What's Next: JP Morgan Dives into Cryptocurrency + Fighting for Digital Civil Rights
Welcome back to What’s Next, where we report on the intersection of law and technology. In today’s briefing, we take a look at JP Morgan crypto news and what it means for the industry and attorneys, plus a look at how one Big Law firm is helping victims punch back against alleged perpetrators of “revenge porn.”
JP Morgan’s Big Cryptocurrency Reveal
JP Morgan announcement last week that it has developed and tested its own digital coin, called JPM Coin, is a huge fintech development. It’s the first move by a U.S. bank—the nation’s largest at more than $2.6 trillion in assets—and is likely to make a significant impact on banking, cryptocurrency and the economy, said Drew Hinkes, general counsel, CLO and partner of Athena Blockchain, an advisory firm that helps companies issue securities in token form. “The largest bank in the U.S. is making a very smart play to capture a lot of capital and a very unique data set, and to minimize fees in a unique way going forward,” Hinkes said.
The project involves a number of regulatory issues that need to be addressed, including state and federal money transmitter laws. Those issues involve agencies such as the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority. The bank’s attorneys likely began discussing the project with regulators long before the bank’s plans were announced, Hinkes said.
As for what this development means for attorneys practicing in fintech and financial services in general, Hinkes said clients will want to understand how this changes their banking relationships.
“Counsel needs to understand the technology in the difference between public and private systems to advise their clients as to the impact of these new technologies,” Hinkes said. “Financial services companies need to understand how this development may change their financial relationships. And privacy advocates may be concerned about the centralization of private financial data.”
JP Morgan said that it successfully created a digital token with a stable value tied 1:1 to the U.S. dollar, based on blockchain technology allowing immediate transfer of payments between institutional accounts. When one bank client sends money to another using their Quorum blockchain, the digital coins will be transferred and redeemed for the equivalent amount of dollars, reducing the time it takes to settle a transaction, the bank said in a statement.
The virtual coin is a prototype that will be tested with institutional clients in business-to-business transactions, and it has not yet been approved by regulators.
“As we move towards production we will actively engage our regulators to explain its design and solicit their feedback and any necessary approvals,” according Umar Farooq, head of digital treasury services and blockchain at JP Morgan.
Hinkes, who is also an adjunct professor at New York University School of Law and NYU Stern School of Business, said: “This allows JPMorgan conceptually to capture massive amounts of client money and move it in token form instead of in actual cash form, which saves tremendously on fees, and will allow the bank to capture data about transactions that no one else will have." Unlike Bitcoin or Ether, it is not on a public network where transactions are validated by multiple distributed parties.
JP Morgan’s announcement came as a surprise to some observers because Chairman and CEO Jamie Dimon expressed disdain for Bitcoin, calling it at various times “a terrible store of value” in 2014, and “a fraud” 2017.
Civil Rights in the Digital Age
There are so many ways to be a malicious actor on the Internet these days, whether it’s a hacking attempt, doxing someone’s personal information, or just being a jerk on social media. But there’s one particularly nefarious activity that some attorneys are looking to fight that deserves special attention: revenge porn.
In some cases, sexually explicit photos and videos were willingly shared privately, but never intended for the public. In others, these photos or videos may not be real at all, intended solely to harass or humiliate an individual or group. In any case, it’s a gross violation of privacy rights, and one the law is not yet fully developed to stop.
Frank Ready at Legaltech News reported on the pro bono work of a team of attorneys at the Cyber Civil Rights Legal Project out of Miami, backed by K&L Gates, which has filed lawsuits to unmask the identity of anonymous actors, drafted cease-and-desist letters and help de-index results from search engines. The project has even made referrals to counseling as needed. The team of 75 to 90 K&L Gates volunteers spans three continents and is equipped to provide other services befitting the requests that come in from the project’s website.
It’s an example of how attorneys can use their skills proactively fight malicious acts, even if the law is still catching up. To CCRLP co-founder and K&L Gates attorneyElisa D’Amico, it’s an extension of the civil rights work that attorneys have been doing for ages, just with a new digital spin. “We believe that this is a violation of civil rights, more specifically someone’s cyber civil rights,” she said.
Dose of Dystopia
OK, so warrantless access to all your mobile phone’s location information for the past few months? That’s a no-no, according to the U.S. Supreme Court. But how about Google giving police the location data of anyone passing through a few square blocks in the span of several hours? Sure, sounds good!
In this story, Minnesota Public Radio takes a look at the increasingly frequent practice of police seeking “reverse location search warrants” to have Google hand over data that could help them identify who might have been in the vicinity of a crime as it happened. This has been written about by Forbes before as it pertains to the FBI, but the article illustrates how the practice is becoming more pervasive among local law enforcement as well.
You may remember that kerfuffle about Google tracking your Android device even if you told it not to. As the MPR article explains, unless the default settings are changed, Google keeps track of where users of Android and its Google Maps app go.
Nathan Freed Wessler of the American Civil Liberties Union, who argued the landmark Carpenter v. United States case on cell-site tower locations, had a few choice words about the trend—especially about the fact that judges apparently aren’t being given a map of the “geofenced” areas that are being covered by such warrants, just strings of GPS coordinates.
"Understanding how these geographical areas are targeted is completely central to determining whether these searches are constitutional," Wessler told MPR. "These kind of searches raise serious concerns about overbreadth, and affect the privacy rights of lots of people who live or work nearby.”
Carpenter, Round 2?
On the Radar
An ICO No-No: A federal judge has reversed course and granted the U.S. Securities and Exchange Commission’s request for an injunction to block the backers of Blockvest from making an allegedly fraudulent initial coin offering. U.S. District Judge Gonzalo Curiel of the Southern District of California previously rejected the SEC’s request for an injunction after finding the government couldn’t show that investors bought into the Blockvest ICO with an expectation of making a profit from the efforts of others. Part of Curiel’s change in heart had to do with Blockvest’s attorneys asking to withdraw from the case, citing “a complete breakdown in the attorney-client relationship.” You can read more from Ross Todd here.
Going Public: Alternative legal services provider Axiom has submitted a draft registration statement to the Securities and Exchange Commission. Some of the details are still hazy, and a press officer for the company would not confirm which stock exchange it intends to list on. We also don’t know the number of shares or the price range for the proposed shares. Hannah Roberts has more here.
Warning Shots: Facebook is reportedly in negotiations over what would be the largest Federal Trade Commission penalty issued to a tech company over privacy enforcement. Google currently holds the tech industry record for largest FTC penalty, settling charges it violated a privacy agreement with the agency for $22.5 million in 2012. One privacy lawyer said any fine levied against Facebook could serve as a warning that the FTC is increasingly willing to use its enforcement power to protect consumer privacy rights. You can read more from Caroline Spiezio here.
