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Friday, March 27, 2015

Official Comment on BitLicense 2.0: Progress, But Concerns Remain

The following official comment to the revised New York regulation, known as the "BitLicense," was submitted on behalf of certain industry participants by my office.

*****

To The Department:

This comment is submitted on behalf of Blockchain Technologies Corporation and its subsidiary entities which engage in the development of blockchain-related technologies and applications.

We are cautiously optimistic that the blockchain technology industry can work within and comply with the "BitLicense" regulation which was recently revised and resubmitted to the public for comment and review. Yet, valid industry concerns remain.

The revised regulation has made significant progress in recognizing the difference between digital currency (a more appropriate term than "virtual currency" which is used in the draft regulation) and the technology underlying it, and in further recognizing that regulation of non-currency uses would serve no public purpose while stifling a new wave of technological innovation.

On the other hand, the regulation threatens to impose serious compliance obligations on industry participants which hold, exchange or trade in digital assets such as Bitcoin.  These obligations are not expressly mandated. However, they are for all intents and purposes compelled by the regulation's requirements that companies have trained compliance personnel and systems for deterring money laundering, identity theft or identity fraud, and safeguarding any digital assets entrusted by customers.

We believe compliance with regulations designed to protect consumers and the general public are useful, certainly insofar as these regulations promise to encourage greater public awareness and use of Bitcoin (and other digital currencies) in commerce, and foster greater consumer and merchant adoption of digital currency as an additional means of exchange.  We further believe that a mature blockchain industry can and should welcome regulation, even if just to raise potential consumers' comfort level with the new technology.

We do, however, repeat our concern that the costs and demands of the initial application plus ongoing compliance requirements may drive less well-capitalized, but still valuable innovative industry players, out of New York. We fear such a development is likely to have an unintended consequence of reducing choice for New York consumers, including many small businesses struggling to attract and retain existing customers, as well as giving an advantage to industry participants in other states or offshore.

New York is the world's financial capital. There is no reason it cannot also be the world's Bitcoin capital. We urge further refinement of the BitLicense to reduce the burdens on smaller industry players while keeping its commitment to protecting consumers and fostering a free, equal and level playing field on which all industry members, both large and small, can compete fairly.

Sincerely,

Eric Dixon, Esq.
Eric Dixon LLC
116 West 23rd Street Suite 509
New York NY 10011
Phone 917-696-2442
EDixon@NYBusinessCounsel.com
http://www.NYBusinessCounsel.com/BitcoinLaw 

Tuesday, March 24, 2015

Gale Brewer Seeks Rent Mediation For Mom-And-Pop Businesses

Small businesses might face tougher rent increases if a New York City proposal is enacted.

That's because a proposed one-year rent increase cap and mediation will lead to landlords changing future leases governing their deals with tenants to account for what effectively becomes a government-mandated tenant-option to stay in a place and cap the increased rent.

The reason rents increase so much is that the typical commercial lease is at least ten years long. As real estate appreciates the rental value tends to also increase. In recent years the value of property has generally outpaced rent increases.

While the proposal seeks to protect small businesses, it fails to account for how landlords will adjust.

And the proposal utterly ignores the fact that tenants absolutely know for years that a lease is expiring. No tenant is caught unaware. What this is, plain and simple, is a giveaway to today's tenants with expiring leases.

Tomorrow's tenants will pay the price.

And so will all the customers who will pay higher prices on everything to make up for the landlords' lost revenue. After all, there is no cap on the expenses of a landlord.

See this link:
http://newyork.cbslocal.com/2015/03/24/manhattan-borough-president-seeks-rent-mediation-for-mom-and-pop-businesses/.

Monday, March 16, 2015

Double-Dipping Politicians: The Real Pigs

Election season isn't always a November end game, and in some places, municipal elections are in the spring. So it's time for the regular round of complaints about double-dipping and even triple-dipping elected officials who collect three paychecks as public servants.



The allegation from some quarters is that a public servant has time for only "one" job; therefore, getting paid for more than one job is somehow nefarious and (in the minds of opponents or those who simply don't let ignorance interfere with their speech) criminal.

The premises behind this allegation are disturbing. The first premise is that each job is a full-time job. That is untrue. Some public jobs are intended to be part-time, and the pay for those jobs reflects that fact. That part-time nature is further reflected in the fact that such officials are allowed to work other jobs. Think about the fact that most state legislators, county legislators and even municipal leaders in all but the largest cities are in fact part-time officials. 

Having more than one job is an economic necessity. This point is not disputed in today's economy -- except when it comes to public officials. 

The second premise, never stated because it would reveal the true nature behind the objection, is that people working more than one job somehow make too much money.  The reality is this: The objectors always feel, but dare not admit, that there is something wrong, something morally inferior, about anyone who makes one dollar more than they. The value component, what these people do to earn their paycheck(s), is not mentioned by objectors, because they lose on the value issue.

What's really behind the objection is envy. The objectors don't like that other people work harder and make more money. 

Just be careful about this point before you start pushing for laws to be changed to prevent people from holding more than one job. Maybe the real solution would be to pay public servants more, so they can afford to have "only" one job. And just maybe you'll have less danger of corruption by officeholders (like the recently indicted New York Assembly Speaker Sheldon Silver) who allegedly use their public office to illegally benefit their private outside business interests.

The real greed here is not by people who work at and perform multiple jobs. It is by the people who expect full-time work and full-time responsibilities from other people, but don't want to pay more than part-time salary. These are the people who want their service -- from public officials, from their doctors or lawyers or auto mechanics -- at a discount. They want to pay someone a part-time salary, modest at best, but have those people on call 24/7 because, well, because they work for us

These people make the worst clients and they also make the worst civic activists and neighbors.

They are the new moochers. And they are the real pigs at the trough.

Wednesday, March 11, 2015

Homewreckers: NJ Home Values Under Attack By "Affordable Housing" Court Ruling

Residential real estate values across New Jersey are at risk after an "affordable housing" decision handed down by the New Jersey Supreme Court Tuesday.


Affordable housing advocates applaud the ruling because it paves the way for activists and low-income homeowners (the group theoretically with standing) to challenge any municipality's alleged noncompliance with "its fair share of regional present and prospective need for affordable housing" in any trial level court, which in New Jersey is the Superior Court in each county.

Some municipalities also are happy because the ruling allows towns to demonstrate their compliance prior to and without being declared noncompliant.

Here's the problem: Who's going to be there to argue for the rights of existing homeowners whose property values are at risk?

Any town's housing plan can now be challenged, and soon. This means that judges in each county, and throughout the state, can upset a town's housing plan and by extension the residential real estate market in that town by halting or modifying certain development.

The effect on residential real estate is highly uncertain. But uncertainty is not good for the value of any asset, and here it is not good for real estate, not residential and not commercial. No owner knows what could be developed (or not), right around the corner.

Certain development enhances the value of nearby properties. Other development detracts from it. 

When the courts begin getting involved soon, the danger is that town zoning plans will be decided by judges hearing lawsuits brought by activist groups arguing for more low-income development, and municipalities arguing that they are in compliance with state constitutional guidelines and New Jersey's Fair Housing Act. 

Who's missing? That's right, there is no one to argue for the preservation of the property values of the existing property owners. And that silence, that absence, is likely to mean that property owners whose home values will be at risk will also be without a voice in many or all of those courtrooms. It is likely to mean those concerns will never be heard, and never considered, by any of those judges. 


Saturday, March 7, 2015

Menendez Prosecution: Explaining The Process

There are many sobering points about a potential criminal prosecution of Senator Robert Menendez (D-Hoboken). Here is a short list:

1. As of now, Menendez has not been charged with a crime nor has he been arrested. I urge readers to wait until all the facts come out. That means waiting until you see, and actually read, the government's charging documents filed with the federal court. Even then, understand you will be reading just cherry-picked facts. A much fuller picture (for better or for worse) will come out in the trial. 

2. Sometimes, there is no trial. But that will happen only if the charges (if they're ever filed) get dropped, or Menendez should plead guilty to a crime. Federal prosecutors rarely admit their mistakes, so don't hold your breath hoping this is one of those cases that get closed after charges are brought.   

3. Don't hold your breath waiting for Menendez to resign. His term expires at the end of 2018. And the trial, if there is one, will not be around the corner. There will be motions, requests for discovery, hearings and plenty of other action behind the scenes that will cause the trial to be postponed for months if not years. This trial may not occur until the summer of 2016, or later. 

4. Can we say right now what federal criminal charges would be brought? No! Absolutely not. We can only make educated guesses. There are reports suggesting the feds' inquiry into Menendez concerned whether he interfered with another federal inquiry into his friend Dr. Salomon Melgen. This would risk an obstruction of justice charge. There have been multiple reports about the value of the private jet trip which Menendez apparently failed to report. Sometimes these minor, administrative campaign finance reporting mistakes can be the basis for a criminal case! (One of the Bid Rig defendants here in Hudson County served nearly two years in prison for a rather technical and seeemingly minor delay in reporting a campaign contribution from the notorious Solomon Dwek, which he still insists was not a bribe.) 

There can be other "out of the blue" charges, based on the information that cooperators provide and which is believed credible by prosecutors.  Let's start with his friend Dr. Melgen. Dr. Melgen has reportedly been under investigation regarding his medical practice for at least two years. Press reports have concerned the use of Melgen's private jet, a trip (or trips) to the Dominican Republic, even allegations of favors involving underage prostitutes. Let's see what actually sticks. 

That last allegation is borderline funny. Who needs to go to the Dominican to get underage prostitutes? One can do that (or so I hear) right in Hudson County! Luisa Medrano (an infamous cooperating witness against former Guttenberg mayor David Della Donna) used to run that business out of her bars in the northern part of Hudson County. She avoided potentially lengthy jail time for sex trafficking of minors. She got probation! How did she do that? By finding a juicy "name" target at which to point an accusatory finger, and then selling that to the United States Attorney's Office.

And who ran that office at the time? Our current Governor, Chris Christie.

5.  In the criminal system, there's always one question: How much jail time is at issue? There is no way to know right now. It depends on the charges that are brought and which are ultimately proven at trial, or admitted to by the defendant. Even then, the government and defendant can negotiate on what a plea covers. There is plea bargaining, and then there is a practice known as fact bargaining. This is how jail time can get negotiated down, because the facts and scope of a crime to which one admits affect the assessment of the crime by the judge. Remember, the sentence is set by no one but the judge. The government can "make a deal" but it always must advise the judge of its recommendation. That's why there is this thing called a "5K1.1" letter, which is a government recommendation of a particular sentence length range. There are complex numerical-based federal sentencing guidelines that account for the severity of a crime and enhancing factors (which add time) and mitigating factors (which reduce it). 

This all becomes particularly important with public officials, because the federal sentencing guidelines treat elected officials' crimes much more stiffly than those of ordinary civilians. Yes, justice is NOT equal. The elected official status of public officials is an enhancing factor. So is the "leadership" role in any business. Remember this: the more accomplished you are, the higher profile you have, the worse you get treated and the greater risk you face in the federal justice system. Also be aware that the "name" status of any defendant is one which can have personal appeal for prosecutors. After all, they are human, they want to make their careers, and a "big name" case can make their career in the private sector. So elected officials, business owners, pro athletes, anyone with a profile, is almost by definition a good target. 

Remember this the next time you think the "rich and famous" get special treatment. They do! It just happens to work against them.

6.   That last point brings us to a key component of how the federal criminal justice system works. It is reliant (perhaps too reliant) on the witness testimony of people who almost always are trading testimony in return for leniency or absolution (i.e. a shorter jail term or none at all). This raises two questions. One is whether Dr. Melgen would be a witness against Senator Menendez. That question may be answered in any charging papers (so stay tuned). The second question is whether, down the road, Senator Menendez would be inclined to "spill the beans" against any sort of people as to whom criminal misconduct may be found. There is a powerful incentive as prison sentences for "cooperators" are often much shorter than those 

This is why, for many in the political world, the only question about Menendez is not the substance of any charges he may face; it will be whether he can and will "flip" on them. You'd better stock up on antacids if you're nervous.

7. Any federal felony sounds serious and they all are. But some are more serious than others. Obstruction is one thing. Bribery and fraud are something else and even more serious. Just this week, a former New York City councilman, Dan Halloran, was sentenced to ten years in federal prison for a bribery scheme in which Halloran was part of a scheme to sell the Republican nomination for New York City Mayor to a Democrat. Yes, you read that right. 

On the other hand, former Clinton Administration National Security Advisor Sandy Berger got probation and a fine for destroying official documents, which he secreted out of government buildings by stuffing them down his pants, in his socks and possibly in other places we don't want to explore. You will hear "corruption" and other horrible terms. Just don't rush to assume that Menendez is facing a decade or two in prison. 

8.  The final point is the human dimension. Someone under investigation, and definitely someone under indictment, will experience tremendous pressure from all sides. I have consulted with people who claim to have suffered multiple heart attacks while awaiting trial. This is a process whereby the government will use its leverage, including the pressure it can exert using all of its power at its disposal, to convince (or force) a defendant to "cry Uncle" and give up. 

From the people I've dealt with, both as released offenders and as government targets, and also from my personal experience with the government, one thing is certain. Resisting the awesome power of the government, and asserting your innocence, will definitely change you. The power to prosecute, indeed to jail you and basically affect the remainder of your life, is perhaps the greatest power the government can wield and also perhaps the power most susceptible to abuse. 

The people who stand up to the government deserve a measure of admiration. Some, to be sure, are delusional or irredeemably defiant. Others are stone-cold innocent, perhaps just in the wrong place or too close to the wrong people at the wrong time. The criminal justice process is not perfect, but it seems to winnow out the fakers and the frauds. Time will tell on this case as well.

Eric Dixon is a New York-based corporate lawyer and a member of the New York and New Jersey bars. He has represented public and private companies, corporate officials and elected government officials on various business and investigative matters over a 20-year career since graduating from Yale Law School in 1994. He can be reached at EDixon@NYBusinessCounsel.com.

Wednesday, March 4, 2015

State of Emergency: A New Jersey Snow Job

As I write this the New Jersey Governor has declared a state of emergency for the state for Thursday.

The stated reason is an expected six inches of snow.

The real reason may be more nefarious: to buy time under the state's equivalent of the federal Freedom of Information Act (which is the Open Public Records Act) to answer and formally deny various requests for public records.

Under OPRA, the state (or any local or county government or agency) must respond to the request for records within seven business days. Failure to meet this deadline means the request is deemed to be denied, and this gives the requestor standing to bring a lawsuit. Various government agencies routinely deny records requests and then end up paying legal fees when reporters or citizen watchdogs actually win in court. (I've brought and won cases against both the Governor's Office and City of Newark.)

So where does a snowstorm state of emergency come into play? The state of emergency shuts down state offices and any closed days do not count against the seven day period. It's a way to use the cover of a snowstorm to buy time to figure out what to do about those pesky OPRA requests.

And with Governor Christie getting ready to run for President, those records requests might just accelerate a little bit more.

Eric Dixon is a New York-based corporate and investigative lawyer who also handles New Jersey matters.


Monday, March 2, 2015

Surviving In New Markets: Economic Affinity And The Role of Power

Starting up a new business means you're the plankton in the shark tank. So how do you go about not becoming dinner?

Entering new and hostile markets can be achieved, and a permanent footprint established, with the right deployment of resources.

If power is most effective when coalesced, it follows that economic power is similarly most effective when combined among a group.

When that group has an additional tie, such as an ethnic or shared experience affinity such as church membership or the trauma of wartime military service, the economic power can be very formidable indeed.  This breeds the theory that collective economic power exercised by an inclusive, self-defining group (on a criterion or basis of its choosing) can be effective. 

If you're already thinking this sounds remotely like a boycott, and hence sort of anti-competitive and hence illegal, hold that thought.

It is useful to remember that this elementary exercise of economic power is first and most commonly used, not to stifle competition. Collective group power is, at its core, not so much self-interest as it is self-protection against hostile larger groups with more power. Outnumbered or poorly-established groups such as minority groups or newcomers to an industry or market, often seek to combine their power in a form of mutual self-interest. This may manifest itself in the creation of small chambers of commerce or local "business improvement districts," or anything that can convey strength in numbers to more powerful entities (i.e., government, larger competitors, suppliers, etc.).

Such collective action can have other effects in preserving, enhancing and concentrating the wealth of its members, and affecting the behavior of outsiders, third parties not yet in the group, through a risk-reward system that conditions admission on certain behavior and discourages unwanted behavior through expulsion and punishment.  

When does such activity transform from self-protective into anti-competitive?

It is useful (and necessary) to look at guidance from regulators. The apparent focus of the Federal Trade Commission is on preserving competition. Here is some of what the FTC has to say on the matter:
"In order to compete in modern markets, competitors sometimes need to collaborate. Competitive forces are driving firms toward complex collaborations to achieve goals such as expanding into foreign markets, funding expensive innovation efforts, and lowering production and other costs. 
In today's marketplace, competitors interact in many ways, through trade associations, professional groups, joint ventures, standard-setting organizations, and other industry groups. Such dealings often are not only competitively benign but procompetitive."
 But wait, there is more:
"But there are antitrust risks when competitors interact to such a degree that they are no longer acting independently, or when collaborating gives competitors the ability to wield market power together." (Emphasis added.)
And finally, as if to emphasize the phrase I've highlighted in bold text:
"Any company may, on its own, refuse to do business with another firm, but an agreement among competitors not to do business with targeted individuals or businesses may be an illegal boycott, especially if the group of competitors working together has market power."
(Again, emphasis is mine, in bold.)

The lesson from these statements is that startups and smaller companies have plenty of room to use their modest power to survive and then establish a foothold in a market.  Once companies become established and arguably dominant, whether individually or collectively, that is a different story altogether.

There is plenty of maneuverability for young companies and smaller companies which do not have "market power" and thus need the protection of numbers from other "players" with common interests. This is where the affinity of shared interests, and of shared values, economic and otherwise, can be critical in establishing loyalty among customers, vendors and even some other market participants whose leaders recognize that today's competitor may be tomorrow's joint venturer.

The message: Affinities based on shared interests and shared values can be very useful to an up-and-coming business. One key is learning to recognize the affinities. The second key is to use them.