BakerHostetler<\/a>\u2019s New York office representing blockchain industry companies, the former national leader of its securities litigation and regulatory enforcement practice team, and former SEC enforcement division branch chief. Jonathan A. Forman is a counsel at BakerHostetler who represents companies and executives in connection with litigation, government investigations and regulatory examinations, and who advises
\nregulated entities on their compliance programs.<\/h6>\n
\nWith respect to personal jurisdiction, the court dismissed the claims against Bitcoin Suisse because its CEO submitted an uncontested declaration that it did not provide services for the ICO to any U.S. investors. The court reasoned that Bitcoin Suisse did not purposefully avail itself of U.S. laws to support personal jurisdiction because its conduct was not expressly aimed at the United States.<\/p>\n
In contrast, the court found personal jurisdiction to exist over the Foundation based on several factors. The court began its analysis by recognizing the prevailing law in the United States that a website being hosted on a U.S. server, which is freely accessible by U.S. citizens and highly interactive, is not enough to support personal jurisdiction. Yet the court noted that other factors illustrated that the Foundation purposefully availed itself of U.S. laws. In particular, the court pointed out that the Foundation had at least one U.S.-based employee or agent \u2013 namely, the California-based Breitmans who founded it \u2013 and marketed the ICO almost exclusively in the United States, resulting in 30,000 U.S. contributors. The court also emphasized that personal jurisdiction is reasonable in light of the fact that the Foundation built an English-language website that was hosted in the United States and structured the ICO to accommodate U.S. investors.<\/p>\n
For similar reasons, the court denied the defendants\u2019 motion to dismiss for improper extraterritorial application of the Exchange Act. Meanwhile, the court recognized that the forum non conveniens<\/em> argument was a \u201cstrong one\u201d that could later result in dismissal, depending on discovery. Yet the court at this point found that the customers were not on notice of the foreign forum selection clause in the Tezos website\u2019s browsewrap agreement. Unlike clickwrap agreements that require affirmative confirmation of assent to terms and conditions, browsewrap agreements infer that users assent to the website\u2019s terms and conditions when they browse it.<\/p>\nPlexCorps<\/em> SEC Enforcement Action<\/h2>\nIn December 2017, the SEC initiated an enforcement action against PlexCorps and two of its principals, Dominic Lacroix and Sabrina Paradis-Royer \u2013 both Canadian residents \u2013 for allegedly participating in a fraudulent fundraising scheme in connection with the sale of $15 million of PlexCoin cryptocurrency. According to the SEC\u2019s complaint, Lacroix issued a whitepaper and created web pages and Facebook accounts marketing PlexCoin, and Paradis-Royer took steps to obscure Lacroix\u2019s involvement. After Lacroix and Paradis-Royer engaged in the jurisdictional discovery and Lacroix failed to appear for a deposition in Canada, they moved to dismiss for lack of personal jurisdiction.<\/p>\n
In an unpublished decision, the court applied the traditional personal jurisdiction analysis to deny their motion. In particular, the court found personal jurisdiction over Lacroix and Paradis-Royer because they allegedly conducted business during one visit to the United States, used U.S.-based payment service providers and marketed PlexCoin to U.S. investors via the Internet.<\/p>\n
Lacroix and Paradis-Royer argued that their trip to the United States was for leisure. The court discounted their argument, instead, finding that the trip was a \u201csignificant contact with this forum\u201d because during it Lacroix allegedly registered two PlexCoin-related websites with a U.S. registration company and logged into PlexCoin\u2019s PayPal account approximately 20 times.<\/p>\n
Similarly, the court found significant Lacroix and Paradis-Royer\u2019s repeated use of six accounts with U.S.-based payment service providers Square, Stripe, PayPal and Kraken to process thousands of PlexCoin sales for U.S. investors totaling nearly $4 million. The court noted this was a significant portion of the total PlexCoin token sales of $15 million and that many of those sales
\nwere made in U.S dollars. There were at least 3,500 token sales through these U.S. payment service providers to U.S. investors.<\/p>\n
Perhaps the most compelling factor considered by the court was Lacroix and Paradis-Royer\u2019s alleged use of interactive websites on the internet to market PlexCoin to U.S investors. For example, Lacroix and Paradis-Royer allegedly created three Facebook accounts to convey information about PlexCoin, PlexCorps and the ICO and to respond to questions about them. The\u00a0court found these accounts were \u201cintegral to finding investors and directing them to participate in the alleged fraudulent scheme.\u201d The court also noted that these accounts appeared to be directed at Facebook users in the United States, as evident from Lacroix\u2019s own declaration that the \u201cads were published everywhere<\/em> on the planet,\u201d including at least one that specifically targeted \u201cNorth
\nAmerica,\u201d and the declarations of two U.S. purchasers who stated they learned about the ICO from Facebook.<\/p>\nAs another example, the court pointed to the PlexCoin websites registered by Lacroix with U.S. registration companies, which were designed to conduct business and were in fact used by at least four U.S. purchasers. Lacroix argued in his motion papers that he instituted controls to prevent offering PlexCoin to U.S. and Canadian citizens or residents by excluding them as part of the
\nwebsite\u2019s terms and conditions and requiring potential purchasers to certify that they were not a U.S. citizen or resident. However, the court found this argument unpersuasive because the SEC provided evidence that Lacroix knew these controls were \u201cat least somewhat ineffective.\u201d Further, the court stated that Lacroix removed these controls during the offering and publicly announced PlexCorps was doing so, all in an attempt to have more U.S. investors participate.<\/p>\n
Considerations to Avoid Jurisdiction of U.S. Courts<\/h2>\n
It is unsurprising that the two courts applied traditional minimum contacts analysis to determine whether personal jurisdiction exists over the Tezos<\/em> and PlexCorps<\/em> foreign defendants. Given the factual nature of this analysis, these decisions are significant in showing what may constitute sufficient contacts with the United States such that a foreign defendant purposefully availed itself
\nof the privilege and benefits of U.S. laws and therefore should reasonably anticipate being haled into its courts. More significantly for the global ICO market, the PlexCorps<\/em> decision illustrates that personal jurisdiction also may exist where a defendant\u2019s foreign activities cause effects in the United States, and the defendant knew or had reason to know that those activities would have those
\neffects.<\/p>\nThese decisions also highlight the following activities, which could subject foreign parties involved in the issuance or marketing of an ICO to jurisdiction in U.S. courts:<\/p>\n
\n- Visiting the United States.<\/strong> The PlexCorps<\/em> decision was based in part on incidental online business activities that Lacroix and Paradis-Royer conducted while they visited the United States. Given this, any trip to the United States, during or before an ICO, could subject an issuer and its principals to jurisdiction here. Even numerous telephone calls into the United States could serve as a jurisdictional basis.<\/li>\n
- Using U.S.-Based Agents or Service Providers.<\/strong> The PlexCorps<\/em> decision recognizes that simply opening an account with a U.S.-based service provider does not confer jurisdiction. However, both decisions emphasize how using U.S.-based agents or service providers may support personal jurisdiction. For example, the Tezos<\/em> court found personal jurisdiction over
\nthe Foundation in part because it had at least one U.S.-based employee or agent, and the California-based Breitmans acted as its marketing arm. Similarly, the PlexCorps<\/em> court relied significantly on Lacroix and Paradis-Royer\u2019s repeated use of U.S.-based payment service providers in the sale of PlexCoin. Yet the PlexCorps<\/em> court did not appear to address in detail where the actual payments were processed or where the servers were located. The court gave short shrift to the defendants\u2019 argument that the \u201csale\u201d did not occur here in the\u00a0United States, but in Singapore. What is clear is that using any U.S.-based businesses for an offering opens up defendants to claims of jurisdiction by U.S. courts.<\/li>\n- Ineffective Blocking of U.S. Investors.<\/strong> The PlexCorps decision is focused on the tepid efforts by the defendants to restrict U.S. investors from participating in the offering. Their website allowed access to the marketing materials by all viewers. Only when there was interest in the token was a viewer purportedly required to check a box verifying he or she was not a U.S. or Canadian citizen before being allowed to purchase in the ICO. Also, Lacroix was aware there were U.S. investors purchasing tokens by their ISP address but did not block them. And he did not take any immediate steps to rescind those transactions.\u00a0If you\u00a0<\/strong>seek to avoid U.S. investors, you must have effective controls on purchasers, and tokens\u00a0<\/strong>with built-in restrictions, based upon transferability and country of citizenship.<\/strong> The\u00a0PlexCorps<\/em> decision also illustrates how public statements in marketing materials and white papers could color the intent relating to ICO activity and subject a foreign defendant to U.S. jurisdiction. For example, the court relied on Lacroix\u2019s declaration that the PlexCoin \u201cads were published everywhere<\/em> on the planet\u201d and that he was aware of at least one\u00a0campaign that targeted \u201cNorth America.\u201d<\/li>\n
- Social Media Marketing to U.S. Investors.<\/strong> Both decisions weigh how internet activity may trigger personal jurisdiction. For example, the Tezos<\/em> court recognized that a highly interactive website hosted on a U.S. server and accessible by U.S. citizens would not by itself support personal jurisdiction. However, the court found that it would where there is
\nevidence that an ICO was being marketed online almost exclusively in the United States through an English-language website. Similarly, in finding personal jurisdiction, the\u00a0PlexCorps<\/em> court relied in part on Lacroix and Paradis-Royer\u2019s use of Facebook accounts to directly market to U.S. investors.<\/li>\n- Having U.S. Investors.<\/strong> Predictably, both decisions show that having U.S. investors weighs heavily in favor of personal jurisdiction, even where some steps were taken to avoid them. The threshold here may be low. For example, unless U.S. investors misrepresent their citizenship and residence, a significant number of actual U.S. investors would support an inference of ineffective efforts by an issuer to avoid activities with effects in the United States.<\/li>\n<\/ul>\n
Ultimately, both decisions caution foreign ICO issuers, marketers and service providers by showing the difficulty in avoiding the jurisdiction of U.S. courts.<\/strong><\/p>\n
\nThe views expressed in this article are those of the authors and not necessarily those of BakerHostetler or its clients.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"By Marc D. Powers and Jonathan A. Forman 1 Over the past year, the plaintiffs\u2019 bar and Securities and the Exchange Commission (SEC) have brought class and enforcement action proceedings, respectively, against those involved with the issuance and marketing of initial coin offerings (ICOs), including those located outside the United States. The proceedings involving foreign […]<\/p>\n","protected":false},"author":5,"featured_media":763,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[59,60,61,62],"_links":{"self":[{"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/posts\/760"}],"collection":[{"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/comments?post=760"}],"version-history":[{"count":0,"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/posts\/760\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/media\/763"}],"wp:attachment":[{"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/media?parent=760"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/categories?post=760"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/timestampmag.com\/wp-json\/wp\/v2\/tags?post=760"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}