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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 1: Hello Forever. Example, in Jay Z's debut album, Reasonable Doubt

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Speaker 1: came out twenty five years ago, but it's now the

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Speaker 1: center of a legal battle over one of the most

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Speaker 1: cutting edge investments out there, non fungible tokens. As a

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Speaker 1: young rapper, jay Z once teamed up with Damon Dash

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Speaker 1: to sell CDs of his music out of a car

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Speaker 1: in the Brooklyn Projects. Today, the co founders of Rockefeller

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Speaker 1: Records are embroiled in a lawsuit over an n f T.

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Speaker 1: Jay Z and Rockefeller Records sued Dash to stop him

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Speaker 1: from auctioning off the copyright to Reasonable Doubt as an

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Speaker 1: n f T. It's just one of a flurry of

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Speaker 1: lawsuits involving n f T s as courts begin to

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Speaker 1: grapple with the novel issues surrounding ownership and regulation of

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Speaker 1: the assets. Joining me a securities attorney, Robert him a

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Speaker 1: partner a Tarter Crinsky, and Droken Bob. For those who

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Speaker 1: might not know, explain what an n f T is.

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Speaker 1: An n f T stands for non fungible token, and

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Speaker 1: essentially this is a token that's created on the blockchain

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Speaker 1: using a very similar technology to how cryptocurrencies are created.

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Speaker 1: And the distinguishing factor of n f T s is

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Speaker 1: that each n f T is unique, and that's where

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Speaker 1: the non fungible term comes from. So in contrast to

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Speaker 1: something like bitcoin or even US dollars, when people trade

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Speaker 1: in those things or pay you know, a person doesn't

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Speaker 1: care what sort of dollar they receive or what type

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Speaker 1: of bitcoin they receive, it's all the same. An n

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Speaker 1: f T, on the other hand, each one is unique,

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Speaker 1: and this is the type of digital asset where people

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Speaker 1: can acquire it and have a specific right to digital

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Speaker 1: art or other collectibles. And what's the legal battle between

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Speaker 1: jay Z and Rockefeller Records. Jay Z and Damon Dash

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Speaker 1: were two out of the three founders of a very

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Speaker 1: famous record label called Rockefeller Records in the ninety nineties.

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Speaker 1: Damon Dash created an n f T that he wanted

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Speaker 1: to sell or he was in the process of creating one,

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Speaker 1: and the dispute is over what exactly was included in

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Speaker 1: the n f T that Damon Dash was creating. According

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Speaker 1: to jay Z, Damon Dash was creating an n f

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Speaker 1: T that apparently was being promoted as owning a copyright

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Speaker 1: in jay Z's debut album Reasonable Doubt. Now, Damon Dash says,

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Speaker 1: now that's not the case. All that he was trying

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Speaker 1: to include in the n f T was his one

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Speaker 1: third interest in Rockefeller Records and any sort of royalties

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Speaker 1: or dividends that he would have been paid as part

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Speaker 1: of that. So there's a factual dispute that the court

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Speaker 1: is going to have to resolve to determine what exactly

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Speaker 1: Damon Dash was trying to create with his n f T.

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Speaker 1: There was a broad promise in the auction announcement for

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Speaker 1: the n f T. The new minted n f T

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Speaker 1: will prove ownership of the album's copyright, transferring the rights

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Speaker 1: to all future revenue generated by the album from Damon

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Speaker 1: Dash to the auction winner. If you just look at

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Speaker 1: that language, that sounds pretty sweeping. Yes, that's definitely something

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Speaker 1: that judge is going to look at, and importantly, that

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Speaker 1: is really one of the key bassis for jay Z's

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Speaker 1: lawsuit and his complaints. He specifically discusses that announcement that

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Speaker 1: Damon Dash made in conjunction with a company called super Farm,

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Speaker 1: which is an n f T platform that allows people

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Speaker 1: to create and trade n f T s and unfortunately

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Speaker 1: for Damon Dash, what that announcement that he made says

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Speaker 1: is that the copyright or the album was going to

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Speaker 1: be included in the n f T. So the idea

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Speaker 1: as it was marketed was that people could purchase these

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Speaker 1: n f T s and own part of the copyright

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Speaker 1: of jay Z's debut album, which clearly Damon that does

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Speaker 1: not have the ability to sell, and he even acknowledges

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Speaker 1: that in the lawsuit. Tell us a little more about

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Speaker 1: Dash his claims. He argues that what jay Z is

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Speaker 1: accusing him of doing is not what he's trying to do.

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Speaker 1: He's saying that he wasn't trying to create an n

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Speaker 1: f T based on the copyright. He was just trying

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Speaker 1: to create the n f T from his shares in

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Speaker 1: Rockefeller Records. So the whole n f T that Damon

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Speaker 1: Dash was trying to create has gotten very muddled and

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Speaker 1: it's not really clear what was the assets behind it,

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Speaker 1: which highlights some of the risks that are associated with

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Speaker 1: these n f T sales. Dash's position is contradicted by

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Speaker 1: the announcement that the n f T platform put out. Now,

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Speaker 1: Damon Dash is trying to argue that that announcement was

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Speaker 1: an error. It was a very early stage and that

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Speaker 1: nothing has really been created yet. I think the message

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Speaker 1: in this case for everybody is that if you're going

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Speaker 1: to be buying an n f T, you really have

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Speaker 1: to investigate what are the digital assets or the art

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Speaker 1: or the music that are behind the n f T

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Speaker 1: and to make sure the creators actually have the rights

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Speaker 1: to create and sell n f T s based on that.

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Speaker 1: Intellectual property ownership rights can obviously be complex. It sounds

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Speaker 1: like it might be something that's difficult to investigate. If

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Speaker 1: you're looking to buy an n f T, you can

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Speaker 1: do more to investigate. The auction notice that was issued

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Speaker 1: in this particular case was very early, and then as

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Speaker 1: the n f T gets created, there's more details that

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Speaker 1: get disseminated to potential buyers that describe the exact rights

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Speaker 1: that will be given to the n f T and

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Speaker 1: what people will own. Now, in cases like copyrights, a person,

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Speaker 1: if they're going to do due diligence, could go to

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Speaker 1: the U S Copyright Office's website and look to see

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Speaker 1: if the person who's creating the n f T actually

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Speaker 1: has those copyrights. So there are things that people can do,

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Speaker 1: but it's not always so easy, and it's a very

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Speaker 1: technical area, which really makes for a buyer beware type

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Speaker 1: of atmosphere. Can you even make an n f T

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Speaker 1: out of your part ownership in a company? Whether a

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Speaker 1: person can make an n f T out of their

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Speaker 1: shares or ownership in Rockefeller Records or any other company

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Speaker 1: is an open question, and it's really a different type

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Speaker 1: of views. Traditionally, n f t s have been used

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Speaker 1: to sell things like digital art, or sports highlights or music.

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Speaker 1: No one's really tried to sell basically shares or ownership

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Speaker 1: in a company. And I think if Damon Dash went

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Speaker 1: ahead with that sort of plan, he could well have

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Speaker 1: run into securities regulatory problems because there's no indication that

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Speaker 1: he intended to register that type of offering with the SEC. Now,

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Speaker 1: these n f T s can contain a smart contract

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Speaker 1: that guarantees the artist can reap the benefits of the

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Speaker 1: secondary market, so that artists would have to be paid royalties.

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Speaker 1: Is that disclosed? Is it clear? Yes? The nice thing

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Speaker 1: about smart contracts that they're publicly available on the blockchain.

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Speaker 1: They're transparent, so that anybody that wants to check out

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Speaker 1: what is being sold can easily go to the blockchain

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Speaker 1: and find out how the smart contract has been programmed.

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Speaker 1: One of the benefits of n f T s that

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Speaker 1: have been promoted is that you know you're right. It

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Speaker 1: does give the artists an ability to participate in the

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Speaker 1: secondary market sales of their artwork. So, for instance, if

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Speaker 1: a young unknown artist sells an n f T and

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Speaker 1: it may not be worth very much when it first

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Speaker 1: comes out, but if over time the artist becomes very famous,

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Speaker 1: that n f T could be worth a lot of money.

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Speaker 1: And traditionally artists wouldn't have a way to participate in

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Speaker 1: those kind of secondary market sales. Only the collectors could profit.

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Speaker 1: Now it's smart contracts, artists can get a percentage of

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Speaker 1: that and it's usually built right in specifically to the

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Speaker 1: smart contract and how those types of sales processeds are distributed.

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Speaker 1: Our n f T securities subject to regulation by the

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Speaker 1: Securities and Change Commission. The market is getting huge, isn't

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Speaker 1: it time for the sec to say? Yes? I think

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Speaker 1: the market really does need guidance from regulators in terms

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Speaker 1: of whether n f T s or securities, or under

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Speaker 1: what circumstances they would be considered securities. There's an old

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Speaker 1: Supreme Court test called the Howie Test, which was a

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Speaker 1: decision that helps lawyers and market participants try to analyze

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Speaker 1: these issues to determine whether or not a particular financial

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Speaker 1: instrument will be considered a security and some of the

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Speaker 1: things that sports will look at whether or not there's

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Speaker 1: co mingling of investor money, what the motivations are for

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Speaker 1: people buying it. Is it being brought as a collectible

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Speaker 1: or is it being bought as an investment. But there's

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Speaker 1: a huge gap in the regulatory world and there's been

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Speaker 1: very very little guidance from any regulators about what an

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Speaker 1: n f T is a security or not. As a result,

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Speaker 1: we're seeing more litigation being picked up to flesh out

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Speaker 1: these issues. Yeah, it seems like they're leaving it up

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Speaker 1: to the courts. And you have that class action lawsuit

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Speaker 1: against Dapper Labs in June one. We've seen the first

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Speaker 1: class action lawsuits associated with an n f T where

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Speaker 1: the plaintiffs have alleged that the n f T was

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Speaker 1: a security and Dapper Labs, which was the company that

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Speaker 1: created that particular n f T, violated the securities laws

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Speaker 1: by selling these n f t s. And this is

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Speaker 1: related to the n b A and Dapper Labs was

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Speaker 1: helping to create n f t s based on sports

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Speaker 1: highlights of NBA games and very very popular platform and

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Speaker 1: well known n ft The complain alleges that over five

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Speaker 1: million dollars was raised from the sale of the NBA

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Speaker 1: related n f t s and this really has a

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Speaker 1: chance of becoming a landmark case where a court will

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Speaker 1: for the first time look at these facts to make

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Speaker 1: a determination as to whether a security as president or not.

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Speaker 1: It's sort of stunning to me that this market, it

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Speaker 1: keeps growing and growing and just no one's paying attention

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Speaker 1: to the legal aspects of it. Well, that's part of

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Speaker 1: the problem. Yet, cryptocurrencies like Bitcoin and ethereum have become

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Speaker 1: very popular in the last several years, and really the

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Speaker 1: pace of innovation is very rapid, and now we're seeing

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Speaker 1: n f t s which are kind of a spinoff

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Speaker 1: of cryptocurrencies, and more and more innovation is taking place

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Speaker 1: in the blockchain space. Every day. We're seeing all sorts

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Speaker 1: of new products related to things like mortgage securitizations where

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Speaker 1: people are trying to develop financial applications for loans. And

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Speaker 1: the other thing that is really hampering the market is

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Speaker 1: that not only the sec could have an interest in

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Speaker 1: it as a security, but there's questions about whether it's

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Speaker 1: a commodity that could come under the Commodities Futures Trading Commission,

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Speaker 1: And there's a lot of other agencies which could potentially

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Speaker 1: touch on these instruments, but nobody is really giving any

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Speaker 1: sort of guidance in this space. Now more to come, Bob,

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Speaker 1: thanks so much. That's Robert him of Tartar, Krinsky and

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Speaker 1: Droken from my simple beginnings of where I came to

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Speaker 1: have the gift and the opportunity to be next to

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Speaker 1: a president of the United States, to have the honor

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Speaker 1: of running an inauguration, to be up close and personal

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Speaker 1: on some issues that affect world order. I paid a

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Speaker 1: personal price for it, and billionaire Tom Barrack is still

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Speaker 1: paying that price as he faces charges of acting as

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Speaker 1: an unregistered foreign agent of the United Arab Emirates for

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Speaker 1: his role in what prosecutors say was a secret back

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Speaker 1: channel effort to influence the foreign policy positions of the

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Speaker 1: Trump administration. Barrett got a royal welcome in the UAE

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Speaker 1: about a month after Donald Trump's election. The Crown Prince

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Speaker 1: of Abu Dhabi was just one of the five high

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Speaker 1: ranking men who with Barrack in December of twenty sixteen.

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Speaker 1: According to Bloomberg sources, joining me is Bloomberg legal reporter

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Speaker 1: Caleb Melby. Caleb start by telling us about that sixteen

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Speaker 1: royal meeting. So, after Trump got elected, Tom Barrack, who

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Speaker 1: probably many Bloomberg radio listeners will know, the investor founder

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Speaker 1: of Colony Capital, made a trip out to the United

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Speaker 1: air Memberates in December, where, according to US prosecutors, he

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Speaker 1: met with several Emerati officials that he had been engaging

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Speaker 1: with over the course of the sixteen presidential campaign about

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Speaker 1: his good friend Donald Trump, who had backed for president.

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Speaker 1: So prosecutors alleged that Tom Barrick was essentially acting as

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Speaker 1: an unregistered foreign agents on behalf of the United Arab Emirates.

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Speaker 1: They allege in their indictment that in public appearances that

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Speaker 1: he pushed preferred emord policy and attempted to get, as

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Speaker 1: sympathetic and favorable to the Emirati cause. The indictment identifies

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Speaker 1: Barracks hosts at the meeting only as Emarati official one

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Speaker 1: the five officials. Some of them were already kind of

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Speaker 1: people were pretty sure that that was Abu Dhabi, Crown

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Speaker 1: Noon ben Zayad and the u A national security advisor,

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Speaker 1: as well as Ali Mohammed Hammad al Shaan see the

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Speaker 1: director of the Imerati intelligence Servant. What is essentially of

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Speaker 1: made a pitch to the royals at that meeting. That's

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Speaker 1: exactly right, so you can imagine what it might be

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Speaker 1: like for Tom Barrick to fly over there. He was

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Speaker 1: one of the earliest backers of Trump's campaign, the most

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Speaker 1: according to text and other service of conversations that prosecutors

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Speaker 1: them to think about what could be accomplished during four

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Speaker 1: years of a Trump presidency. And was he trying to

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Speaker 1: set up a secret back channel. Yeah, Well, it's interesting

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Speaker 1: the prosecutors alleged that there's a secret back channel just

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Speaker 1: Matthew Grimes are essentially not just in that meeting, but

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Speaker 1: as a victim of a scheme perpetrated by Barracker's failure

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Speaker 1: Prosecutors alleged that Barrick ever gave inside information to the UA.

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Speaker 1: So the prosecutors create in the indictments a sense that, yeah,

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Speaker 1: the information is both coming in and going out, and

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Speaker 1: between Tom Barrick, his assistant Matthew Grimes, who you know

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Speaker 1: have described as Barrett's body man. He goes with him everywhere.

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Speaker 1: He literally carries the bag et cetera, and Emoradi businessman

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Speaker 1: Rashid on the leak. So there's this understanding that they

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Speaker 1: also they're doing what they tend to keep their points

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Speaker 1: on a policy basis. There's an interesting allegation about how

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Speaker 1: he was conflicted during the blockade of Qatar. Crucial context

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Speaker 1: here is Tom Barrick, who has done business with a

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Speaker 1: lot of these Gulf royals, is also incredibly close with

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Speaker 1: with them on the Clarridges Hotel in London, the Paris

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Speaker 1: and Germaine soccer team. So when the Emirates and the

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Speaker 1: Saudi Arabia announced the blockade of Qatar and Trump tweets

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Speaker 1: of course, and Derrick has alleged in public that he

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Speaker 1: was surprised by that turn of events, but you can

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Speaker 1: see how that becomes a very tenuous position for him

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Speaker 1: after he was brokering a lot of proximity to the

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Speaker 1: White House for the Amadis who initiated that blockade. I

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Speaker 1: assume that part of the case will be texts from

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Speaker 1: al Malik to Barrack or his assistant saying things like

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Speaker 1: they're very happy here, great feedback, yes, absolutely, So that

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Speaker 1: definitely appears to be the strength of the government's cases.

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Speaker 1: They have these very discrete interactions and text messages that

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Speaker 1: of color. Some of the conversations they're having both kind

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Speaker 1: of how happy. Berrick and his assistant Matthew Grimes, arts

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Speaker 1: to show that they are here to help and also

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Speaker 1: hear in responses from the other side that their help

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Speaker 1: is much appreciated. Brek is also accused of a crime

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Speaker 1: that many high profile white collar criminals fall prey to,

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Speaker 1: and that's lying to the FBI. So prosecutors alleged that

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Speaker 1: he lied, among other things, about having essentially another encrypted

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Speaker 1: device on which to have some of the conversations he's

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Speaker 1: alleged to have had with the m Rati businessman Rashid

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Speaker 1: on the leak. So it will be very interesting to

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Speaker 1: see how much the government's case rests on those lying

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Speaker 1: allegations as opposed to some of these other allegations about

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Speaker 1: foreign influence. Thanks Caleb. That's Bloomberg Legal reporter Caleb Melby,

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Speaker 1: and that's it for this edition of the Bloomberg lan Show.

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Speaker 1: Remember you can always get the latest legal news hour

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Speaker 1: Bloomberg Lawn podcast. You can find them on Apple Podcasts,

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Speaker 1: Spotify and at www dot Bloomberg dot com, slash podcast,

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Speaker 1: Slash Law. I'm June Grasso and you're listening to Bloomberg