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Friday, September 25, 2015

Boehner Special Election: What Election Law Requires

Breaking: John Boehner, Speaker of the House, to resign effective end of October.

An open seat is to be filled in accordance with state law. Ohio's election law requires the Governor to issue a writ (or order) of election to direct a special election "when a vacancy...occurs." (See Ohio Rev. Code 3521.03). But the law does not require this be performed within a specified time frame.

This means observers will have to wait until Boehner officially vacates his seat for the process to begin, and for the Governor -- who is current presidential candidate John Kasich --to exercise his discretion.

Friday, September 18, 2015

Bitcoin Is A Commodity? How Digital Currency Will Be Treated

The question of how to define Bitcoin has troubled its inventors, developers and certainly regulators and lawyers. Here's the latest conclusion. Don't be surprised, but regulators who regulate commodities have opined that Bitcoin and other "digital currencies" are, in fact, commodities.

What a surprise!

Here is an interesting administrative ruling from the Commodity Futures Trading Commission just issued Thursday, September 17th.  An online exchange of Bitcoin options contracts is now subject to registration and regulation as a swap execution facility and designated contract market under the Commodity Exchange Act.

Buried in a footnote of the CFTC ruling is a definition of bitcoin as a "digital representation of value that functions as a medium of exchange, a unit of account and/or a store of value." 

In regular font, the CFTC ruled that bitcoin was a commodity, relying on the expansive definition of the term in a 7th Circuit Court of Appeals case "all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in." As such, the ruling means, at least for the moment, that bitcoin exchanges are subject to registration requirements of and regulation as commodity swap exchanges.

However, unlike some industry observers and legal experts, I believe that Bitcoin may also be defined by regulators as a security, and that Bitcoin may simultaneously be considered a security and commodity. The basis for this opinion is the likewise broad definition of "security" derived from the four-part test from the seminal security-definition case from the United States Supreme Court, United States v. W.J. Howey. The so-called Howey test found that "investment contracts" were any "contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party."

In this commenter's view, one regulator's treatment of Bitcoin as a commodity does not mean, and surely does not preclude, any other regulator (or court) from determining that Bitcoin is also a security. The definition of commodity is broad, but so is the definition of security. So Bitcoin can be both a commodity and a security -- the terms are not mutually exclusive.

Among the first official attempts to define the nature of digital currency was the first introduced congressional bill on Bitcoin (H.R. 5777, 113th Cong., 2d. session, introduced by now-former Rep. Steve Stockman (R-TX) (and drafted entirely by yours truly!) sought to achieve "cryptocurrency protocol protection" from unfavorable and unfair tax treatment by having "virtual currency" be treated for tax purposes as currency, instead of property. The bill held that Bitcoin and other altcoins could be illiquid and hard to value, factors making its treatment as property as proposed by the IRS in its 2014 guidance (referenced in the congressional bill, and which helped prompt the bill's conception) unfair because its "basis" for calculating taxable value could end up increasing taxable value well over Bitcoin's real value which arguably should be discounted on account of both volatility and illiquidity. 

More to come on this issue....

Eric Dixon is a New York lawyer who works extensively with blockchain and cryptocurrency innovators and startups.


Saturday, September 5, 2015

Matt Harvey, Negotiating And Leverage

Matt Harvey? Or Machiavelli Matt Harvey?

The emerging controversy over the star New York Mets baseball pitcher Matt Harvey demonstrates lessons valuable for those of us who negotiate, investigate or resolve disputes for a living. 

The controversy involves (for those of you who do not follow baseball), on the surface level, the health of a star pitcher continuing to perform, some 23 months after the "Tommy John" ligament replacement surgery on his right elbow, as he approaches a rather arbitrary number of 180 innings pitched.  The number of innings pitched, over a six-month period, is assumed to be a proxy for the point beyond which Harvey's risk of injury is unacceptable to Harvey. (The reason for why that is unacceptable, the risk versus future-financial-reward for Harvey, is quite relevant for different issues which I detail later.)

The real controversy involves stuff below the surface.

What is that, you ask?

Here's one. The team, the New York Mets -- and for what it's worth, all of their fans -- want to be able to have certainty about the availability of their pitcher, Harvey, for the season's "stretch run" and the playoffs for however long the Mets compete in them should they qualify. The frustration is not borne by fear, fear of not having a star pitcher available for the playoffs, for example, but rather out of an exasperation that after nearly two years of constant monitoring and coddling precisely to ensure Harvey's optimal performance at precisely this time, the pitcher himself is about to pull the plug on his season.

The player's attitude stands in stark contrast to that of some of his teammates, of whom one cried during a game after learning he was about to be traded. 

At this writing, it is highly uncertain that Harvey will choose to pitch in the 2015 playoffs unless he is held out of the rest of the regular season.

Going back to certainty, because its presence or absence is the element needed for the baseball team to be able to plan using its other resources (players) for the rest of the baseball season: Harvey's statements, both directly to the media and earlier, through his agent Scott Boras, have diminished that certainty in the immediate future -- the rest of the 2015 season. But they have also reduced that certainty for the future, perhaps for the rest of Harvey's career.

Why? Because raising this issue now, after the planning and caution I referenced earlier, is a strong indication that the pitcher's "story" has changed, or his priorities are now surfacing. 

Those of us who resolve disputes for a living welcome this development, because it is an information breakthrough. It may frustrate clients, but it is always helpful to know your adversary's real intentions. That is how you come to an agreement, that is where you find the middle ground.

SO WHAT IS HARVEY'S MISTAKE HERE 

This is where the pitcher, Matt Harvey, gets a clear E-1. Error on the pitcher.

It's the second point to take away from this story was alluded to earlier. The inability to plan, and especially after the monitoring and attempts at cooperation, leads to two theories (not conclusions). First, the Mets now know there is no ability to plan with or around Harvey...not this year, not for the future...and secondly, that is so because his honesty, his forthrightness, is now and must now (plus the future) be suspect. 

It is painfully obvious and the conclusion is inescapable that Harvey could have expressed this concern earlier, his concern about approaching the arbitrary 180 innings limit, just so the Mets could have reduced his workload, and accommodated Harvey.

Matt Harvey is not a young man anymore. He is 26, not 18. He could and should have been more forthright about his concerns much earlier, because that would have allowed his team to plan accordingly.

Matt Harvey denied his team, his employer, that opportunity to plan, and by doing so, he has comprised -- if not willingly damaged -- his team's ability to win. Read that again: that is a serious charge, but the behavior and implicit messages from Harvey (or his agent Scott Boras) warrant it.

Why he did it is actually irrelevant. Here's why. The cover story is health. But that is the front put up, the position concocted to knock down criticism -- how can you make me pitch when I'm concerned about injury? Just know it's a rhetorical trick. Many skilled judges and lawyers see through it (almost no jurors do, however). 

If Matt Harvey were a witness in court, he would now be considered damaged goods, someone whose credibility would be suspect. He might make a bad witness, might not even make it to the witness stand. 

So what is this really all about?

This is a negotiating ploy by Harvey's agent Scott Boras. Harvey wants a contract, wants more money, and feels he has proven his value. His recent performance indicates he is a top-level pitcher, so it is possible or arguable that he has nothing more to prove and hence has maximized his value and leverage right now, by throwing out the 180-inning bar as the excuse to take no more risk of injury if he is not compensated. And all this is within their rights. Boras also wants to maximize value for Matt Harvey. The Mets franchise, the fans, are irrelevant. 

Now, value maximization means the most dollars. 

Here's how this is going to unfold.

Any controversy which weakens the bond implicit between player and team -- and especially when the player is a once-in-a-generation star like Harvey -- is assumed to be an opportunity to be exploited. That means that it is assumed it can be patched up, and that means patched up with a lot of money. 

If my theory is correct, this controversy becomes very intentional, very much by design.

It also tells the New York Mets franchise and their fan base that Matt Harvey does not care about the team winning. That is the conclusion supported by the fact of Harvey not expressing his current "concern" earlier, much earlier, or at any point in the season, when the concern could have been accommodated in a way mutually beneficial to the team and player.

Instead, the Matt Harvey strategy is to deliberately weaken his employer, the team, in order to exploit a crisis. And to be sure, the attack from within would not only involve his playing or not playing. These actions require a response from the team, against which every other player will measure how they are treated. This is how corporate morale, team morale, can be affected and even destroyed by special treatment, by special privileges and by the allowance of double standards.

Matt Harvey has a contract. Yet the suggestion by his agent Boras -- as to whom observers are entitled to assume speaks with the authority and permission of Harvey -- is that Harvey will withhold his services, not directly refusing but rather by using a hard-to-argue-with fear of injury excuse. But his prior history, his own prior statements, raise serious credibility questions that are value-damaging, credibility-damaging, relationship-damaging and constitute breaches of duty.

In business, in corporate America, a star employee often has an employment contract requiring duties such as the duties of care, of candor and of loyalty.  Harvey would be considered to be jeopardizing himself, at least his reputation, by giving support to claims that his words and actions are breaching them. And he is not a free agent, he is not without a contract in spring training or training camp, for example.

Others would use stronger terms, stronger words and stronger consequences. Diplomats and prosecutors have words to describe this: Sabotage. And treason. And...felony.




Friday, September 4, 2015

Tourist Trap Alert: New York City Using Bathroom Scam At Staten Island Ferry Terminal?

videoWho says the socialists don't know capitalism?

It seems the New York City Department of Transportation might be pulling a fast one of three card monte on hapless tourists taking a round trip ride on the Staten Island Ferry.

The video below (click the link) shows that each of the restrooms in the ferry terminal on the Staten Island side are closed.

Weak August Jobs Data: How To Read The Numbers

Legal cases and investigative jobs tend to heavily use and depend on statistical analysis. The closest many people get to this analysis is reliance on government data, so let's look at this morning's just released jobs data from the Bureau of Labor Statistics.

Look at summary chart A first. This is summary information and is seasonally adjusted (meaning the government does not have the excuse of seasonal fluctuations yet, as with all data, reserves the right to correct the data later. This is very common.)

I advise people to look at any percentages by looking at the denominator. Employment statistics including the headline "unemployment rate" (of which the main rate reported by everyone is the "U-3" rate, and is down to 5.1%) involves the numerator (the top number in the fraction), but the denominator determines what the percentage is. The easiest way to affect the quotient (the result), to get the percentage you want, is to affect the calculation of the bottom number (denominator).  And what is the denominator? It's the labor force!  Reduce the labor force number, and you can get a lower unemployment rate, even when real employment may be declining (that is a separate issue entirely involving hours, wages and so on -- that gets to real income.) simply because the labor force denominator is getting smaller, either in real terms or in relative terms (such as when it grows less than the numerator).

Go eight lines down to the line item "Not in labor force."  Then look to your right for the first column (August 2014) and the next to last column (August 2015). Comparing these two columns' data will show a year over year change so you are getting the truest (we think) comparison whereas month to month comparisons (i.e., August 2015 versus July 2015) are always prone to seasonal fluctuations.

You'll see that the 12-month change (August 2015 vs. August 2014) shows the people not in the labor force is about two million greater than this time last year.

Then go to "civilian labor force" which is the second line. Look at the columns again. The increase year over year is barely one million.

This means the growth, seasonally adjusted, of the population not in the labor force is about double what the growth of the labor force is.