive moats, i.e., monopolies. And Libra – the tech industry monopolization of global finance – is a phenomenal way to get both free money (the token represents, after all, an interest-free loan from Libra’s users) and a very deep, wide moat, not just for Facebook, but also for every other major category leader/tech monopolist on the planet.

After tumultuous Congressional hearings, regulatory pressure from the Europeans, the straw that appears to have broken the camel’s back was a letter from two U.S. Senators, Sherrod Brown (D-OH) and Brian Schatz (D-HI), to a number of payments infrastructure companies advising them that teaming up with Facebook would not be in their interests.

Sen. Brown of course has been a vocal opponent of Facebook’s forays into crypto from the start:

Here’s an excerpt from the 1.25-page letter the two senators sent to the CEOs of Mastercard, Visa, and Stripe. Salient passages include:

Facebook is currently struggling to tackle massive issues, such as privacy violations, disinformation, election interference, discrimination and fraud, and it has not demonstrated an ability to bring those failures under control. You should be concerned that any weaknesses in Facebook’s risk management systems will become weaknesses in your systems…

Your companies should be extremely cautious about moving ahead with a project that will foreseeably fuel the growth in global criminal activity.

Yikes. In other words, “Facebook is sailing into some rough seas. You sure you want to get into bed with that?”

The letter then concluded:

Facebook appears to want the benefits of engaging in financial activities without the responsibility of being regulated as a financial services company. Facebook is attempting to accomplish that objective by shifting the risks and the need to design new compliance regimes on to regulated members of the Libra Association like your companies. If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related payment activities, but on all payment activities.

This is government-ese for “check yourself before you wreck yourself.”

Visa, Mastercard, and Stripe promptly withdrew from the consortium on the 10th of October, as did eBay, joining PayPal, which withdrew the previous week.

Although as your correspondent put it on October 4th:

4) Bitfinex has a worse week (gets sued for more than $1 Trillion).

Bitfinex has been sued for $1.2 trillion (that’s “trillion” with a T) dollars in a lawsuit that alleges the company engineered the multibillion dollar 2017-18 cryptocurrency bubble and crash by printing fake Tether dollars. Read my write up.

5) Telegram has a terrible, horrible, no good, very bad week (gets sued by the SEC in federal court).

(With apologies to Judith Viorst.)

Telegram is a popular encrypted messaging app, not just among crypto-nerds, but among people everywhere. It is used by well north of 300 million DAUs (daily active users) who

  • are looking to encrypt their communications and think they’re too cool for WhatsApp, but
  • don’t know that they should be using Signal or Keybase.

In late 2017/early 2018, as Telegram blew past the 200 million DAU mark, the company decided to raise money in an ICO, or initial coin offering. The offering raised an astounding $1.7 billion (with a B) for a pre-product, pre-revenue blockchain system known as the “Telegram Open Network,” to have the ticker symbol “TON,” with tokens known as “Grams.”

Silicon Valley’s most storied investment firms practically fell over themselves to participate.

LOL, rekt. From the Financial Times

The hiccup: in the TON investment documents, Telegram promised to launch the network by 31 October 2019 or, failing which, Telegram investors would have the option to recoup their investment, less expenses.

Telegram was, understandably, in a hurry to get the network live and the tokens issued before the end of this month (as it is, as of this writing, the 12th of October). Unfortunately for Telegram, on October 11th, the Securities and Exchange Commission filed an emergency action and obtained a temporary restraining order against Telegram preventing them from doing so, all but assuring that the company will fail to meet the deadline – and ensuring protracted litigation will interfere with the launch of the network for some time to come.

The structure of the offering was that (a) Telegram would pre-sell $1.7 billion of Grams to investors under Regulation D and S exemptions to registration (b) Telegram would retain $billions of dollars worth of Grams for itself and (c) after launching the network, those investors and Telegram itself would flood the U.S. markets with tokens.

The issue with this is that (a) apparently Telegram didn’t adhere to the strict requirements of Regulation D during the sale, (b) the SEC considered that not only the investment agreements to purchase Grams but also the Gram tokens themselves would constitute investment contracts, and (c) that Telegram was making efforts to sell, and planned to sell, these tokens direct into the U.S. markets through U.S. platforms e.g. Coinbase Pro et al.

And apparently Telegram then refused to accept service of a subpoena the SEC served on it overseas.

So the SEC sued Telegram and slapped it with a temporary restraining order ordering Telegram to appear in the New York federal district court on October 24th to explain itself.

Points to note? Despite what the SEC paints as a pretty open-and-shut case, Telegram’s counsel is Skadden, Arps, which is a little strange seeing as – to the extent Skadden advised on the original deal, as reported in the New York Times – one would think a firm as expensive as Skadden might have seen this coming or, at the very least, wouldn’t have advised Telegram to evade service of a subpoena. It’s of course impossible to know what was said behind closed doors, but now that I and others are starting to look at the Telegram sale more closely that’s one of the first questions that crossed my mind.

Equally, Skadden may be expected to mount a robust defense now that its client has been sued.

Furthermore, this paints the US as a thoroughly hostile environment for ICOs, despite the SEC’s repeated insistence on not enforcing against Ethereum in the past or the recent 60 basis point slap on the wrist given to the $4 billion Eos ICO. The overwhelming theme of the recent SEC enforcement, including Telegram, means that the best move for an ICO issuer not using the Regulation A+ issuance pathway trailblazed by Blockstack may be to avoid the United States entirely.

Obviously your mileage may vary and this column is called Not Legal Advice for a reason, but if there’s a takeaway point from this it’s to expect ICO activity in the U.S. to diminish going forward rather than increase.

This also calls into question the exchanges’ listing decisions to date, noting that the so-called Crypto Ratings Council classified both Eos and Grams as not being securities. Meaning that their ratings of anything that isn’t Bitcoin or Ethereum are, so far, 0-2.

And expect more enforcement.

And with that out of the way, time for your weekly Moment of Marmot:

Land shark

If Ethereum were launched today, it would be a security

We learn today that the CFTC Chairman has declared Ethereum to be a commodity.

I think this view, understanding the word “commodity” in the plain and ordinary meaning of the term rather than as something which is capable of being the subject of a futures contract, is not correct. An Ether token has less in common with a soybean than it does with a share.

And before you chime in with the comment “durrr a security can be a commodity too,” from a signaling standpoint, if the CFTC is making this statement in public, it likely means is that the CFTC and the SEC have finally and irreversibly concluded their discussions in private as to how primary regulatory responsibility for Ether is to be apportioned between them, a discussion which is rumored to have been going on behind closed doors for years.

The market has accordingly taken the statement to mean that the CFTC will be taking point on regulating markets for the product and that the SEC is out of the game. This is the final stake through the heart for those Bitcoiners who had hoped Ethereum would be deemed a security and thus wiped from existence on U.S. exchanges.

Although this has undoubtedly cheered the folks at DevCon, as it should, I would struggle to advise a client that launching an Eth clone tomorrow – let’s call it Dogethereum – would be an advisable course of action.

wow such contracts

Anything that I know of which has been created by a private company, by book-entry, and pre-sold to the public accompanied by offering documents, as an investable asset, has been, and should be treated as, an investment contract. Sales of these beasties should either be registered or subject to an exemption to the registration requirement. Numerous other products – Paragon, Airfox, Eos, Sia Veritaseum, and others – that are remarkably similar to Ethereum have been regulated and regarded as a security by the Securities and Exchange Commission. That’s both the initial offering and, in some cases, the resulting token (as in e.g. Paragon, where the SEC ordered Paragon to file a registration statement with respect to its tokens). Ripple Labs is being sued in a class action that claims it is selling securities. There are many other such cases.

Yet Ethereum is different.

There’s no magic, legally binding pixie dust here.  Regulators simply looked the other way. On several occasions. This may be because there was a different sheriff in town (Mary Jo White) when the Ethereum scheme first launched, or that the statute of limitations ran in August. Or because marmots from outer space secretly control the US government and decided to let this one scheme slide. Nobody knows. In any event, I am not sure why this scheme is different from all the others.

Legally speaking, I don’t think it is different. I think it’s just dumb luck. Simply because nobody from the government has endeavored to explain their regulatory forbearance doesn’t mean my position isn’t correct.

Ethereum is an experiment that cannot be safely replicated

To understand how

  • Ethereum isn’t, legally speaking, any different from any other two-bit ICO, and
  • how the “sufficiently decentralized,” or so-called “Hinman Test” (which has no basis in law) is not something to be relied upon,

We should ask ourselves one question:

“What would happen if we replayed the Ethereum ICO, exactly as it happened in 2014, today?”

Folks looking to sell Ethereum-like products today should not presume they are purely in commodity land. To do that would be a mistake and would run contrary to all we’ve seen from the SEC, in terms of both express guidance and what we can learn by implication from the regulatory treatment schemes that aren’t Ethereum have received.

Namely, that if you’re selling tokens for fun and profit without a no-action letter, you’re selling securities, and you should expect your activities to be within the SEC’s regulatory perimeter.

Revisiting Dogethereum, a hypothetical token sale that is in all material respects identical to Ethereum (hell, you could even fork the Ethereum codebase and offering documents, which are on GitHub, and try this out, although this would not be advisable), I am fairly sure that if you attempted to run that exercise tomorrow, with offering docs, marketing, etc., in the United States, you’d be selling an investment contract and the SEC would concur with this view.

I dare anyone to explain to me why such a scheme would not be an offering of investment contracts and what makes it different from Jay Clayton’s stance that “every ICO I’ve seen in a security.” 

I do not apologize for taking this view. I never will. Legal advisors have to be realistic when their clients ask them why it was OK for Ethereum to do something but not OK for the client to do it.

The reality is that selling unregistered investment contracts without registering or availing oneself of an exemption is against the law. If you want a lawyer who will tell you to “take a chance, we’ll try to make money and if it goes pear-shaped you can pay me to fix it,” good for you. You can hire someone else.

My answer is this: Ethereum’s different “because reasons,” not because of the law. The law is basically what the SEC has applied in its day-to-day enforcement activities since September 2018, and what is referred to in the settlements it concludes. Howey, the Securities Act of 1933, etc.

What crypto-bros like Coin Center would prefer the law to say on the subject of Ethereum is drawn from a throwaway line in a brief policy speech setting out the so-called “sufficiently decentralized,” or Hinman, Test upon which Ethereum supposedly relied. That “test” states, in brief:

[There are circumstances in relation to which] a digital asset transaction may no longer represent a security offering. If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.

This test should have been taken, at the time, with a pinch of salt.

First, what does “decentralization” even mean? Nobody agrees on the meaning of that term.

Second, and most significantly, it was made by Director Hinman in a personal capacity rather than on behalf of the Commission, so it never became official policy. It certainly wasn’t binding precedent.

Third, there appears to be no precedent provided whatsoever – either in that speech or since – for the proposition that something which starts its life as an investment contract can somehow lose that quality over time, any more than a share or a bond can somehow degrade with age. But that’s the tack Director Hinman took, which led him to conclude, in the same speech,

…putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether,

i.e. the ICO was a securities offering,

the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.

My question is this: how?

How does the SEC know for a fact that material information asymmetries receded, when the crowdsale itself was unsupervised (and most Ether thought to be held in very few hands)? How is Ethereum “decentralized” when most of its full nodes are run on AWS by one company and a full node can’t be run on consumer hardware? How is there not an issuer or promoter when there is a Swiss Stiftung literally named the “Ethereum Foundation” that organized the offering, is endowed with tens if not hundreds of millions of dollars of Ether generated in the offering, manages the meetups and web presences, holds all the IP and controls the GitHub repos, or large enterprises helmed by Ethereum founders that exercise outsize influence on the ecosystem? Don’t you think it might be possible, nay, even prudent, to get disclosures from people and companies like that?

The Hinman Test describes a hypothetical scenario where we can say with certainty that a cryptocurrency scheme has become natural, unmanipulated, and fair, where all market participants have the same information. It is unlikely this is the case with any cryptocurrency, including Ethereum.

Maybe folks figured this out as, in the 18-odd months since that test was first laid down, we’ve never seen the Hinman Test used again by the Commission in any context. The only time we’ve seen it is in that one speech where it explains that one decision. The idea of “true decentralization” does not exist in the Commission’s official guidance and the one time the concept of “decentralization” is mentioned, it is not defined. Although the idea that a security may be re-evaluated at a later date and found to have transmogrified into a non-security is in the guidance, this would not save Ethereum if we re-launched it from scratch tomorrow, and can be best understood as speaking to the commission’s thought process, and not as an expression of a rule of law.

I know of no legal precedent that supports the proposition that securities can transmogrify into non-securities, especially under circumstances where the security becomes more popular among the investing public and the purpose of the original unlawful scheme is fulfilled, and none is cited by the guidance.


The Hinman Test has not found its way into settlements with any coin issuers. It has never been raised successfully as a defense. The one company that publicly dared to raise it, Kik, was promptly sued shortly afterwards.

Screen Shot 2019-10-10 at 7.36.17 PM.png
Screen Shot 2019-10-11 at 9.59.31 AM.png

Apart from that one speech and that one decision, it appears that the “Hinman Test” doesn’t exist. Which means that if we were to re-run the Ethereum crowdsale from scratch today, Ethereum would be treated no differently than Paragon Coin.

Why is Ethereum the special case? Why did it escape scrutiny while Kik, and virtually every other coin offering the SEC has settled with or sued to date, has not? Maybe Ethereum got too big. Maybe the harm to investors and crypto businesses that would arise from deeming it an investment contract would have been too great. The only reasons I can divine that Ethereum is treated differently are that the scheme was enormous – hundreds of billions of dollars made and lost – and multiple major venture capital firms with a ton of exposure lobbied for this one unregistered, non-exempt coin offering to be treated in a particular way that sets it apart from every other unregistered, non-exempt coin offering ever conducted.

And they succeeded, because money talks. But you, startup entrepreneur, do not have that kind of money or access. So if you try the same thing, you are unlikely to succeed.

Concluding: as with the Eos settlement, this Ethereum revelation is not a green light to start selling tokens in the US with reckless abandon. It is an aberration, an outlier, a special case.

You can still get in trouble, and if you try to re-run the Ethereum presale line for line, even if you use the same marketing materials, make the same representations and use the same code, you probably will.

Be guided accordingly.


Leibowitz et al. v. iFinex et al.: Fear and Loathing on the Blockchain

This is a cross-post. An earlier draft of this post was first published as a guest post in The Block on Tuesday, 8 October 2019. 

Leibowitz et al. v. iFinex et al., case 1:19-cv-09236, U.S. District Court, S.D.N.Y. [PDF]


  • Whether facts are true or not isn’t necessarily relevant for purposes of an initial motion to dismiss in the new Bitfinex class action
  • The strategy here may be to require the defendants to deny the claims, to answer and provide discovery, using a political tactic Hunter S. Thompson describes in his classic Fear and Loathing on the Campaign Trail
  • Each of the factual allegations in the complaint will need to be denied and refuted if an expected motion to dismiss isn’t granted, and the standards will be different than in state or federal regulatory enforcement proceedings


There’s a passage in Hunter S. Thompson’s Fear & Loathing on the Campaign Trail where Thompson describes then-congressional candidate (and later U.S. President) Lyndon Johnson using a tactic Thompson referred to as “one of the oldest and most effective tricks in politics” to deep-six a competitor in a close race.

“The race was close and Johnson was getting worried,” Thompson writes, so Johnson “told his campaign manager to start a massive rumor campaign about his opponent’s life-long habit of enjoying carnal knowledge of his own barnyard sows.”

“‘Christ, we can’t get away calling him a pig-fucker,’ the campaign manager protested. ‘Nobody’s going to believe a thing like that.'”

“‘I know,’ Johnson replied. ‘But let’s make the sonofabitch deny it.'”

I was reminded of this passage when I read the filings in Leibowitz et al. v. iFinex Inc., et al., the new case against Bitfinex, Tether, and others filed by Roche Freedman LLP which alleges, among other things, that Bitfinex has engaged in massive market manipulation and was primarily responsible for the cryptocurrency bubble. This is not, mind you, because I think that the plaintiffs’ claims are (or are not) meritorious; one must be careful, at the early stages of any litigation, to not arrive at premature conclusions on the subject or the probable outcome based on one’s own biases, conjecture or rumor.

Rather, it strikes me that this tactic – make the sonofabitch deny it – is, for the purposes of cryptocurrency observers, traders, and others, the one relevant aspect of this litigation, at an early stage, which is actionable, by which I mean a data point around which one may make plans, measure risks, and direct one’s attention to future developments.

The claims made by the plaintiffs are spectacular. The plaintiffs allege unlawful market manipulation, principal-agent liability for market manipulation, aiding and abetting market manipulation, unlawful competition contrary to the Sherman Act, racketeering constituted by, among other things, operating an unlicensed money transmitting business, money laundering, and bank and wire fraud. Also named as co-defendants are Bitfinex senior executives and entities and persons implicated in the Department of Justice investigation into Crypto Capital Corp, an alleged international money laundering scheme which appears to have been truly immense in size.

Whether these claims are true or not is a matter for a New York jury to decide. What matters from our perspective, here and now, is (a) whether the claims are pleaded well enough to survive dismissal and (b) how disclosures made in this case will shed light on Bitfinex/Tether’s operations, and other investigations of those operations, as the discovery process progresses.

Now that the complaint has been filed, assuming it will be properly served on all defendants, the next step in this litigation is for Bitfinex et al. to either file an answer or immediately file a motion to dismiss. In particular, we should look for Bitfinex et al. to challenge these pleadings under FRCP Rule 12(b)(6) (as this case was filed in federal court), failure to state a claim upon which relief can be granted, as “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic v. Twombly, 550 U.S. 544 (2007). In other words, you gotta provide some factual specificity, particularly when fraud is alleged (FRCP Rule 9(b)).

Plaintiffs have set out extensive background information in order to jump the hurdle of Rule 12(b)(6)

It is highly likely that Bitfinex et al. will challenge these pleadings under Rule 12(b)(6). Perhaps anticipating this, the allegations set out in the (95-page) complaint are given together with an unusually thorough factual background. They tell the story of the entire 2017-18 cryptocurrency bubble and collapse through the lens of a keen-eyed detective who needs to get the court from zero to pro on all things cryptocurrency in a matter of pages.

This is done expertly. After setting out a high-level, attention-grabbing summary that explains that “Tether’s mass issuance of USDT created the largest bubble in human history” and that “[i]n a brash display of lawlessness, Tether and Bitfinex continue to defraud the market,” the complaint details Bitfinex’s operations and structure, Tether, and the history of Tether’s representations that it is constantly backed by U.S. dollars.

The complaint then digs into ancient Bitcoin history to explain how the cryptocurrency markets are uniquely susceptible to manipulation “[underscoring how control over an exchange and the opportunity to make trades with non-existent money allowed a single individual to dramatically influence cryptocurrency prices,” before embarking on a detailed treatment of how “Bitfinex and Tether [allegedly] leveraged USDT and their control of the Bitfinex exchange to inflate one of the largest bubbles in history.”

The complaint continues by exploring Bitfinex/Tether’s issues with access to the banking system, pointing out that while “access to the U.S. financial system was an essential component” of the scheme, “conventional banks began shutting Tether and Bitfinex accounts down for money laundering and other compliance issues and “Tether and Bitfinex [allegedly] became even more enmeshed with Crypto Capital,” a firm which has been shut down by the U.S. Department of Justice, and allegedly began “a complicated shell game of money laundering” despite the fact that “[s]tatements made by Bitfinex and Tether in that lawsuit underscore just how essential U.S. correspondent access was to their operations, and how losing it should have stopped their ability to operate and issue USDT.”

“Bitfinex and Tether were so desperate to access the U.S. financial system and U.S. dollars,” the plaintiffs allege, “that they were directing funds to Crypto Capital despite its clear connection to money laundering, account seizures, and an inability to move funds out.” Despite these banking issues, the plaintiffs further allege that “[i]n the short span of less than one month after Bitfinex and Tether closed the door to potential new market entrants, Tether issued more than 1 billion new USDT, all of which was supposed to be backed by U.S. dollars in bank accounts the Tether refused to disclose or audit.”

The complaint continues by providing the Court with notice of the ongoing investigation into Bitfinex’s operations by the Attorney General of the State of New York, in relation to which the plaintiffs further allege that disclosures arising in that investigation, “[I]f were was (sic) any doubt before, it’s now absolutely clear that Tether no longer has cash reserves to back USDT at a 1:1 ratio.”

As a result of the facts laid out, the plaintiffs allege that Bitfinex is civilly liable to them for losses suffered in the cryptocurrency markets as a result of Bitfinex’s “Bank Fraud[,] Money Laundering[,] Monetary Transactions Derived from Specified Unlawful Activities[,] Operating an Unlicensed Money Transmitting Business[,] and Wire Fraud[.]”

Legally relevant conclusions

So what do we take away from this?

To start, it is entirely possible that these allegations are untrue and Bitfinex and co. are veritable paragons of compliance and moral virtue. In the alternative, it’s possible that every word of the complaint is true.

We just don’t know.

What we do know is that the Bitfinex operation is under investigation from several angles and this new one is yet another straw on the proverbial camel’s back. From my review of the pleadings, it seems to me that the plaintiffs’ claims are backed by a sufficient factual basis that they will survive a 12(b)(6) motion to dismiss.

After that, who knows: it may settle, it may go to trial, it may get dropped. For now, however, I think this action is going to get over the first hurdle without too much difficulty.

The case cannot be ignored by Bitfinex; seeing as the plaintiffs allege an astonishing $1.4 trillion in damages, defaulting should be financially catastrophic.

Being a civil case, protections Bitfinex might be able to rely on in other contexts, such as the Fourth Amendment in any criminal action, arguing that the Martin Act doesn’t confer jurisdiction over Bitfinex’s activities, or arguing that an administrative subpoena served on it by the New York Attorney General is overbroad, won’t apply here. Discovery has the potential to be broader and deeper than Bitfinex has shown, to date, that it is comfortable with. The burden of proof is lower, too, than it would be with a criminal case (balance of probabilities rather than beyond a reasonable doubt).

Put another way, this is a very different ball game than what Bitfinex et al. have been playing to date. We may expect Bitfinex et al. to fight the case. But the case puts Bitfinex et al. on the spot: they have to have some basis to deny the factual allegations and the plaintiffs need only prove, on a preponderance of the evidence, that their allegations are true. The discovery process will go some way to revealing whether rumors of manipulation, money laundering and fraud are true, and the short-term future of the cryptocurrency markets may be greatly affected by the outcome of the exercise, and of this litigation more generally.

The thing for everyone to do, then, is watch this case. Very closely.

Not Legal Advice, 7 October 2019: US-UK forced decryption; Bitfinex publishes bizarro blog post; Eos slapped on wrist; NYT publishes atrocious free speech op-ed

Welcome back to this week’s edition of Not Legal Advice!

This week:

  1. Even though the reported U.S.- UK data sharing agreement will be silent on the encryption question, will it nonetheless result in forced decryption of American communications by British law enforcement as result of British domestic law?
  2. PayPal pulls out of Libra.
  3. Bitfinex thinks it is about to get sued; management pulls out tinfoil hats, publishes bizarro blog post.
  4. Eos gets slapped on the wrist by the SEC.
  5. NYT publishes atrocious op-ed on free speech, gets the law totally wrong; author rightly pilloried.

Let’s get started!

1) Will the reported U.S.- UK data sharing agreement result in forced decryption of American communications by British law enforcement?

Not much to say here except to check out this blog post, which was a follow-up to this blog post.

2) PayPal pulls out of Libra.

Facebook’s cryptocurrency project is running into some major headwinds, with one of the most sophisticated payments partners, PayPal – of which Libra chief David Marcus used to be CEO – pulling out on Friday.

The WSJ reports:

The San Jose-based payments company “made the decision to forgo further participation” in the Libra Association, the group backing the libra cryptocurrency, a spokesman said in an email. PayPal remains supportive of libra’s mission and will continue to discuss how to work together in the future, the spokesman said.

PayPal’s announcement comes days after [the WSJ reported that Visa Inc., Mastercard, Inc., and other financial partners that had agreed to back libra are reconsidering their involvement following a backlash from U.S. and European government officials.

Are we surprised? As I put it on Tweeter:

Not much more to add.

3) Bitfinex thinks it is about to get sued; management goes full-on tinfoil hat, publishes bizarro blog post.

Long-suffering cryptocurrency exchange Bitfinex published a blog post today titled “Bitfinex Anticipates Meritless and Mercenary Lawsuit Based on Bogus Study.”

From their blog, as well as a near word-for-word copy on Tether’s blog:

Bitfinex is aware of an unpublished and non-peer reviewed paper falsely positing that Tether issuances are responsible for manipulating the cryptocurrency market. Bitfinex vigorously disputes the findings and conclusions claimed by that source, which rely on flawed assumptions, incomplete and cherry-picked data, and faulty methodology.

We fully expect mercenary lawyers to use this deeply flawed paper to solicit plaintiffs for an opportunistic lawsuit, which may have been the true motive of the paper all along. In fact, we would not be surprised if just such a lawsuit will be filed imminently. In advance of any filing, we want to make clear our position that any claims based on these insinuations are meritless, reckless and a shameless attempt at a money grab. Accordingly, Bitfinex will vigorously defend itself in any such action…

…These baseless accusations are an attempt to undermine the growth and success of the entire digital token community, of which Bitfinex and Tether are key parts. It is an attack on the work and dedication of not just Bitfinex’s stakeholders, but thousands of our colleagues, too…

…All Tether tokens are fully backed by reserves and are issued and traded on Bitfinex pursuant to market demand, and not for the purpose of controlling the pricing of crypto assets. It is irresponsible to suggest that Tether or Bitfinex enable illicit activity due to the efficiency, liquidity and wide-scale applicability of Tether’s products within the cryptocurrency ecosystem.

“Mercenary lawyers.” What is this, the A-Team?

The upshot is that someone thinks they can make a market manipulation case against Bitfinex/Tether and they’re trying to get out in front of it. If I had to guess, a settlement offer expired yesterday and Bitfinex is expecting to be sued shortly and served shortly thereafter.

It’s not the PR strategy I would have counseled them to follow; although “the lady doth protest too much, methinks” is not a rule of evidence, it is one of public perception, and responding to perceived legal slights is often the sort of thing where the Streisand Effect should always be kept in mind, and often, less is more.

As for the rest, well, considering Bitfinex is under investigation by the Attorney General of New York, that by its own admission $850 million of its funds were seized in a federal seizure of an allegedly unlawful offshore banking and money laundering operation, the loss of which is alleged to have been covered by Bitfinex loaning itself Tether’s funds, there’s a lot to unpack in the blog post that I won’t get into here.

But that’s just “conspiracy fud,” folks. Don’t worry about it.

Market manipulation is of course a serious charge and Bitfinex and Tether are of course innocent until proven guilty (and not liable until shown liable on preponderance of the evidence), but don’t let anyone – even Adam Back – convince you that you should stop being skeptical of anyone’s claims in this industry.

4) Eos slapped on the wrist by the SEC.

Eos, for those of you who were living under a rock in 2017, is a huge, ICO-funded blockchain project which claims to have sold more than $4 billion – that’s billion with a “B” – in its Eos tokens in a token sale to, among others, US investors, in a year-long rolling Initial Coin Offering in 2017-18.

Eos was allowed to pay a $25 million (with an “M”) dollar fine, received a bad actor disqualification waiver from the Commission, and then was permitted to walk away with no further action from the SEC. On the same day, coin scheme SIA paid penalties and disgorgement of approximately $225,000 on a $120,000 token sale.

Put another way, Sia paid a penalty worth 187% of the original raise. Eos paid 0.06%.

When we consider how other small schemes like Protostarr, Airfox and Paragon have also received comparatively harsh treatment from the SEC, with the schemes being shut down completely prior to launch (Protostarr) or subject to penalties plus a requirement to register the securities being imposed (Airfox and Paragon) or subject penalties and disgorgement in excess of the amount of the original raise (Sia), the cryptocurrency world predictably exploded with howls of outrage, exacerbated by the fact that many of Eos’ ringleaders have been involved in other ICO schemes as well.

The inimitable Nic Carter referred to the SEC-imposed penalty as “shockingly weak.” Entrepreneurs are predictably unhappy at the perception of an uneven playing field where the worst offenders appear to get lenient treatment.

My thoughts are as follows.

First, I have a hunch this isn’t the last we’ll be hearing about Eos.

Second, Eos had very good lawyers.

Third, This is not a ‘green light’ to other companies to begin printing tokens in the U.S. with abandon. Any entrepreneur considering doing so is more likely to share the fate of Paragon or Protostarr, or worse, than of EOS. Obey the law.

Fourth, entry into this settlement will make it difficult for EOS to argue that what it did in 2017 wasn’t an offer and sale of securities in subsequent litigation, even though, as my friend Palley points out over at The Block, “[i]t’s not an Article III judicial proceeding; it’s an order entered in an Article I administrative proceeding.” Which there may be a bit of in the future, considering demand for Eos appears to be tepid.

Finally, I don’t understand how Eos is still listed on U.S. exchanges. The EOS coin’s life may be correctly understood as occurring in two phases: the first, during the ICO, as an ERC-20 on the Ethereum blockchain, and the second, as a mainnet token on the Eos blockchain. I fail to see that under circumstances where the SEC considered the ERC-20 as a security, the Eos mainnet token – which serves no useful function but as a money-substitute and for financial speculation – should not be.

Exchanges are of course free to take a view on this (indeed, a recent rating report from a nascent rating agency, the “Crypto Rating Council,” made up of… you guessed it, all the exchanges, rated Eos a “3.5” on its “is it a security?” scale, when 0 equals definitely not a security and 5 equals a security, on the same day that the SEC found that Eos’ presale coins were securities), but I tend to take a cautious view. De gustibus non est disputandum, I guess?

5) NYT publishes atrocious op-ed on free speech, gets the law completely wrong; author justifiably pilloried.

Advocates of limiting free speech are some of the sloppiest thinkers around:

To which I replied:

Marantz’s thesis is as follows, as printed in the New York Times:

The founders of Facebook and Twitter and 4chan and Reddit — along with the consumers obsessed with these products, and the investors who stood to profit from them — tried to pretend that the noxious speech prevalent on those platforms wouldn’t metastasize into physical violence…

…No one believes that anymore.

I absolutely believe it. People were violent before Twitter and Reddit. The problem with Marantz and his ilk is that they conflate legal speech they don’t like with illegal speech which is already banned in order to try to argue that the speech they don’t like, which they are now required to confront given that everyone everywhere has the ability to publish globally for free, should be treated in the same way as unlawful speech.

In a nation of laws, speech doesn’t cause violence, just like guns don’t cause violence. Extremely high time preference individuals with no self control or various flavors of delusion cause violence. Normal people usually do not, no matter what they read or hear.

Or what caliber of firearm is on their hip.

Everyone knows that if you break the rules, you go to jail. For normal folks that is incentive enough to not break the rules. For extremely high time preference individuals, it isn’t, and they wind up in jail. Banning categories of speech because a small number of high time preference individuals express violent ideas and also commit violence is like trying to solve illegal electric scooter riding on sidewalks by banning sidewalks.

It’s ludicrous. If the threat of imprisonment is not enough to prevent someone from violating every norm of civilized conduct, it does not logically follow that the solution to uncivilized conduct is to regulate the thoughts and words of civilized people. We should either increase the penalties for unlawful conduct, or (preferably) start addressing deficiencies in education and career prospects that result in young people having criminally high time preferences to begin with.

What the pro-censorship crowd doesn’t tell you – likely because they are not formally schooled and therefore are not aware – is that things like threats and unlawful harassment already have legal remedies. Threats are illegal; if someone threatens you on the Internet, you can and should contact the FBI. Harassment is actionable; if someone harasses you on the Internet you can and should sue them, and if you don’t know who they are, sue them on a John Doe basis and subpoena the platform for their identity.

American free speech rules don’t protect threats and harassment. This includes coordinated doxing campaigns (see Gersh v. Anglin, 353 F. Supp. 3d 958 (D. Mont., 2018)). Our rules do protect trolling, offensive memes, and offensive beliefs. These should not be confused with threats or harassment because they’re not threats or harassment.

“Speech is/causes violence” is a dumb meme. Protected speech can, at worst, offend. It doesn’t cause violence. Nobody I know in law or in law enforcement – i.e., people who are at the coalface when it comes to issues of speech and violence – actually believes it does. Sticks and stones won’t break your bones. A post on 8Chan which advocates an offensive or even evil idea is incapable of killing anyone. In fact, a post on 8Chan which merely advocates an idea is incapable of doing so much as putting a scratch on anyone.

More likely than anything, a post on one of these platforms is likely to flag the presence of a dangerous individual to law enforcement, who can then take appropriate action to make our communities safe.

Commentators like Marantz who have never seen a search warrant before should have taken the time to make themselves aware of how these things actually work. However, he and his fellow travelers, more often than not, haven’t done their due diligence. This much is evidenced by the fact that the Marantz op-ed contains multiple glaring mistakes, including e.g., per this correction:

An earlier version of this article misidentified the law containing a provision providing safe haven to social media platforms. It is the Communications Decency Act, not the Digital Millennium Copyright Act.

Mother of God. For an essay that’s apparently drawn from an upcoming book that purports to be a meaningful contribution to the conversation about free speech in America, this isn’t some minor error. This is a howler. 

There are absolutely zero similarities between 17 U.S. Code § 512 and 47 U.S. Code § 230. They were passed in two different Congresses. They are contained in two very-far-apart and unrelated chapters of the U.S. Code. They deal with completely different subject matter. To confuse them is to reveal that you haven’t actually read the statute, because there’s no way anyone who speaks English as a native language could ever get these provisions mixed up.

Then there are the remaining, uncorrected errors:

What if, instead of talking about memes, we’d been talking about guns? What if I’d invoked the ubiquity of combat weapons in civilian life and the absence of background checks, and he’d responded with a shrug? Nothing to be done. Ever heard of the Second Amendment?

First, virtually all firearms, including Grandpa’s .308 for deer hunting, were, at one point in our history, suitable for combat. Even the Ruger 10-22, which, being a .22, is regarded as a good “first rifle” for kids to learn the basics of firearms handling, has present-day military applications. The same is true of practically any device which is designed to concentrate a lot of kinetic energy on a small area with precision at a distance, including a compound bow or a slingshot. That’s why they’re called “weapons.”

Second, most gun purchases are accompanied by a background check. This is due to the provisions of the Brady Act, 18 U.S. Code § 922(t)(1), which requires a check to be performed for all commercial firearms purchases and interstate transfers/transfers from federal firearms licensees. Millions of background checks are performed by the federal government each and every month.

Using “free speech” as a cop-out is just as intellectually dishonest and just as morally bankrupt. For one thing, the First Amendment doesn’t apply to private companies. Even the most creative reader of the Constitution will not find a provision guaranteeing Richard Spencer a Twitter account.

Um, wrong. They will find a provision guaranteeing Twitter the right to provide anyone with a Twitter account, together with Section 230 of the Communications Decency Act (not the Digital Millennium Copyright Act) which furthermore renders Twitter immune from liability for very nearly anything their users post, even where the user is a designated foreign terrorist organization (see the recent decision of the Second Circuit in Force v. Facebook).

Some sane conclusions about an abysmal take

To sum up, people who call for the First Amendment to be repealed, including ones who get very prominently placed op-eds in nationally-distributed papers of record, (a) don’t understand the law, (b) in any discussion about law reform, are uniquely unqualified to participate in the discussion and (c) are usually complaining about conduct which is already sanctionable if the victim of the conduct is willing to get off his or her duff and sue, or (d) are complaining about constraining the speech of people they disagree with, who are usually, lazily, referred to as “Nazis,” including by Marantz (see tweet at top of this section).

As it turns out, most if not all of the people so called are not, in fact, Nazis. For example:

About President George W. Bush, billionaire Democratic contributor George Soros said, “(He displays the) supremacist ideology of Nazi Germany,” and that his administration used rhetoric that echoes his childhood in occupied Hungary. “When I hear Bush say, ‘You’re either with us or against us,'” Soros said, “it reminds me of the Germans.” He also said: “The (George W.) Bush administration and the Nazi and communist regimes all engaged in the politics of fear. … Indeed, the Bush administration has been able to improve on the techniques used by the Nazi and communist propaganda machines.”

Seriously? George “painting on his ranch quietly minding his own business” Bush? Even if he were (and for avoidance of doubt he is not), it would not matter, because in America, even the literal Nazis have speech rights, per the Supreme Court of the United States. See National Socialist Party of America v. Village of Skokie, 432 U.S. 43 (1977). As Justice Alito put it in (the unanimous, 9-0 decision in) Matal v. Tam,

[The idea that the government may restrict] speech expressing ideas that offend … strikes at the heart of the First Amendment. Speech that demeans on the basis of race, ethnicity, gender, religion, age, disability, or any other similar ground is hateful; but the proudest boast of our free speech jurisprudence is that we protect the freedom to express “the thought that we hate.”

Even people who espouse ideas we hate have rights.

Law reform isn’t an emotional discussion, it’s a technical one that benefits from professional knowledge and level heads. In an increasingly rancorous political environment, let’s try to keep it that way.

Finally, here’s your weekly moment of marmot, brought to you courtesy of the Pixabay licence.



Monax’s new social contracting platform: knocking a ‘blockchain’ software product out of the park

So the startup I co-founded and former employer, Monax, released its new product today.  My good friend and spiritual advisor Tim Swanson (@ofnumbers) asked me to write a review of the product to explain it to him exactly fifty-three minutes ago.

This is that explanation.

Social lawyering

Monax has always been early. As a consequence, the company used to struggle getting people to understand what the hell we were talking about. Casey (one of my co-founders) and I had a lot of fights about how to express these ideas in their early phases. First, it was permissioned chains; we were, to my knowledge, the first permissioned blockchain startup. Not among the first, not first in England, but the first, period. That took awhile (two years) for people to wrap their heads around. At the same time, we were among the first people to try to tell people what a “smart contract” was and how these critters could actually run a business process. That was hard for people to understand too (three years).

Monax no longer has this problem.

Monax has built a web application that allows lawyers to build agreements, manage their lifecycle and execution, and assemble complex packages of agreements together in complex workflows – i.e., all of transactional lawyering – in a fast and straightforward fashion that takes a lot of the headache out of managing contracts and keeping track of where they are.

Monax in one line

Automatic, social lawyering or “social contracting,” with apologies to Rousseau.

Monax in three bullet points

There are three things you can (currently) do with Monax:

  • manage the lifecycle of a templated agreement and associated contractual process;
  • build agreements that have a workflow process associated with them which the Monax platform can then carry out; and
  • share your work, and see the work others have shared.

Put these together and you have the future of law practice.

Monax in a few paragraphs for non-lawyers

From the perspective of the non-lawyer that means it fulfills several functions. The most basic function Monax performs is roughly an equivalent to docusign. But executing an agreement is but one part of the lifecycle of an agreement, so to say it’s a “slicker docusign” wouldn’t be quite correct. Monax also mixes in some CRM, workflow modelling, and even a social component where you can network with other users and share templates with a wider community of people. 

If you’re drowning in contracts, this will probably help you manage them.

Monax is less “Docusign with a social network” and more “LinkedIn where people actually get shit done.” Or, really, “What would happen if StackOverflow, Practical Law Connect, LinkedIn and DocuSign had a grand-child who decided to get a J.D.”

I should preface the rest of this post by freely admitting that I’m an idiot with a computer. If someone held a gun to my head and ordered me to code “Hello, World!” in Python I would be out of luck. I once had my GitHub privileges revoked at Monax because I inadvertently deleted our website. If I can do this, anyone can.

So let’s explore what you can actually do with this thing.

1) Executing an agreement

Docusign but better.

The process of getting an agreement from template to signed agreement is a little funky. Monax makes you first assemble a “package” of documents from a library of templates. Then once you “activate” the package, i.e. say that the docs are good to go, Monax prompts you to make a “collection” of documents which then draws from the “package” the contracts that are relevant for what you’re trying to do.

So e.g. you could have a “corporate” package with a narrower set of “fund incorporation” documents you draw from it, or really whatever combination you think is appropriate. You just click on “templates” from your home page, click “add to package,” and once added to a “package,” you can then drop the agreement into a “collection.”

The naming conventions are a little funky, but once you go through it once it makes sense. I’m advised the company is working on this bit of the process to make it clearer.


Once you’re done with that, hey presto, you have an agreement. And you can proceed to go and get it executed and agreed.

Note, the social component of this means you get your own, unique, public user handle. You don’t just log in with an email.


This agreement template which another user uploaded into the system has some fields. I populate the fields.


When I’m done drafting the agreement, I decide to clog up my old business partner’s inbox and I send him the agreement for execution. He did not prompt me to do this and this was not planned. I just did it for the lulz.

Note, one of the fields is the end date of the confidentiality period – so I can keep track, in my home screen, of how long the NDA I’m proposing to enter into will remain in force. Merging calendaring and document execution is an absolutely inspired move, since a lot of companies don’t keep track of this data point. Monax bakes it in to the agreement in machine-readable form and the platform handles the rest.


And boom, we’re done. I send Casey the agreement and he executes it.

2.jpegNot only that, as this is a social platform, Casey’s in the system already so I can track my contract state with him. If we did a lot of deals together, such as might be the case if we were banks (spoiler: we’re not) or massive companies like Deloitte, this would be a great way to track and visualize SOWs, side letters and the like and get a heads-up view as to what needs to happen when. It will be particularly good at getting people who aren’t neck-deep in the business quickly up to speed and to run analytics (as all of the contract data is exportable into CSV files).


Signing is easy and we both do it from our Monax social accounts.


And when we’re done, we’ve got a contract that either of us can inspect at any time, which has been cryptographically proven in a blockchain, rather than e.g. DocuSign which can be signed as long as you have a link from an e-mail. At least here we know that some login credentials were presented, and have both server logs and the chain itself to refer back to in the event of a dispute.

Both our meatspace signatures are considerably uglier than these

These aren’t classical signature blocks, either. This part of a schedule appended to the end of the agreement. Why, when digitally signing, do we need to scribble on a particular line, when the document itself, a blockchain address and a hash provides better evidence than wet ink ever could?

The signing function on its own is basically a slicker DocuSign with slightly better verification properties. Where it differs from DocuSign is (a) in how Monax adds workflows into the mix and (b) how it allows people to share those workflows and the associated contracts publicly.

Screen Shot 2019-10-02 at 1.05.22 AM
What kind of jerk picks “marmot” as his legal hacking handle?

This crowdsourced automation of legal process knowledge has the potential to (a) eliminate most of the process-based aspects of transactional work, (b) allow people to easily share process knowledge on how to perform particular transactions in particular jurisdictions, and (c) as a result, allow smaller teams of lawyers to perform more complex work that hitherto only larger firms with specialized process-based lawyers could perform.

2) Building a contract

I’m going to build a really basic contract: a retainer letter.

Retainer letters are super simple. They require two signatures, lawyer and client, and have a limited number of parameters. In my experience those negotiable parameters (or defined terms) are

  • Parties and their contact information
  • Date
  • Scope
  • Fees
  • Retainer
  • Personal note at the end.

Monax lets me upload a document and set the negotiable parameters. This requires a little more work up front, as it makes more sense to make the document standard form and then have a schedule attached with the defined terms (it is possible with Monax to generate a bespoke agreement where you edit in the document but not in the schedule, but as I’ve only played with it for a few hours I haven’t figured out how to do that just yet).

So below we can see a letter (excuse the drafting) and, on the right, basic information about it together with the parameters I will later set.


And here’s where you can set the (two) parameters I’ve decided to make for this agreement (I’m just testing the software out, so cut me some slack that I haven’t done this more fully). In this case I’m adding signatories to the document.

“Name” should really be “Defined Term” given the Master/Schedule format that the system seems to prefer for standard forms, but whatever, the system has been working for six hours. Who am I to complain.


The software also anticipates standard boilerplate. Going forward I can foresee that they will likely build out a list of drop-down options covering every possible permutation of governing law & jurisdiction, forum selection, notice, etc.

Screen Shot 2019-10-01 at 8.02.16 PM.png
For choice of law

There’s also a “governance” function, which I would actually call a “workflow” function.

Screen Shot 2019-10-01 at 8.02.24 PM.png

In every transaction there is an order to the way things must be done. The process of carrying out the transaction and mastery of each step is a huge part of every attorney’s training, and explains a lot of the specialization we currently see in BigLaw, for example. Human beings are only so capable; when deals are extremely complicated, and the margin for error is small, we entrust complicated transactions to people who have done them before, not merely because they know what the issues are, but also because they’re not going to fuck up the deal by missing some essential step.

But we could entrust the process-driven aspects of these transactions to a machine.

This “governance” tab is a much bigger deal than it looks. It tells the user that before proceeding with an agreement, it may be that there’s another step they need to perform first. For example, you don’t sign a statement of work before you execute a master services agreement, and you don’t execute a bank loan before you’ve executed your security documents. Doing things in the wrong order can have catastrophic consequences for your client.

Enter the Monax workflow modeller:

Screen Shot 2019-10-02 at 12.21.23 AM.png

Monax gives us a machine-readable workflow modeller which can be paired up with machine readable Monax contract or series of contracts. The “governance” box, far from being just a thing you tick off to make sure you can sign a contract, is in fact an event controller which can be linked up to a contractual workflow which can be as complicated as Monax’s workflow engine allows.

This is what really differentiates Monax from everything else out there.

DocuSign is principally a platform for closing simple agreements like NDAs. It’s for guys who work in sales.

Monax is a platform for lawyers, by lawyers, which will connect lawyers and clients, and the lawyers representing commercial counterparties. And lawyers and anyone else who uses the platform. A lawyer could build the lifecycle of virtually any transaction, from a simple sale of goods to a 40-year securitization, on this platform, share it widely (what better content marketing is there? It’s why I have a blog), and allow, after getting appropriate waivers, other users of the Monax network to then carry out the transaction themselves, with all of the document management and process management being performed automatically in the background while the lawyers focus on negotiating the high level issues. A few added features and you could even use Monax to negotiate the docs. Smaller, nimbler firms mean lower overheads, which means lower fees, which might also mean fewer hours at the office and more time with your kids.

Simply brilliant. I didn’t get it when I first looked at this a few months back but I sure as hell get it now.

Back to the contract, though. So we have a contract, an engagement letter, which has a simple, one-stop workflow: sign it. So it’s time to populate the fields, put the agreement into agreed form and sign it.

First, populate the fields (just a test, so there aren’t many of them and they’re not too complicated)

Screen Shot 2019-10-01 at 8.13.06 PM.png

Then, create the agreement…

Screen Shot 2019-10-01 at 8.16.16 PM.png

Now, the agreement is generated (with my standard terms blacked out, because that feels a little personal)…

Screen Shot 2019-10-01 at 8.17.04 PM.png

…and then automated notifications go out to the parties instructing them to proceed with the next steps of the transaction, whatever those might be.

Screen Shot 2019-10-01 at 8.19.53 PM.png

In this case, my process was a simple one: sign the agreement and it becomes enforceable. But, as I alluded to above, what Monax has built can conceivably scale to any level of arbitrary procedural complexity. There’s simply no limit on how many contracts you can put together and cross reference in a machine-readable workflow.

I’ve worked on deals with thirty transaction documents and over six hundred conditions precedent docs. Legal workflow automation with no limits can gobble up processes like that.

3) Conclusions

This infinite extensibility, combined with the inherently social nature of the tool and the fact that anyone, anywhere can use the platform to collaborate and review other people’s workflows and agreements, tells me that this platform distinguishes itself from all the boring legal tech we encounter on a daily basis. The incentives are right. The efficiencies are right. Once you grok that document parameterization happens in a schedule and that there are no signature blocks, the interface is pretty intuitive and will undoubtedly become more so. The price is a little steep, but then I’m a little cheap, and for a few more features it’ll probably be right as well.

Monax lets non-programmer lawyers do machine readable stuff. If Monax isn’t “it” in terms of ushering in the digitization of law, something very much like Monax is exactly what “it” is going to look like.

Oh, and I almost forgot: there’s a blockchain in here. But it is barely visible. Monax built an absolutely killer application and buried the blockchain deep in the guts of the thing, where it hums along, barely visible, until it is needed to prove that everything happened in a particular way, at a particular time, in a particular order. Which, as a lawyer, I can attest is extremely important.

That ultimate kernel of verifiability permeates the application totally unnoticed. But that’s what makes it good enough to make it worth a law firm’s time to make the jump to new tech – the fact that we have a means of making legally relevant communications and everything is proven in a friendly UI as you go along will obviate the need for original signatures, transaction bibles, and potentially even e-mail (what I called “document tennis” in my “open document monkey” proposal in 2014) in transactional law. The lawyers can do the thinking while Monax handles the process.

This experience earned Monax one happy paid subscriber today.

(My username is “marmot,” by the way.)