0:03

This is Bloomberg Law with

0:05

June Brusso from Bloomberg

0:07

Radio. Hello Forever.

0:16

Example, in Jay

0:19

Z's debut album, Reasonable Doubt

0:21

came out twenty five years ago, but it's

0:23

now the center of a legal battle over

0:26

one of the most cutting edge investments

0:28

out there, non fungible tokens.

0:30

As a young rapper, jay Z once

0:33

teamed up with Damon Dash to sell

0:35

CDs of his music out of a car in

0:37

the Brooklyn Projects. Today, the

0:39

co founders of Rockefeller Records are

0:41

embroiled in a lawsuit over an n f

0:43

T. Jay Z and Rockefeller

0:45

Records sued Dash to stop him from

0:47

auctioning off the copyright to Reasonable

0:49

Doubt as an n f T. It's just

0:52

one of a flurry of lawsuits involving

0:54

n f T s as courts begin to grapple

0:56

with the novel issues surrounding ownership

0:59

and regulation of the assets. Joining

1:01

me a securities attorney, Robert him a partner

1:03

a Tarter Crinsky, and Droken Bob.

1:05

For those who might not know, explain what

1:08

an n f T is. An

1:10

n f T stands for non fungible

1:12

token, and essentially this is a token

1:15

that's created on the blockchain using

1:17

a very similar technology to

1:19

how cryptocurrencies are created. And

1:22

the distinguishing factor of n

1:24

f T s is that each n f T

1:26

is unique, and that's where the non fungible

1:29

term comes from. So in contrast

1:32

to something like bitcoin or even US

1:34

dollars, when people trade in

1:36

those things or pay you know, a person doesn't

1:38

care what sort of dollar they receive

1:40

or what type of bitcoin they receive, it's

1:43

all the same. An n f T, on

1:45

the other hand, each one is unique, and

1:47

this is the type of digital asset where

1:49

people can acquire it and have a specific

1:52

right to digital art or other collectibles.

1:55

And what's the legal battle between jay

1:57

Z and Rockefeller Records.

2:00

Jay Z and Damon Dash were two

2:02

out of the three founders of a very famous

2:04

record label called Rockefeller Records

2:06

in the ninety nineties. Damon Dash

2:09

created an n f T that he wanted to

2:11

sell or he was in the process of creating

2:13

one, and the dispute is over

2:16

what exactly was included in the n

2:18

f T that Damon Dash was creating.

2:21

According to jay Z, Damon Dash

2:23

was creating an n f T that apparently

2:26

was being promoted as owning a copyright

2:29

in jay Z's debut album Reasonable

2:31

Doubt. Now, Damon Dash says,

2:34

now that's not the case. All that he was

2:36

trying to include in the n f T was

2:38

his one third interest in Rockefeller

2:40

Records and any sort of royalties

2:43

or dividends that he would have been paid as part

2:45

of that. So there's a factual dispute

2:47

that the court is going to have to resolve to

2:50

determine what exactly Damon Dash

2:52

was trying to create with his n f T. There

2:55

was a broad promise in the auction announcement

2:57

for the n f T. The new minted

3:00

n f T will prove ownership of the

3:02

album's copyright, transferring

3:05

the rights to all future revenue

3:07

generated by the album from Damon

3:09

Dash to the auction winner. If

3:11

you just look at that language,

3:14

that sounds pretty sweeping. Yes,

3:17

that's definitely something that judge is going to look

3:19

at, and importantly, that is

3:21

really one of the key bassis for jay

3:23

Z's lawsuit and his complaints.

3:26

He specifically discusses that announcement

3:29

that Damon Dash made in conjunction

3:31

with a company called super Farm,

3:33

which is an n f T platform

3:35

that allows people to create and trade

3:38

n f T s and unfortunately

3:40

for Damon Dash, what that announcement

3:42

that he made says is that the copyright

3:46

or the album was going to be included

3:48

in the n f T. So the idea as

3:51

it was marketed was that people could purchase

3:53

these n f T s and own part of the copyright

3:56

of jay Z's debut album, which

3:58

clearly Damon that does not have the

4:00

ability to sell, and he

4:02

even acknowledges that in the lawsuit.

4:05

Tell us a little more about Dash his claims.

4:09

He argues that what jay Z is accusing him

4:11

of doing is not what he's trying

4:13

to do. He's saying that he wasn't trying

4:15

to create an n f T based on the

4:17

copyright. He was just trying to create

4:19

the n f T from his shares in Rockefeller

4:22

Records. So the whole

4:24

n f T that Damon Dash was trying to create

4:26

has gotten very muddled and it's

4:28

not really clear what was the assets

4:30

behind it, which highlights some

4:33

of the risks that are associated with these n f

4:35

T sales. Dash's position

4:37

is contradicted by the announcement that

4:39

the n f T platform put out. Now,

4:42

Damon Dash is trying to argue that that announcement

4:45

was an error. It was a very early stage

4:47

and that nothing has really been created

4:50

yet. I think the message in

4:52

this case for everybody is that

4:54

if you're going to be buying an n f T, you

4:56

really have to investigate what are the digital

4:59

assets or the art or the music that

5:01

are behind the n f T and to make

5:03

sure the creators actually have the rights

5:05

to create and sell n f T s

5:07

based on that. Intellectual property

5:10

ownership rights can obviously be complex.

5:13

It sounds like it might be something that's

5:16

difficult to investigate. If

5:18

you're looking to buy an n f T, you

5:20

can do more to investigate. The auction

5:23

notice that was issued in this particular

5:25

case was very early, and

5:27

then as the n f T gets created,

5:29

there's more details that get disseminated

5:32

to potential buyers that describe

5:34

the exact rights that will be given

5:36

to the n f T and what people will own.

5:39

Now, in cases like copyrights, a

5:41

person, if they're going to do due diligence,

5:44

could go to the U S Copyright

5:46

Office's website and look to see if

5:48

the person who's creating the n f

5:50

T actually has those copyrights.

5:52

So there are things that people can do, but it's

5:55

not always so easy, and it's

5:57

a very technical area, which really

5:59

makes for a buyer beware type of atmosphere.

6:03

Can you even make an n f T out

6:05

of your part ownership in a company?

6:08

Whether a person can make an n f T out of their

6:10

shares or ownership in Rockefeller

6:13

Records or any other company is

6:15

an open question, and it's really

6:17

a different type of views. Traditionally, n

6:20

f t s have been used to sell things

6:22

like digital art, or sports

6:24

highlights or music. No

6:26

one's really tried to sell basically

6:28

shares or ownership in a company.

6:31

And I think if Damon Dash went ahead

6:33

with that sort of plan, he could

6:35

well have run into securities regulatory

6:37

problems because there's no indication

6:39

that he intended to register that type of offering

6:42

with the SEC. Now, these

6:44

n f T s can contain a

6:46

smart contract that guarantees the

6:49

artist can reap the benefits of the secondary

6:51

market, so that artists would have to be paid

6:54

royalties. Is that disclosed? Is

6:56

it clear? Yes? The nice thing about

6:58

smart contracts that they're publicly

7:01

available on the blockchain. They're transparent,

7:04

so that anybody that wants to check

7:06

out what is being sold can

7:08

easily go to the blockchain and find out

7:10

how the smart contract has been programmed.

7:13

One of the benefits of n f T s that have

7:15

been promoted is that you know you're right. It

7:17

does give the artists an ability

7:19

to participate in the secondary

7:22

market sales of their artwork. So,

7:24

for instance, if a young unknown artist

7:27

sells an n f T and it may not be worth

7:29

very much when it first comes out, but

7:31

if over time the artist becomes very famous,

7:34

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

7:37

And traditionally artists wouldn't have a way to participate

7:39

in those kind of secondary market sales.

7:42

Only the collectors could profit. Now

7:44

it's smart contracts, artists

7:46

can get a percentage of that and it's usually

7:49

built right in specifically to the smart

7:51

contract and how those types of sales

7:53

processeds are distributed. Our

7:55

n f T securities subject

7:58

to regulation by the Securities and Change

8:00

Commission. The market is getting

8:02

huge, isn't it time for the sec

8:05

to say? Yes? I think the

8:07

market really does need guidance from

8:09

regulators in terms of whether

8:11

n f T s or securities, or under

8:13

what circumstances they would be considered

8:16

securities. There's an old Supreme Court

8:18

test called the Howie Test, which

8:20

was a decision that helps lawyers

8:23

and market participants try to analyze

8:25

these issues to determine whether or not a particular

8:28

financial instrument will be considered a security

8:31

and some of the things that sports will look at

8:33

whether or not there's co mingling of investor

8:35

money, what the motivations are for

8:38

people buying it. Is it being brought as a

8:40

collectible or is it being bought as an investment.

8:42

But there's a huge gap in the regulatory

8:45

world and there's been very very

8:47

little guidance from any regulators about what an

8:50

n f T is a security or not. As

8:52

a result, we're seeing more litigation being

8:54

picked up to flesh out these issues.

8:57

Yeah, it seems like they're leaving it up to the

9:00

courts. And you have that class

9:02

action lawsuit against Dapper

9:05

Labs in June one.

9:08

We've seen the first class action lawsuits

9:10

associated with an n f T

9:13

where the plaintiffs have alleged that the n

9:15

f T was a security and Dapper

9:18

Labs, which was the company that created that

9:20

particular n f T, violated the

9:22

securities laws by selling these n

9:24

f t s. And this is

9:26

related to the n b A and

9:29

Dapper Labs was helping to create

9:31

n f t s based on sports highlights

9:34

of NBA games and very

9:36

very popular platform and well known n

9:38

ft The complain alleges that over

9:40

five million dollars was raised from

9:42

the sale of the NBA related

9:45

n f t s and this really

9:47

has a chance of becoming a landmark case

9:50

where a court will for the first time look at

9:52

these facts to make a determination as

9:54

to whether a security as president or not. It's

9:57

sort of stunning to me that this

9:59

market, it keeps growing and growing

10:02

and just no one's paying attention

10:04

to the legal aspects of

10:06

it. Well, that's part of the problem. Yet,

10:08

cryptocurrencies like Bitcoin and ethereum

10:11

have become very popular in

10:13

the last several years, and really

10:15

the pace of innovation is

10:18

very rapid, and now we're

10:20

seeing n f t s which are kind of a

10:22

spinoff of cryptocurrencies,

10:24

and more and more innovation is

10:26

taking place in the blockchain space.

10:28

Every day. We're seeing all sorts

10:31

of new products related to things

10:33

like mortgage securitizations where

10:35

people are trying to develop financial applications

10:38

for loans. And the other

10:40

thing that is really hampering the market

10:42

is that not only the sec could

10:44

have an interest in it as a security, but there's

10:47

questions about whether it's a commodity

10:49

that could come under the Commodities Futures

10:51

Trading Commission, And there's a lot

10:53

of other agencies which could potentially touch

10:55

on these instruments, but nobody is really

10:58

giving any sort of guidance in this space. Now

11:00

more to come, Bob, thanks so much. That's

11:03

Robert him of Tartar, Krinsky and

11:05

Droken from

11:07

my simple beginnings of where

11:09

I came to have the gift and the opportunity

11:12

to be next to

11:14

a president of the United States, to have the

11:17

honor of running an inauguration,

11:20

to be up close and personal on

11:22

some issues that

11:26

affect world order. I

11:29

paid a personal price for it, and

11:32

billionaire Tom Barrack is still paying

11:34

that price as he faces charges

11:36

of acting as an unregistered foreign

11:39

agent of the United Arab Emirates

11:41

for his role in what prosecutors say

11:43

was a secret back channel effort

11:45

to influence the foreign policy positions

11:48

of the Trump administration. Barrett

11:50

got a royal welcome in the UAE

11:52

about a month after Donald Trump's election.

11:55

The Crown Prince of Abu Dhabi was just

11:57

one of the five high ranking men who

12:00

with Barrack in December of twenty sixteen.

12:02

According to Bloomberg sources, joining

12:05

me is Bloomberg legal reporter Caleb Melby.

12:07

Caleb start by telling us about that sixteen

12:11

royal meeting. So, after

12:13

Trump got elected, Tom

12:15

Barrack, who probably many

12:18

Bloomberg radio listeners will know, the investor

12:20

founder of Colony Capital, made

12:22

a trip out to the United air Memberates in

12:25

December, where, according

12:27

to US prosecutors, he

12:29

met with several Emerati officials

12:32

that he had been engaging with over the

12:34

course of the sixteen

12:37

presidential campaign about his

12:39

good friend Donald Trump, who had backed

12:41

for president. So prosecutors alleged that

12:43

Tom Barrick was essentially acting

12:46

as an unregistered foreign

12:49

agents on behalf of the

12:51

United Arab Emirates. They allege

12:53

in their indictment that in

12:56

public appearances that he pushed

12:59

preferred emord policy and

13:01

attempted to get, as a member

13:03

of the Trump transition team at least

13:06

one official into the Trump

13:08

White House teams that would be sympathetic

13:10

and favorable to the Emirati cause.

13:13

The indictment identifies Barracks

13:15

hosts at the meeting only

13:18

as Emarati official one

13:20

two three, four, and five. Do

13:22

we now know who those officials are? So

13:25

Bloomberg exclusively reported

13:27

the names of the five officials. Some of

13:30

them were already kind of understood

13:32

to be known. For instance, in the indictment,

13:35

prosecutors discussed official one

13:37

coming to a White House meeting, so people

13:39

were pretty sure that that was Abu

13:41

Dhabi, Crown Prince Shake Mohammed bin Zayad,

13:44

who met with then President Trump

13:47

on that day. But there's others who weren't

13:49

known until our reporting to That includes

13:51

his brother shaike Ca Noon ben Zayad

13:54

and the u A national security advisor,

13:57

as well as Ali Mohammed Hammad al Shaan

14:00

see the director of the Imerati intelligence

14:02

Servant. What is essentially of who's who

14:04

of some of the most powerful people in

14:07

the United Air of Emberance. That shows

14:09

just how high powered that meeting was. And

14:11

prosecutors alleged that Barrick

14:14

basically made a pitch to the royals at that

14:16

meeting. That's exactly right, so

14:18

you can imagine what it might be like for

14:20

Tom Barrick to fly over there. He

14:23

was one of the earliest backers of

14:25

Trump's campaign, the most high

14:28

profile therefore of Trump's

14:30

Wall Street backers for being so

14:32

early in the Trump camp and when

14:34

he flies to the Emirates in early December,

14:38

he is at that time a key

14:40

decision maker on transition team.

14:42

And also he's heading the Presidential

14:45

Inaugural Committee, the group that is both going to

14:47

be raising money for and

14:49

throwing the party is celebrating Trump's

14:52

ascent to the White House. So, according

14:55

to text and other service of

14:57

conversations that prosecutors

14:59

put in the indict and he was talking to them to

15:01

basically think big. He wanted them

15:03

to envision not what just to be accomplished

15:06

during the first one hundred days of a Trump

15:08

presidency, but he was also encouraging

15:11

them to think about what could be accomplished

15:13

during four years of a Trump presidency.

15:16

And was he trying to set up a secret

15:18

back channel. Yeah, Well, it's

15:20

interesting the prosecutors alleged that

15:23

there's a secret back channel just

15:25

by virtue of the fact that Barracks

15:28

and his assistant Matthew Grimes are

15:30

essentially not just in that meeting,

15:33

but in Dark's public appearances

15:35

and in interactions with the White House,

15:38

was pushing the line of a

15:40

foreign power without fully

15:42

disclosing his relationship to

15:44

that foreign power. Something that's interesting

15:46

about the government's indictment is they actually

15:49

described President Trump as a victim

15:52

of a scheme perpetrated by

15:54

Barracker's failure to fully

15:56

disclose his tie to the m

15:58

Rati Royd. Prosecutors

16:00

alleged that Barrick ever gave inside

16:03

information to the UA. So

16:06

the prosecutors create in

16:09

the indictments a sense that, yeah,

16:11

the information is both coming in and

16:14

going out, and they describe via

16:16

text messages on WhatsApp

16:18

and other services between Tom

16:20

Barrick, his assistant Matthew Grimes,

16:23

who you know have described as

16:25

Barrett's body man. He goes with him everywhere.

16:27

He literally carries the bag et cetera,

16:29

and Emoradi businessman Rashid

16:32

on the leak. So there's this understanding that

16:34

they are both trying to influence the

16:36

Trump White House and also they're doing

16:38

what they tend to keep their points of contact

16:41

in the ems surprise of what's

16:43

going on on a policy basis.

16:45

There's an interesting allegation about how

16:48

he was conflicted during

16:50

the blockade of Qatar. Crucial

16:53

context here is Tom Barrick,

16:55

who has done business with a lot of

16:57

these Gulf royals, is also incredibly

17:00

close with the Qatari royal

17:03

family. I mean he's done into business with

17:05

them on the Clarridges Hotel in London,

17:07

the Paris and Germaine soccer team. So

17:10

when the Emirates and the Saudi

17:13

Arabia announced the blockade of

17:15

Qatar and Trump tweets

17:17

in support of that blockade,

17:20

it's incredibly disturbing to the

17:22

Qataris, of course, and Derrick

17:24

has alleged in public that he was

17:26

surprised by that turn of events, but

17:28

you can see how that becomes a very tenuous

17:30

position for him after he was brokering

17:33

a lot of proximity to the White House

17:36

for the Amadis who initiated

17:38

that blockade. I assume that part of the

17:40

case will be texts from al

17:42

Malik to Barrack or his assistant

17:45

saying things like they're very happy here,

17:48

great feedback, yes,

17:50

absolutely, So that definitely appears

17:52

to be the strength of the government's cases. They

17:54

have these very discrete interactions

17:58

and text messages that there were really

18:00

bring it to life through a lot of color.

18:02

Some of the conversations they're having

18:05

both kind of how happy. Berrick

18:08

and his assistant Matthew Grimes, arts to

18:10

show that they are here to help and

18:12

also hear in responses from the other

18:14

side that their help is much

18:16

appreciated. Brek is also

18:19

accused of a crime that many

18:21

high profile white collar criminals

18:23

fall prey to, and that's lying

18:26

to the FBI. So prosecutors

18:28

alleged that he lied, among other things,

18:31

about having essentially

18:33

another encrypted device on

18:35

which to have some of the conversations

18:37

he's alleged to have had with the m

18:40

Rati businessman Rashid on the leak. So

18:42

it will be very interesting to see how

18:44

much the government's case rests

18:47

on those lying allegations

18:49

as opposed to some of these other allegations

18:51

about foreign influence. Thanks

18:53

Caleb. That's Bloomberg Legal reporter Caleb

18:56

Melby, and that's it for this edition of the Bloomberg

18:58

lan Show. Remember you can always get the latest

19:00

legal news hour Bloomberg Lawn podcast.

19:02

You can find them on Apple Podcasts, Spotify

19:05

and at www dot Bloomberg

19:07

dot com, slash podcast, Slash Law.

19:10

I'm June Grasso and you're listening to

19:12

Bloomberg