Canadian Lawyer

w w w . c a n a d i a n l a w y e r m a g . c o m J A N U A R Y 2 0 1 9 63 proactively," notes Imran Ahmad, a business lawyer who specializes in cybersecurity, technology and privacy at Miller Thomson LLP. For now, thorny issues dealing with crypto-currencies are hogging the attention of the courts and regulatory authorities. In the U.S., as of mid-November 2018, 57 class actions and other private lawsuits dealing with digital currencies were launched as were 53 cease-and-desist order cases, 26 criminal cases and 19 suits filed by two regulators, the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission, according to a crypto-currency litiga- tion tracker published by the American law firm Morrison Cohen LLP. In Canada, there have been 17 cases dealing with crypto-currencies that were heard over the past 18 months by the courts, securities regulators or administrative tribunals. Most of these cases have several running lines. Other than those begun by regulatory authorities cracking down on crypto companies allegedly selling unregistered securities or allegedly engaged in fraudulent activity, some cases are the result of corporate partnerships gone sour and yet others by dissatisfied buyers. On top of that, the North American Securities Admin- istrators Association revealed that more than 200 active investigations of initial coin offerings or "ICOs" — a form of fundraising popular among crypto-currency firms — and cryptocurrency-related investment products are currently underway by state and provincial securities regulators in the U.S. and Canada as part of Operation Cryptosweep. More than US$20 billion has been raised by crypto projects through ICOs since the start of 2017, according to research firm Autonomous NEXT. "The reason we are starting to see a lot of disputes involv- ing cryptocurrencies is because even with the recent decline in prices, they have more value than they did a couple of years ago, and so obviously it is now more worthwhile to have a dispute," says Evan Thomas, a lawyer with Osler Hoskin & Harcourt LLP, who works with crypto startups on regulations and compliance. The lack of clear-cut regulatory guidance over the status of crypto-currencies and ICOs does not help matters either. A 2018 report by the Blockchain Research Institute said that innovators in the space lament the "lack of regulatory clarity and guidance." In the absence of clear regulatory guidance over crypto-cur- rencies, two cases emanating from the Supreme Court of British Columbia underscore the challenges the courts face in trying to craft rulings that meet the new realities of the digital economy. The first case involves Copytrack PTE Ltd., a Singa- pore company that erroneously transferred its digital tokens valued at approximately $495,000 instead of $780 worth of tokens to an investor. The company advised the defendant of the mistake, but he did not return them, claiming that the virtual currency was no longer in his possession or control. The court granted an order allowing Copytrack to trace and recover the wrongfully transferred crypto-currencies, thereby implying it is property, even though it did not explicitly hold that crypto-currencies are property. (It is highly unlikely that Copytrack will recover its digital tokens as the defendant died before the summary application was heard.) The "proper characterization of cryptocurrency" is "a complex and as of yet undecided question" that could not be determined by summary judgment, held the court in Copytrack Pte Ltd. v. Wall. Yet, several months later, in another case involving a former executive accused by his former employer of mis- appropriating US$5.3 million worth of digital currency, the court assumed that virtual currencies are property. "These cases illustrate that the courts are in the process of figuring out how to apply the existing law to these novel facts," says Thomas. "We are going to see inconsistencies around the edges between decisions, and that's not unusual. That is often how the law develops." That is also the likely scenario that will occur when block- chain-related cases, other than those involving crypto-cur- rencies, begin making their way to the courts. But the legal issues the courts will need to address will be of a different ilk. Take blockchain-based smart contracts, an application of blockchain technology that growing numbers of business are adopting. This involves a computer code that automatically executes all or parts of an agreement that is stored on a blockchain-based platform. Smart contracts can either be the sole manifestation of the agreement between the parties or a digitized version of a paper-written contract. Proponents tout blockchain-based smart contracts as being able to cut What do your clients need? The means to move on. Guaranteed ™ . Baxter Structures customizes personal injury settlements into tax-free annuities that can help your clients be secure for life. Need more information? Contact us at 1 800 387 1686 or baxterstructures.com Kyla A. Baxter, CSSC PRESIDENT, BAXTER STRUCTURES READERS ' CHOICE 2018-19 STRUCTURED SETTLEMENTS ntitled-4 1 2018-10-25 5:57 PM

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