The Block is delighted to bring you expert cryptocurrency legal analysis courtesy of Stephen Palley (@stephendpalley) and Nelson M. Rosario (@nelsonmrosario). They summarize three cryptocurrency-related cases on a weekly basis and have given The Block permission to republish their commentary and analysis in full. Their analysis, Crypto Caselaw Minute will be split into three posts this week.
This week’s CCM looks at a company that may have violated its own terms and conditions, gives an update on Ripple jurisdiction jockeying, and talks typos, trenches and ICOs. (As always, Rosario summaries are “NMR” and Palley summaries are “SDP”.)
Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario [twitter: @nelsonmrosario] and Stephen Palley [twitter: @stephendpalley] . They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.
Nirvana Capital Ltd. and Winslow Strong v. Mobile Gaming Tech. Inc. et al.(ND. Cal. Filed 12/12/2018) [NMR]
We live in a world of contracts. You sign contracts all the time to use a variety of services. Login to Facebook? You signed a contract at some point. Signed up for a chance to win a free cruise? Contract.
Often times, most of the time really, people don’t read the terms and conditions that are associated with these contracts. The phenomenon is so prevalent that agreements on the Internet are often called “clickwrap agreements.” A person only has so much time in any given day, and spending it reading onerous agreements is generally not very high-priority. That said, it is a fair assumption that the companies offering up these long agreements have some passing familiarity with the terms and conditions they expect people to agree to. Right? Well … maybe not.
Mobile Gaming is a company that ran an ICO to fund the development of their gaming platform, and their corresponding ecosystem where participants could buy goods and services with the tokens, CashBet Coins, sold during the ICO allegedly from January 2018 to April 2018. In fact, Mobile Gaming allegedly at one point claimed to have 4.25 million active players on their gaming platform. This new gaming platform and the CashBet Coins were apparently an attractive investment opportunity for Nirvana Capital and Mr. Strong. Eventually, members of the Mobile Gaming Tech. team and Nirvana Capital met to discuss just such an investment. What went wrong?
Well, according to Nirvana Capital and Strong, there was some measure of misrepresentation in that allegedly there was no gaming platform, there was no ecosystem, there were no users of either, and the documents they were shown were not wholly truthful. If true, then this is a fairly typical ICO that was not on the level. What is interesting about this particular ICO are the terms and conditions that Nirvana Capital and Strong agreed to.
In particular, Mobile Gaming had provisions regarding potential investors in the United States. One such provision is rather reasonable:
FOR RESIDENTS OF THE UNITED STATES: TOKENS ARE ONLY BEING OFFERED AND SOLD TO RESIDENTS OF THE UNITED STATES WHO QUALIFY AS “ACCREDITED INVESTORS” UNDER REGULATIONS ISSUED PURSUANT TO THE SECURITIES ACT.
Nothing out of the ordinary here. A reasonable provision given the subject matter. The same could be said for the following provision:
FOR RESIDENTS OF NEW YORK: CASHBET COIN ARE NOT BEING OFFERED OR DISTRIBUTED TO ANY RESIDENT OF, OR ANY PERSON LOCATED IN, THE STATE OF NEW YORK OR ANY ENTITY, INCLUDING, WITHOUT LIMITATION, ANY CORPORATION OR PARTNERSHIP CREATED OR ORGANIZED IN OR UNDER THE LAWS OF THE STATE OF NEW YORK (“NEW YORK PERSONS”). CASHBET IS NOT SOLICITING PURCHASES BY NEW YORK PERSONS IN ANY WAY. (emphasis added)
Okay, looks fine. So, what’s the problem? Recall that the Mobile Gaming team met with Nirvana to discuss investing. The alleged location of that meeting? New York City during the Consensus conference in May of 2018. That sounds to me like someone located in New York. The terms and conditions are always important, but especially when they are your terms and conditions.
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Term sheets: Locations Matter written by Contributor Network @ https://www.theblockcrypto.com/2018/12/23/term-sheets-locations-matter/ December 23, 2018 Contributor Network