The Pillars Needed in your Projects Legal Foundation by Anibal Suriel, Esq.

you uh for showing up I appreciate each and every one of you my name is aniwal suriel and I am the managing partner at solidity law uh we're a miami-based law firm and today we are talking about the pillars needed for your projects legal foundations um the reason I wanted to talk about this topic specifically was more so you know having a talk geared towards you guys as developers I know it's not the first thing on your mind when you're thinking about what do I need for my project you're more so there to you know create bring your bring your product to life and and whatnot and this I understand very much so I did want to bring a little bit of a value piece for you guys towards the end of the presentation there will be a QR code where you can go ahead and download a free checklist for any sort of legal forms needed for the different pillars right so with that uh let's move on uh and just before I begin I guess a little bit about myself I'm a self-styled blockchain attorney um but that's a bit of a catch-all term it really means an attorney who practices in multiple different fields right so one day I may help you guys incorporate your company another day I may help you guys register your uh trademarks or copyrights uh maybe draft some employment contracts and depending on what your project is doing or particularly in regards to tokens I can help you guys either shape the product so that it avoids uh SEC scrutiny or I can help shape the product so that we can actually register it properly with the SEC that way you guys have no worries as to what's going to happen on the road so with that being said the six pillars that I do want to talk about are the corporate structure and the internal operations for your company intellectual property uh your hiring practices data privacies and the terms you have with third parties anything when it comes to fundraising and financing and then of course the more important things for you guys uh the blockchain digital assets and web 3 aspects to your projects right so with that being said um I did tailor the the the presentation so that it speaks a little more to you guys right I originally had put together something that just covered the the basic contracts that you might need but I wanted it to be a little more engaging and with this sort of intimate crowd you know if any of you guys have questions just off the bat feel free to jump in and ask right um so with that being said a lot of the times you'll see the news and it's something new that's coming out about uh for example with regards to the corporate structure and uh the latest thing you know Dows um I think a lot of people here are aware of how Okay Dao was recently sued by the cftc and this was because they were in violation a lot of a lot of uh cftc laws right they were operating on Commodities exchange etc etc and the important thing to highlight there is that I know a lot of projects here in the space are on the latest things right dials are a trend I asked you guys to maybe take a step back and think about do we really need a dow and if we're going to do a dial let's do it correctly right uh uh because what happened in that situation was with okidao is that the cftc once ahead and uh sued okidao as an unincorporated association what does that mean that means everybody who's a part of that on an unincorporated association is held uh several severally and jointly liable for anything that the Dow does and this isn't the best new for you the best news for you guys because you want to avoid that sort of liability when it comes to maybe a rogue actor doing something illegal through that Dao because each and every one of you as a token holder depending on the governance token and depending on the underlying agreement beneath that token you may be held liable for that Dao's actions as well which is of course something you want to avoid so of course when it comes to thinking about okay what do I need to do here uh you know make sure to incorporate if you can think about what you need have the right agreements in place with the founders and other shareholders that way there's never any sort of situation as to uh you know creating bottlenecks for your company or maybe who is going to be held liable in this sort of situation it's always better to have the clarity before you know uh moving forward right so that's pillar number one pillar number two is the intellectual property and this is arguably one of the more important pillars because it affects the other ones right if you don't have your intellectual property rights um under lock uh it affects the value of what you can bring when you want to go ahead and fundraise right one of the more important things that too many people do not know about are you know keeping a track of your IP portfolio what goes into this is uh you know listing out everything that you have when it comes to trademarks copyrights intangible assets things like that that way when you go to fundraise you have something you have a document that pretty much shows hey look this is everything that we own and this is why the company should be worth XYZ right so this is something to look into and other than that some of the tools that you can have in place are you know making sure that you are getting the IP from your employees and independent contractors making sure that you're registering your trademarks appropriately that way if you do have to go to court to defend it you're ready to do so so that's uh pillar number two pillar number three is more about hiring and how you go about engaging other people right so of course we're in the crypto industry and everything is very Global and the sort of ethos in the spaces very much that because we're Global we're not really subject to any one jurisdiction but this couldn't be further from the truth right every country has the right to enforce their own laws and the reality of the situation is that when you have employees in another country you will be subject to those laws and that maybe you're not providing the right benefits for these people maybe you classified an independent contractor incorrectly as a as a as an as an employee or vice versa these are the sort of things you want to avoid because fines can run anywhere from the thousands to the tens of thousands and scaling up and up and up what I would recommend because uh this is such a global industry is look into something called employers of Records this is something like remote.com or deal.com where pretty much these companies have uh companies set up in each and every country that way if you find a developer out in Poland you don't have to worry about the admin fees you don't have to worry about the illegal headaches you don't have to worry about all these other things that frankly would be way too expensive for you to go out and incorporate a company out there right so these companies go ahead and take care of all of the headaches for you and your employee would essentially be delivering the services exclusively to you that way you're legally compliant and you never have to worry about like oh maybe the labor department is going to come after me maybe they're not we'll see but that being said the next pillar is data privacy in terms what I mean by terms is more so the terms that you have with their parties so if you were to have a website this can look like the terms and conditions if you were to have an app maybe it could look like a Eula things like that and and if you're a B2B company then you should for sure have these sort of uh Professional Services agreements in place uh these things are important just because you know for example uh Celsius the situation with Celsius came into the news because uh their terms and conditions allowed for them to keep on to a lot of people's uh funds at the end of the day which to a lot of people wasn't the right thing but the judge did what the judge was supposed to do uh they read the law and they just said it they wrote the case for what it was right um all of this to say that when you bring these things in place it's important for you not to just copy and paste from another website not to just go to chatgpt and say hey type me up uh terms and conditions the issues there is that everybody's projects especially in the space is highly personalized there's things that you may not think about that are missing there's things that you may add to the terms and conditions and what ends up happening is for example if you have a disgruntled customer they go ahead and make a complaint to the FTC the FTC will go ahead and say okay we're going to look at your terms and conditions and your privacy policies and if you're doing something that's not in there the FTC can very much say that you guys are doing unfair and deceptive practices and that is very much you know that comes with its own fines right so it's very important to you know pay attention to these things and it's not a trivial thing to just go out there and try to be your own lawyer at the end of the day if you're trying to be your own lawyer you can't go after somebody when something goes wrong is one thing I want to say um and then with regards to data privacy it really is developing a field at least here in the US it's a bit of a patchwork when it comes to you know California has its own data privacy protection laws uh Virginia as well etc etc it is important to go ahead and have um you know somebody there to guide you and say hey look let's have a normal terms and a normal privacy policy let's have a separate privacy policy for those in California at the end of the day you can never really control with who is going into your website who's buying your products etc etc so it is better to be prepared versus not be prepared right um and then one of the other pillars right is financing and fundraising in these sort of situations I highly Advocate that you make sure you have the right agreements in place because I've personally witnessed situations where uh I'll have a friend who builds a company uh with some other individuals those other individuals never put in the work that they say they would put in and now all of a sudden they have all of these shares without putting in more effort or they go ahead and try to strong arm the situation and dilute the other individual shares something that you want to avoid you don't want to end up like uh you know Facebook and and the winkowas twins and everything like that very much this is an area that you should pay attention to right and when it comes to financing of course in crypto there's a lot of talk of uh you know let's let's do an Ico no big deal but the situation here really is that the SEC views 90 of tokens out there as Securities whether you agree with that or not that has uh really no bearing because Gensler will go after you whether it's two or three years down the line they will so I'm I'm a huge advocate of a either you know trying to to shape your your your your token maybe like uh one that's called uh Pocketful of quarters I would look that one up that one is very much not a security they got a no action no no action letter from the SEC um or you can always go ahead and register it with the SEC or do an exempt offering and it sounds complicated but at the end of the day it's not it's really is about just providing a pitch deck providing all of your your promotional materials and letting the public know hey look this is what's going into the project these are all the risks and that's all that that's pretty much what the SEC cares about right now they're really only going after the worst of the the Bad actors out there they're going after the very high profile blatant actors um maybe you can slide by for two or three years but it's it's always better to assume hey look I'm more than likely issuing a security and worst case scenario you can go to a lawyer to get a token legal opinion to go ahead and and say hey look as of right now with the promotional materials and how you guys are doing your business this is more than likely a security or it's not and that can be your sort of uh Insurance uh to a certain extent right yeah uh so it's not really I don't believe it's a ruling it's more so that um the SEC is going after them because they're alleging that the NBA top shots are securities and what are they they're just nfts may be a security what really goes into that is um everything is based off and I'm sure you all have heard it the Howie test um and it's pretty much if something is an investment contract it's a security what is an investment contract there's about four prongs to that test and it's if you're pretty much bringing together investors money in uh in a pool with the expectation of profits based off of the efforts of other individuals so um when I say a token legal opinion will save you for a fraction of the time it's because it really does depend on the way you're marketing something right if you're marketing something as say hey look come come by this token because it's a great investment you're selling pretty much the opportunity of hey let's let's make money by you buying into this that the SEC would say that's a security because you're selling the investment opportunity there um and if I were to go ahead and assume why the SEC was going after diaper Labs it's because they're very much marketed as a way of like hey come buy these nfts we're the first in the space you're going to make money et cetera Etc and that's the issue so maybe at the end of the day you're not selling stock from a company which is a security right but if you're selling something as an investment opportunity that's what the SEC is going after it's the way you're marketing it you could always start off with a security and then can end up not being a security and vice versa so it's always important to pay attention to the way that you're marketing something or the way a company is marketing something pretty much does that answer your question yeah in my view um no no but the issue is is that you have to go by the way maybe Gensler would unfortunately there hasn't been much uh actual precedence set other than like Library token uh what else right now that uh Ripple is still going through that one would have a huge impact in setting actual precedent but a lot of the times things go to litigation they end up settling and then there's no precedent off of that right but yeah it's it's always best to to consult with an attorney and they'll tell you hey look even if it's just a white paper that you have somebody will take a look at that white paper and say hey look you should change X Y and Z just to avoid unnecessary problems right thank you you mentioned one specific term uh for the non-security token you said something like in the middle of your of that previous slide that I don't didn't get the term that you used but was really curious um uh what was the what was the term when you were saying how the 99 of tokens are considered Securities and you said uh out there yeah so there's a there's a case called pocket full of quarters or or pocket of quarters Pocketful of quarters I think is what is called um this case it was pretty much a dad and a son that got together uh they created a token and it wasn't a security because and never left the system there was no sort of advertising to the Token itself uh there was an unlimited Supply um you know there were just a lot of things that lended to the fact that it wasn't meant to fundraise literally it was just meant as a as a way of transactioning on the platform uh uh and that's it the SEC is not interested in going after projects like that if it's a closed loop system if it's uh if it's more so working like a gift card you shouldn't have issues there but when it's when your main uh goal is to say hey look come by this because there's an investment opportunity here that's when you're going to run into problems and this isn't to say like be afraid of that but if that's what you're going for do it correctly go to there's a whole bunch of exemptions out there that you don't have to do full registration but the SEC there's a regulation CF if you want to raise anything below 5 million I believe there's regulation a uh for anything below uh 20 million and then tier two for anything below 75 million and these are really they're not easy to do but they're a lot easier than full-on registration with the SEC and it'll take three or four months to do these sort of exemptions but I would think that's better than you know dealing with the SEC in two or three years uh strictly speaking I can imagine many projects can uh right now altcoins right they can qualify for this packet full of quarters definition right because those tokens are used to transact in the ecosystem and yet obviously all the cryptocurrency investors they do expect appreciation and that's that's the reason why they invest but um like what will prevent the uh like SEC from calling them a Securities if it's you know it can be like adult token or maybe that is actually a bad example because they were called the um like infrastructure token something like that right yeah uh but like for example [Music] um Phantom token for instance right it's used in a phantom ecosystem across many Phantom chains so how like why why would we think that SEC will still apply the definition of the Securities to those tokens and they just it's like I understand it's completely vague area to everyone yeah so I mean because I'm a lawyer I'm always going to say you should err on the side of caution right uh there's usually three approaches that I recommend to a client when they speak to me first uh they tell me what their project is and I say look you have three options here you can either try to tailor it so that it's not a security and just go to market hopefully the SEC won't pay attention to you you can get a legal opinion done that way you have some sort of paper that says hey look I never went to Market with a security um the third option there and actually there's four options the third option there is to get that token legal opinion and then to uh sort of interact with the SEC and say hey look I'm looking for a no action letter take a look at my my token these are the features can you let me know whether this is a security or not uh if they issue it to you amazing I know the SEC nowadays is very uh understaffed um and then the fourth option is to either go for an exemption or to do the full-on registration um the reason I recommend the exemptions and the full-on registration is so that you can go ahead and market your token the way you want without ever you know worrying about is the SEC going to come after me um but those really are the the four options it's so let me ask you is there an issue with it being a security understanding is we we would rather have a wider holder base for the token because those like if it's registered if it's registered security then only qualified investors can interact with that to correct yeah that's the drawback then I can imagine for most of the crypto protocols they prefer preference will be to not be considered a security so then um the kind of the full registration is like the the last well I mean the most complex it is the most complex and in I would say 90 of this of the of the cases you don't need to do full registration this is why I advocate for the exemptions uh so regulation CF regulation a regulation D regulation s it's a whole bunch of uh terms that kind of like gatekeep I get that but my point is uh the rules are very clear and and it's not hard to do these exemptions will be able to be able to welcome but attacked a closed loop token want to be a security so in that case what happens if a trading Market develops on its own later on so for example we should disclosed Loop tokens and after that some time people start using that trading that what happens at that point of time so there's okay so when I first mentioned the four prongs of the Howie test uh there is a lot of case law that goes into it right if you are if you as the company are sort of actively building that secondary Market you're saying hey look we put together this platform you could trade it the SEC would look at that and say okay you're supporting a secondary market and that goes towards the third prong and saying that um the profits are based off of somebody else's efforts but if you're telling me that a secondary Market develops on its own that is totally fine if if it organically develops on its own it has nothing to do with the efforts that you put in as a company should be in the clear you know pending the other the other factors right um yeah any other questions no I'll continue with the uh the other pillars well okay so the last pillar that I wanted to talk about because it's such a niche industry um and so you know developing laws uh in the US itself and outside uh you really should have in place uh very tailored documents right uh so if you were to go for maybe an Ico I would look at maybe putting in place a simple agreement for future tokens uh you having a token user agreement that way no one can go ahead and use the nfts against your own wishes uh maybe sort of you want to reserve certain rights for yourself Etc et cetera these these sort of the agreements that I have in place there and don't worry actually the next slide uh I have a QR code if you guys want to scan it just to make sure you have all the documents in place more than welcome to um but yeah I mean those those that was pretty much my my presentation uh if you guys have any sort of questions I'm a very approachable person uh feel free to ask anything and uh let me pull up the uh the QR code so um only other thing I could say is uh yeah if you have any questions just just please approach uh at the end of the day I I try to uh laugh yeah that that that that's it guys thank you guys foreign