Welcome to Block and Order, the show that explores the legal issues facing the world of web3 and beyond. I'm Kyle Lawrence, and with me, as always, he's the Don Draper to my Rogers Sterling, Mister Moish Peltz. Hello, Kyle. I think it's time for a martini. What do you think? Do you have one? That's actually a really great idea. Is it too late? I got my scotch right over there. Producer Chris was encouraging me earlier to do it. So scotch martini is not going to do the trick. Well, it's not called a martini. I know it's not called a martini. You know, Roger Sterling, I think, is probably my favorite tv character of all time, narrowly beating out Tony Soprano, Jimmy McGill, Saul Goodman, and, yes, BoJack Horseman. That is actually a great show. Wow. Bojack Horseman. Yeah. Jimmy McGill is there. There you go. That's one of the better on screen lawyers of all time. That's true. In a ranking very, very clever and crafty. That could be a placeholder for a future episode. We can rank TV lawyers, starting with Lionel Hutz. I think our audience would be much more interested in a ranking of crypto lawyers, and that would get spicy very quickly. I think that. I think you're onto something, Moish. Us, too, of course, being one, too. I'm not going to say we're somewhere on the list. You know, leave the audience to, you know, to their imagination and tell us. What you think down in the comments below, please, everybody. Well, speaking of crypto lawyers kicking us off today on Block and Order, everyone's favorite, CZ was sentenced to four months in prison for failing to implement an effective anti money laundering program at his cryptocurrency exchange, also known as Binance finance, was also ordered to pay 4.3 billion in fines and forfeiture, with CZ personally having to pay a $50 million fine. He also slipped down as CEO, but still remains a major stakeholder. The prosecutors had sought a 36 month sentence, so the four months is certainly a step down. Moish, what do you think? Four months. Fair. Unfair? Where do you land on that? This seems incredibly generous to me, I gotta say. Right? The US prosecutors sought a three year sentence. He got four months. He's paying $50 million in fines, which, I mean, that'd be a lot for you or me, I presume, but probably not for CZ, who I presume has billions of dollars in crypto wealth. This is like a traffic ticket. And he still, it sounds like you just said, has some equity in the company as a. So, yeah, I mean, look, he was the figurehead and the founder and CEO and spokesperson of this organization, and he's lost that, and I'm sure that's a huge loss for him. But seems like he gets to spend a few months in the slammer and then walk away and do whatever he wants, which seems like a pretty good upset for him. Right? What's funny about this is the sort of attention or the public scuttlebutt towards him compared to SPF. And just from. From an outsider's view, it seems like he was more SBF than SPF was. You know, he really was. Was just trying to cut corners and get finance as quickly as possible to where it is. It wasn't like he was, I mean, just from my view, deliberately trying to screw everybody over. He was just trying to get his company to be advantageous. I don't know. To me, four months seems kind of not unreasonable. I don't. I can't believe I'm saying that, but I think that's kind of fair, to be honest. Look, if you take the story that the DOJ was saying, and you take that at face value, it's kind of absurd that he only got four months. And even just some of the internal texts about the anti money laundering program that were unearthed publicly as part of this just seemed like there was knowledge that they were skirting the law here. So, look, there was prison time. This guy was criminally charged and will now be, you know, go to jail, but probably not deep enough if you take the DOJ saying, I guess, on the other hand, if you take what SPF was saying and compare these two, that the two sentences seem, like, completely out of line. So, you know, and now we can even talk about sentencing coming up in July 29 for Avi Eisenberg, who was convicted of the mango markets fraud. And so, you know, he's faces up to 20 years in prison. So what do you think is how, if CZ gets four and SBF gets 25, where do you think Avi lands? I don't know. I think, and I know this is an unpopular opinion. I think this guy's getting a bit of a raw deal. I understand what he did was not perfect. It's one of those things, like, it's not legal, but it's not illegal. He's gaming the system. He took advantage of the system in place. Isn't that what we all try to do in this life? Please don't come after me, DoJ. Kyle. Unfortunately, that's why are commodities fraud. So it's unfair, but that's what the jury found, right? I don't know. We'll see what he gets. He's facing up to 20. I think he'll get a couple of years. Yeah, I think we're looking at single digits there. Alright, so the next topic. The company, consensus parent company of Metamask, has filed a complaint, a preemptive complaint against the SEC, alleging an unlawful seizure of authority concerning its operations and the alleged misclassification of Ethereum as a security. This comes after, and it's part of the lawsuit, publicizing of a wells notice that consensus received related to potential enforcement action against metamask wallet, which the SEC was arguing is an unregistered securities broker. So consensus by filing this lawsuit is seeking judicial clarity, affirming that one, Ethereum is not security and that metamask is not a broker, and also that staking services do not violate securities law. So, Kyle, what do you think? Was this a good tactical move by consensus, to head off the wells notice by filing a, a complaint? Well, moish, I think this is awesome. Whether or not it turns out to be a great move, it's literally poking the proverbial bear. But this is awesome. It's, you can't fire me because I quit. You get a wells notice, boom. Sue the SEC. Make them put their money where their mouth is. It's been no secret that Gary Gensler has been on record saying ether is not a security. Ether is not a security. Multiple times, time after time, it's been, he's been filmed saying it. He said it in articles, endlessly. Now, for them, the SEC, to take this position that all these things are violating securities laws for trading ether, I think is B's. And I love the fact that consensus is doing this or seeking a declaratory judgment. It may take a while to get there, but put the SEC on the defensive for once. Thank you, consensus. I love this and I'm glad to see this happening. Suck it at SEC speaker zero. All joking aside, I agree with you. Right? If, if the SEC is going to take the position that something is or is not a security and it affects like an entire market, like take that position publicly, stand behind it, provide your rationale. Absolutely. Now, I know they, they've done that in some lawsuits as the regulation by enforcement, but why not just stand out there and say, here's our position. If you have comments like comment, well, just, we can, just so we can disagree, but here's the position. I think that would be the responsible adult way to do this, and they just won't do that. It's all hidden behind wells notices that are only public because consensus here filed a lawsuit. Right? Right. Yeah. And it's good. The consensus. They're trying to leverage the major questions doctrine. We've talked about that on prior episodes. That prior episodes. That's the legal principle that restricts federal agencies from going beyond their mandated authority given by Congress, which, I mean, it's, you know, put your political leanings aside. That's what the SEC is really doing here. They don't have the direct authority to do a lot of these things that they're doing, but nobody's stopping them. So they're sort of acting without a net. I really love the act here that they've taken. Their general counsel was on unchained the other day and was talking very openly about it. I encourage people to go listen to that because it was really interesting, their thought process in bringing this lawsuit. It wasn't willy nilly and it wasn't flippant like, I'm sort of, you know, half jokingly making it out to be. They really thought about it and they're in a good venue for this kind of thing down in Texas, where those courts tend to be a little bit more favorable towards this type of action. They don't like government overreach down there. Let's see if the chickens come. I mean, speaking of good crypto lawyers, as we were earlier, they have. They have really good attorneys. Bill Savit, I forget which one is on this case, but. And the reality is, if every large crypto organization that receives a wells notice files a DeC action, I don't know that the SEC has the resources to find all these cases. Absolutely. So it's a huge concern. You think about, well, what if dozens of companies do these? Then, yeah, maybe that's an effective way to start fighting back or at least to help develop some regulatory clarity around these issues. Great point. So next up, Samurai wallet has been in the news cycle of late. Keyon Rodriguez and William Lonergan Hill, founders of the Samurai Wallet, face charges for operating an unlicensed money transmitting business and laundering over $100 million. Rodriguez and Hill are charged with conspiracy to commit money laundering and operating an unlicensed business. They're accused of knowingly facilitating the laundering of criminal proceeds from dark web markets and other illicit activities through their cryptocurrency mixing service. Specifically the federal agencies, including the IR's CI, which is the criminal investigation, aka the Anton Chigurh federal agencies. You know, we don't give legal advice out here, but when they're looking at you, you have a real problem. Just, you know, word to the wise out there. Anton Shiger. Such a good analogy. There's, he's just like a shark. He comes for you and if you encounter him, it's, you know, it's pretty. Much, yeah, this is, this is the quiet killer that you do not want to see. If you see Anton Chigurh, your run. If you see Irsci, this is bad news. Retained good counsel. Rodriguez was arrested in the US and Hill was detained in Portugal. Moish, what do you think about these guys? From what you know about the situation, do you think they're in trouble? Putting aside the Anton Chigurh of it all, what do you think is going to happen to these guys? Well, yeah, look, allegedly the services processed about $2 billion in transactions which allegedly hid about $100 million in illegal funds which ended up in either dark web or other illicit activities. Yeah, mixing is really tricky. We haven't really solved what the right legal framework should be here because the reality is us, as us citizens, I think, are owed financial privacy. I think if, I think if you have a bank account, you have some sense of privacy that, you know, the public is not going to know where all your crypto goes, where all your money goes. And so there has to be some element of, well, if you're just because you're using crypto, every, you know, ATM transactions public doesn't make sense. Right. So mixers, and maybe the word mixer is like, we need to, need to be rebrand that and find another solution. And I think there's technological solutions, but the reality is, like, they, they do allow for criminal activity and they're, they are misused by bad actors. But the problem is the developers here are developing software and they're releasing software and they're gifting their software to the world. Yeah. And then they're getting criminally charged for what could be constituted free speech. Now, I think in the complaint they're, they're saying, well, here, here are the concrete steps that these, these people allegedly did to operate a business and to facilitate money laundering versus, like, publishing code, First Amendment stuff. So that's, that's the line, right? It's like, where, where are they on that line? What have they done? Is. And is that clear? I mean, like this. They knowingly cross that line? Well, I would argue, yes, for, for a couple of reasons, if you'll bear with me. For starters, in June of 2022, they were openly inviting russian oligarchs to use their software. That's one. And in March of 22, when people were like, hey, you know, I think this is a scam. They openly tweeted that they were like, not going to change their practices. The two features of their program are called Whirlpool and Ricochet. And what Whirlpool does is it basically just pools all these transactions together so you can't tell where they are. And the other one is ricochet, not the 1991 one, underrated Denzel Washington John Lithgow action thriller. But it allows properly, it allows users to build in additional and unnecessary intermediate transactions known as hops, to, again, obscure where these things are going. These guys, look, I don't like to play judge, jury and executioner, and everyone's innocent to proven guilty. Everyone's entitled to a fib, blah, blah, all that. But these guys, it seems like they knew it. They were doing a little bit. Yeah. I mean, look, that, it's one of those cases where, you know, you can have good law but bad facts kind of situation, you know? You know, we'll see how the case unfolds and we'll continue to cover on Block and Order. Yeah, we will. All right, our next topic, the Yuga Labs. Now, Yuga Labs project Moonbirds has announced on Twitter that's in the process of creating a new digital universe. I believe it's called Valeria. I can't keep track. I love ego Labs, but there's a lot going on. It's hard. So as part of this, they announced new 3d avatars and a relaunch of the project, including strategic partnerships and bringing moonbirds into the next generation. So the problem is, and there's some controversy in the Twitterverse, I can't. Is there even an x verse like, what do you call. I don't think. I think that's an HR violation. You can't say, let's move on. I think it's still Twitterverse. Yeah. So, you know, part of the tweet storm they published and which I tweeted about on Twitter, is if you've made stuff during the CC Zero era, cool. But from now on, you'll need to own a moonbird to keep doing so. And the problem with that language, and a lot of people call onto this was once you release something as CC Zero. CC Zero isn't just like a generic term. It's a very specific license which is invoked. It's Creative Commons license. It's a public domain dedication, and it is very famously irrevocable. So by publicly releasing their copyrighted works into the world, there can be no restrictions on anyone else in the universe using those and making derivative works and et cetera. So from them saying, well, you need a moonbird to keep using the cc zero work does not make sense. Now, I think that sentence is probably, it's their sentence. So I'm not taking out of context, but it probably was just in artfully written. And I think what they're trying to say is there's a next generation of artwork, and to use that generation of artwork, they will be under commercial license, which will be different from CC Zero. And I get that. But it was not rolled out very well. No, doesn't sound like it was, you know, sort of hot take here. Yuga Labs is sort of acquiring more or less any successful project that's out there. Are they in danger of becoming the Walmart of the world of crypto? Yeah, I mean, look, I think it's a very open. Greg Solano, CEO, Garga had a big mea culpa about all the mistakes they've made, culminating him taking back over the reins of CEO. Yeah, I think it's a very valid question as to whether they bid off a bit more than they can chew. But look, that was the vision, that's why they raised all this money, was to, to build this future world. And that's difficult, and it takes time, and there's going to be ups and downs. I don't think they're, they're out for the count, but, you know, they're, they're certainly a few years in now with, with using up, I presume, much more of their Runway. And the margins and the margin for error is going to be a lot tighter, for sure. So, you know, definitely like, okay, now they're managing moonbirds. The acquisition didn't really make sense to me at the time. This rollout doesn't really make sense. I think from the IP perspective, it's difficult to understand, you know, what they're trying to do here. And from my perspective, from an IP attorney perspective, it's like, well, even if you're creating new moonbirds, they're relating back to the CC zero moonbirds, and there's such a thin layer. Okay, well, you have a new moonbird that has a commercial rights, but it ties back to an old moonbird which has no Cc zero. It's, everyone can use it. So what are you getting from an IP perspective here? And I don't, I don't, I guess maybe that's a question like, the owners of Moonbirds even care? Is anyone actually using it for any, like, further commercialization? Of IP. Yeah, maybe not. But certainly whatever value proposition that relates to the intellectual property value and commercial rights of owning a moonbird. You know, I think people are right to question that. I got my board ape shirt on. Can't really see it in this thing. But, yeah, I don't know. I don't know who had a more controversial week, them or the. The Eigen. Let the Eigen airdrop, but, yeah, yeah. We'Re not even doing air drop meta on this episode. But that was another. That's a topic for another day. We have to, like, focus a whole episode just on, like, how do you launch a token? How do you do it without going to jail in 30 seconds? Speaking of going to jail, Moish. Yeah. Everybody's favorite whipping boy, SBF, has been back in the news because he recently reached a settlement with various FTX investors agreeing to aid them in pursuing legal action against celebrity endorsers of the now defunct cryptocurrency exchange. FTX. SBF has agreed to provide testimony and documents to support the investors litigation efforts against various celebrity promoters and venture capital firms that endorsed FTX. In exchange, he will be released from current and future civil liabilities related to FDX's collapse. To me, that's window dressing, given how much money he's already lost. But I guess every cent helps. Co defendants like Carolyn Ellison and Gary Wong have also settled with investors. However, major celebrities and several VC firms continue to contest these allegations, reflecting a divided response among the accused parties. Athletes, Tom Brady, Stephen Curry, Shaquille O'Neal, Naomi Osaka, I saw at the US Open a couple years ago, and Shohei Ohtani, who's been in the news a lot lately, as well as supermodel Gisele Bunchen, are fighting this lawsuit. Moish, what do you think about these celebrity endorsers being potentially civilly liable for this kind of thing? Look, they endorsed a crypto exchange that blew up, and there's lots of people that are holding the bag, and they're going after the big pockets. And the big pockets are these very public, very visible, very wealthy athletes and celebrities. So, you know, I get it. I'm sympathetic. But, you know, the reality is, they were part of the advertising scheme that got people really excited about this thing. And the plaintiffs are really trying to make a, you know, make the liability stick here. And so I don't think they're going to get out easy, otherwise, they'd probably already be out. But. But, I mean, Shaquille O'Neal endorses Taco Bell, which, by the way, is ridiculous. Like, to eat Taco Bell and then go play basketball, though. I guess we did that. We were in 8th grade. You did chicken parm hero, and go to basketball practice. But if somebody gets Taco Bell and isn't in the bathroom all night, do they get to shoot Shaquille O'Neal for that? No. Maybe. I don't know. I don't. I don't think it's. Look, there's. There's a lot of nuance in celebrity endorsement, um, deals. And a lot of these deals, right, also come with indemnification rights. So the celebrities typically take comfort in, well, I'm doing the deal, but if something happens, the company is going to pay for all the things that go wrong. I'm just. I'm just coming into being the spokesperson. Then I leave, and they handle all the legal liability, unfortunately for them. Right. The. The indemnity. The indemnity is our FTX. And FTX is no longer has the ability to defend them in these lawsuits. Right. So it's. It's complicated. I don't think, like, I think false advertising claims. And here they're. They're saying, hey, FTX is great. Look how wonderful it is. Except for Larry David. Larry Davis said, like, crypto's dumb. Don't use FTX, and maybe we should all listen to more in our lives. But, yeah, I mean, like. Right. It's. But it's. I don't think it's like, just. Oh, well, they just talked about it and, like, it's like Taco Bell and we shouldn't have liability against. I think it's. It's more nuanced than that, obviously. Right. But. But if they're less of a celebrity, does that mean there's less exposure? So instead of Tom Brady, if it's DJ Stewart, the first guy on the bench for the Mets, or instead of Gisele bunch, and it's C. Thomas Howell, like, are they not going to get sued because nobody knows who they are? Yes, because nobody cares. And they don't have enough money to pay for a huge. I just think that's just such a dangerous present. Like, where is that? Of course it's unfair. Life's unfair. Like, yeah, these guys are getting targeted because they're public and not lots of money. I'm sticking up for the. For the little guy. Tom Brady needs me in his corner because this is unfair. This is almost as unfair as when he got hauled into Congress about deflated footballs, which is the dumbest shit I think I've ever seen. No, he's from Boston. He needs to stand for his crimes. Kyle, that's. That's enough. And Shea Otani, like, come on, buddy, he's having a rough month. Like. He'S still hitting pretty well. He blasted a home run off the mess last week. Who's translating for him now? What's going on? I want to know more about Sandoz. Just use Google Translate on your phone. It works great. Moving on to our next topic, there's a lot going on in Hong Kong right now. So this. This segment is going to talk about them. So first I want to talk about the ETF's that launched in Hong Kong this past week. There was a bitcoin ETF as well as ether ETF's. I actually believe there are multiple in each category. And people were very excited for there to be an alternate forum for these ETF's. These ETF's also had a lot of, I think some of the beneficial qualities that people were hoping would come out of the US ETF's, including the right to exchange crypto for shares and things like that. Right. So they were launched under a different legal regime. There was a lot of benefit to them. People were very excited. And then they launched and crickets. I think they did like $11 million in transaction volume the first day, which is like a drop in the bucket. So, Kyle, what do you think? The, the, the. I don't know. If we call it a failure, it's day one. So it's like the slow roll launch. Of these ETF's means it's tough to really say. It could be any number of factors that are almost impossible to predict, especially looking from the outside in. The only thing we have to compare it to is the ETF's here, which when they were approved it was yay. Retail. Retail. But that hasn't happened at all. It's been all institutional. So it could be something like that. I know that in that part of the world, crypto is treated much differently than it is here. I don't have a better answer for that. It's kind of impossible to really say from here. And plus, the news coming out of Hong Kong is not always as freely given as it is just being honest shot by saying that. Right. But I mean, tens of millions of dollars versus hundreds of millions of dollars, orders of magnitude less volume. So, you know, it'd be interesting to see how the Hong Kong market for these ETF's evolves and then also how the US market continues to evolve. And everything's down. 1020 30% since. Surprisingly so. Yeah, a couple weeks ago. I think it's still up though, since the ETF's are still up over. Like if you bought ETF, those are in the US on day one, you're still up. Right. But anyways, the other thing that's happening is interesting in Hong Kong right now is the securities and futures Professionals association has recommended the formation of a self regulatory committee to allow crypto firms to monitor each other's compliance, basically to set up a self regulatory compliance regime. This you and I have talked about quite a bit about. Well there's a lot going on about what the right regulatory regime should be as legislation. But in the meantime, why don't we find a better baseline for self regulation? Create basically industry groups where we say, hey, these are the friendly, legal, good guy businesses. And here's the minimum standards to hit if you want to do business on the. And I think this could apply right decentrally to DAos and Defi and also to centralized companies. But that really hasn't taken off. I know there's a little bit of like, I think for some token issuance, like standards, things like that, but it's really not taken off yet. It's true. So does self regulation have a, have a role to play in our crypto markets? You know, it's the kind of thing that gets talked about a lot. It's sort of embedded in the very ethos of why people love crypto. I am very cynical. I don't believe that we can necessarily, you know, govern ourselves in that kind of way. I mean that the analogy I always use is go to a grocery store and the shopping carts don't get returned to the stanchions over there. Like if we can't do that, how are we supposed to govern ourselves? I'm oversimplifying, but you know, I think it, it can work in theory. The problem is, is that the bigger players will just sort of try to muscle in and say, well this is what we need to do because this is what works best for us. We just talked about UCLabs great company. They do a lot of amazing things, but they kind of tower over everybody else. If they're part of that regulation process, who's to really stop them from implementing measures? I'm not trying to besmirch them or anything like that, but who's to stop them from implementing those kinds of things that benefit them, necessarily? Just playing devil's advocate with that. Look, I think self regulation is really an underrated avenue for regulatory outlooks that do not rely on us Congress and other dysfunctional organizations. And I think it also gives the industry some agency to say, hey, we're trying to do things the right way here. Are all the good actors see, like, they're in this group everyone else can fend for. So, like, yeah, that can also be really unfair. And if you're not someone that can get into that clique or that group, and it's not this neutral, balanced industry baseline that I'm kind of imagining in my brain in this optimistic, you know, Disneyland that it is, yeah, I could totally fall apart and be useless. Right. Right. But I do think that there needs to be more public dialogue about that's definitely what those standards should be and how. And I think, like, just getting away from some of the really, really large industry players, like, maybe smaller kind of bottom up type of self regulatory approaches could work here. Yeah, it's a, you're a dow out. There and you want to think about this. Love to talk to you. Yeah, you know, some, get some public goods funding to fund this topic. Yeah, it's, I love public goods funding, but, you know, can't just, like, wave a magical on and make it happen. You can't. I think you can. You can just walk up to it. You can. I don't know if it works. Definitely happened before. Yeah, that's definitely true. Well, moish, that about wraps it up for this week's edition of Block and Order. Thank you, everybody, for, for watching and listening. Please remember to follow us on all our socials. Links are down below in the, in the show notes. Also, if there's a particular topic you'd like us to cover, please leave us a comment down below. We, we love to hear your thoughts. Any feedback and constructive criticism just helps us make the show better. Please remember that this show is meant only for informational and entertainment purposes only. Nothing contained herein is meant to be construed as financial and or legal advice. If you're going to engage in cryptocurrency or take the plunge down the rabbit hole, please consult your own attorney, get your own representatives, and, of course, do your own research. Very special thank you to producer Chris, without whom this episode would not be possible. And also remember that just because we discuss certain projects and cryptocurrencies on this show does not represent an endorsement by us of said assets, as well as the fact that Moishe and I and the other makers of the show may own some of these assets on their own. That doesn't make us a financial wizards or anything like that. Please do not take that as an advantage endorsement. So on behalf of Block and Order, I'm Kyle Lawrence. I'm Moishpeltz. See you next time. Thanks, everybody.