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Disruptive trading app set to raise over $200 MILLION

United States-based stock and crypto trading app Robinhood is set to raise at least $200 million in a new funding round, Bloomberg reported on May 24.

Per the report, an unspecified source familiar with the matter told the outlet about the company’s plans to raise further funding. Moreover, Bloomberg reports that the round would increase the firm’s value to between $7 billion and $8 billion, but that the details could change.

Other people familiar with the matter also told Bloomberg that the new funds come from existing investors, all of whom asked not to be identified and to keep the details private. While the funding talks are reportedly ongoing, a further funding round could increase the company’s worth to $10 billion, but the numbers are subject to change until the deal is closed.

Robinhood, which allows for zero-fee stock trading, first introduced bitcoin (BTC) and ether (ETH) trading in January last year.

As Cointelegraph reported earlier this week, Robinhood has officially launched its crypto trading app in New York following the acquisition of a BitLicense by the New York State Department of Financial Services in January 2019.

Also during this week, the new April 2019 Exchange Review from crypto data provider Cryptocompare revealed that centralised cryptocurrency exchanges saw a major uptick in trade volume this April.

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Malta becomes first Blockchain Island following new Regulation

On 4 July 2018, Malta officially passed three bills into law which establishes it as one of the first countries to enact a regulatory framework for blockchain technologies and cryptocurrency. While other nations have decided to wait for a tried-and-tested legal framework to base their regulations on, Malta has pioneered legislation into the industry to make them the biggest name in blockchain and cryptocurrency technology. As shown by the new laws, this move has been made to make Malta a hotspot for the industry. It is a huge move from the small nation, earning it the title of the ‘World’s First Blockchain Island,’ and it is expected to have many repercussions in Malta and across the world.

A new age is dawning

Bitcoin, the world’s first cryptocurrency, found recognition among the general public in the second half of 2017 when its price ascended rapidly from close to $1000 to over $19,000. However, people have known of the cryptocurrency for a long time; and while some may not have bought into the ideology of a decentralised digital currency, experts saw the potential buried in Bitcoin’s foundations.

The blockchain, which is a public transaction ledger that is managed by a peer-to-peer network, records everything that happens in the Bitcoin network and stores the records in a way that cannot be copied or altered. It was built to stop the possibility of double-spending the cryptocurrency, and it also built unequivocal trust within the network without the need for a central authority. Blockchain technology may have first been used for Bitcoin, but its applications are far spreading beyond cryptocurrencies. It could allow the media industries to limit a single copy of a song or movie to a single purchaser, or be used in all forms of business in the form of Etherium’s self-executing contracts. If it is allowed to, blockchain technology could change the way that day-to-day activities are performed. But to do that, companies in the industry will need assurances.

Malta steps forth to inspire blockchain advances

Malta made history with the three bills that it enacted as the regulatory framework for cryptocurrency and blockchain technologies, becoming the first world jurisdiction to provide the industry with legal certainty. Other jurisdictions have passed laws on cryptocurrencies and blockchains, but Malta’s regulations are the most detailed and comprehensive, delivering true certainty. The EU member has been keen to innovate and govern online industries, with the Maltese Gaming Authority being one of the most trusted regulators in the online gaming industry. Now, Malta has become a regulated haven for companies in the industry.

The primary purposes of the three bills are three-fold: to provide legal certainty for the first time in the industry; to support the growth of the increasingly important industry; to guide the government on how to embrace blockchain and cryptocurrency technology and forge Malta into an industry hotspot.

Now in power and governing the industry’s actions in Malta are the Innovative Technology Arrangement and Services Act (ITAS), the Malta Digital Innovation Authority Act (MDIA), and the Virtual Financial Assets Act (VFA). Herein, blockchain technology is referred to as distributed ledger technology (DLT), while a cryptocurrency is termed as a DLT asset. The purposes of each bill are as follows:

  1. ITAS: Primarily concerns the establishment of exchanges and companies based within the cryptocurrency market. It details the registration and certification of DLTs and provides technological arrangements for companies.
  2. MDIA: This bill establishes the MDIA as the regulatory body and formalises the internal regulatory procedures for the industry. As the regulator, the MDIA is also tasked with providing legal certainty to potential DLT platform users.
  3. VFA: The third bill regulates initial coin offerings, forcing new companies seeking to raise capital through an ICO to publish detailed white papers and make their financial history public. The VFA also governs cryptocurrency exchanges and wallet providers.

The three bills have been brought in by Malta to allow a safe place for the industry to grow, but they also ensure that potential users are protected under the new laws. The new legislation prohibits market manipulation, insider trading, and misleading white papers. ICOs in the industry have been accused of such foul play in the past, so Malta has decided to prohibit it without question. A person found guilty of such offences can face: a fine of up to $15,000,000 or three-times the losses avoided or profits made due to committing the offence, whichever is greater; incarceration for a term of up to six years; or suffer imprisonment and a fine. These staunch punishments will help Malta to legitimise the industry while also nurturing it as it grows to meet its immense potential.

The impact on Malta and the rest of the world

The desire to create the bills first was to help present Malta as a blockchain hotspot: the nation is already bearing the fruits of its bravery. Binance, the largest cryptocurrency exchange in the world, has already opened up an office in Malta, and OKEx has also followed suit. The Maltese government has investigated various ways to implement blockchain technology into public services, while the MGA sees the technology as a way to regulate online gaming services looking to accept cryptocurrency payments. They also plan to explore its applications alongside games, as it could provide transparency by proving the fairness of games via operators’ use of DLT.

Malta’s new regulations could also work as the much-desired framework for legislation in other nations. In the USA, investors have encountered frustration when trying to invest in certain ICOs, due to government accreditation being required for ICOs that offer securities. Malta’s VFA can assist with this issue as The Financial Instrument Test within the VFA details a three-step method to decipher whether an ICO’s asset could be deemed a virtual token.

Malta has opened as the world’s first regulated jurisdiction for blockchain and cryptocurrency technology. The favourable and clear-cut legislation will attract many of the biggest names in the industry to the island nation which will, in turn, provide a haven for the potentially world-changing industry to develop.

The lack of legal action has created uncertainty

Blockchain is being hailed as the greatest invention since the internet. Despite this, there is a great deal of variance in the regulation of the technology across the world. In the United States of America, blockchain technology has been mentioned as potentially being able to change how security is upheld during transactions online. Despite this, the US federal government has left the states to their own devices for regulating blockchain technology, which has resulted in at least eight states working on bills to accept or promote the use of the blockchain technology or the cryptocurrency Bitcoin, as of 2017.

In Europe, there is a more positive, active, and welcoming approach being taken to regulating blockchains and cryptocurrencies. Earlier in 2018, the European Commission revealed its planned vehicle to exchange expertise for the launch of blockchain applications across the European Union, known as the European Blockchain Partnership.

The issues that many jurisdictions have encountered when seeking to regulate the industry are defining the uses of blockchain, understanding what cryptocurrencies and blockchains are, and the willingness to commit and give the technology a stamp of approval. The industry has also come under scrutiny concerning the legality of cryptocurrencies. Some have disputed that cryptocurrency does not constitute legal tender, which brings about a lot of uncertainty in many areas of the world for the companies.

In research committed by Malta, one of the main concerns brought up by those in the industry was the legal uncertainty in many jurisdictions and the fear that their activities could be deemed unlawful at any time. The serious operators sought legal certainty above all else.

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The Difference between Digital Coins and Tokens?

The world of cryptocurrencies and blockchain continues to expand from its humble beginnings to becoming buzzwords by the conclusion of 2017, to now, when more people and businesses understand the new technology, as well as, its range of applications. One common point of confusion that has arisen surrounds the frivolous nature in which some refer to the digital coins, such as Bitcoin, and tokens as the same entity. Tokens and coins are, in fact, very different aspects of blockchain technology and its ilk, offering different applications on the blockchain and when making transactions.

What are digital coins?

Digital coins, or cryptocurrencies, often have a sole function: to be used as a payment method. The original cryptocurrency, Bitcoin, was introduced with the sole purpose of eradicating fiat currencies with its trusted and immutable decentralised public ledger, known as the blockchain. The focus for Bitcoin and most other coins is on the speed, safety, and affordability of making payments while it primarily denotes value to be used to exchange for services and goods.

Each coin is an asset native to its blockchain, with their function and operation being solely on their specific blockchain. They are first introduced from the blockchain following an initial coin offering (ICO), which allows people to pay money to acquire the digital coins for use within the blockchain. Exchanges and trading platforms, such as Coinbase and Kraken, have emerged to cater to the fiat money and cryptocurrency exchange of digital coins for users who aim to make a profit on the rise in the value of coins. The most famous incident involving the price of a digital coin on the stock exchange was Bitcoin in December 2017, when its price soared to $19,343.04.

The use of coins is primarily as a payment method for services or goods on a blockchain. While some coins, such as Ethereum’s Ether, have other functions as well, the primary function of the coin is to denote value for a payment, with Bitcoin being the prime and most recognisable example.

What are digital tokens and how do they work?

The reason why coins and tokens are often mistaken as the same digital item is not only because the two terms are somewhat interchangeable in the physical world, but also because they both hold value within their specific blockchain. Tokens are created within decentralised apps (dApps) that are hosted by a blockchain that functions on smart contracts, such as Ethereum. By funding a smart contract with the blockchain’s native coin, the user receives an allocated amount of tokens which, in turn, allows the user to interact with the dApp. The dApp which received coin in exchange for its tokens will then further develop its service with the new capital. Tokens often represent some form of value for use within or concerning the dApp which released them and are used as a medium of exchange.

Anyone who operates a dApp can create and issue customised tokens for use within their dApp. To create these tokens, the developer must pay a fee in the form of the blockchain’s native coin, such as Ether on the Ethereum blockchain, to pay the miners who validate the tokens. Coins are also required to exchange the tokens from peer-to-peer. Those who have created a token model for their dApp will often set specific methods in which users can earn the tokens. If constructed well, users will perform these actions to gain the desired tokens to use on their favourite goods and services. If a token ecosystem is well-crafted, it can add another incentive for users to interact with the dApp’s offering, giving it more value than just monetary.

The benefit of developers employing the token model on an existing blockchain, thus being required to pay the coin fees for the creating and distribution of coins, is that the blockchain provides structure, upkeep, validations, and security through its vast network of computers.

There are four different forms of token according to the definitions of Swiss financial regulators FINMA, all of which have the goal of gaining capital from users spending coin on using the tokens for the dApp at hand. The four definitions of token are as follows:

  • Utility Tokens: The utility tokens are used to gain access to a certain part of a dApp, such as a particular service or product offering. Due to their limited supply, utility tokens are often expected to increase in value.
  • Payment Tokens: Similar to how coins function, but more specific in their usage, payment tokens have the sole use of payment for services or goods.
  • Security/Asset Tokens: These are the tokens issued by the initial token sale (ITS), which people will invest their money in with the aim of making a profit.
  • Equity Tokens: This is an uncommon form of token at this time, but equity tokens are those that represent equity or stock in a company.

Tokens in practice

Ethereum is a grand example of how tokens work within a blockchain. The Ethereum network operates on the issuing and completion of smart contracts with its coin, Ether, working as the ‘fuel’ and payment method of the smart contracts. Within the network, there are many dApps which function token-providing smart contracts which require Ether to fuel.

Many decentralised apps deploy tokenised models, and Golem is one of the most popular examples. Golem grants people remote access to its supercomputers for work in many different computing fields such as cryptography. To keep the Golem network working at optimum levels, it draws computing power from its users’ computers, servicing the processing needs. To incentivise this, Golem rewards tokens to those who allow the Golem software on their computer to aid the network, which users can then use on Golem services.

The Musicoin dApp issues tokens that can be purchased in exchange for coins which then allow the user to activate certain features of the Musicoin platform. With a token, users can stream and listen to music hosted by Musicoin, working as a digital version of the old jukeboxes which required customers to insert a specific token before being able to select the song that they wanted to be played.

Tokens are also being used as vessels that represent products and items of the physical world. While Ripple is a recognised coin service, providing fast and low commission transactions as well as its own coin, it utilises tokens within its network as representatives of monetary values. The Ripple token starts as a form of joker card which can represent almost any value of a transfer of cryptocurrency or fiat currency across the network. WePower works similarly, with users able to purchase and sell tokens which denote values of electricity on the WePower blockchain.

Coins versus Tokens

To state a rough coverall distinction between coins and tokens; the primary purpose of a coin is to make a payment or monetary exchange while tokens are put to use by consumers looking to activate features of a decentralised app within a blockchain that has a native coin and features smart
contracts. However, coins can be multifunctional, such as Ethereum’s Ether coin which acts as fuel for smart contracts, and tokens take more forms than just granting users access to products and services offered by a dApp. Some tokens work as assets or equities, while others are also used for payments. The primary difference is that tokens tend to be dApp-specific, whereas coins are mostly used as money.

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The Technicalities of DLT Sandbox Framework

The nation of Malta has led the way with its blockchain regulations and has encouraged its other major authorities to embrace the technology. The Malta Gaming Authority is a leading regulator of online and landbased gambling and has recently published its guidelines to move towards accepting virtual financial assets and distributed ledger technology within the gaming industry.

The Malta Gaming Authority announced in March 2018 that they would be creating methods of welcoming distributed ledger technology and cryptocurrencies into the gaming industry. They announced that a licensing system would be established alongside methods of using wallets of digital currency at gaming websites and a way of calculating exchange rates. It was at this time that the Malta Gaming Authority announced their plans to create a sandbox testing environment in which developers could test their games to see if they are in line with the upcoming regulations of the Malta Gaming Authority.

In October 2018, the Malta Gaming Authority released its guidelines for the framework that they had created to assist the budding technology in the gaming industry.

The Malta Gaming Authority releases its sandbox framework

The announcement detailed the two phases of the framework. Phase one is set to commence on the 1st of January 2019, at which point the Malta Gaming Authority will be accepting applications from bodies within the gaming industry looking to allow the use of virtual financial assets and virtual tokens as a means of payment. In phase two, their framework will be extended to allow for applications from those looking to use innovative technology arrangements, such as distributed ledger technology, within the key technical equipment of licensees: this is to coincide with further developments made by the established Malta Digital Innovation Authority. The Malta Gaming Authority is expecting the sandbox framework to continue until October 2019, but the paper is to be considered as a live document so that the regulatory requirements initially envisioned can be changed to adapt to technological and regulatory developments if necessary.

Even if an applicant fully complies with the Maltese blockchain legislation, they must still obtain a license from the MFSA before being granted access to the sandbox framework. Furthermore, applicants can apply for the inclusion of their testnet within the sandbox framework should their live environment go live within the three months following their approval by the Malta Gaming Authority.

The Malta Gaming Authority have established criteria as to how to define virtual assets and the steps required to use assets from distributed ledger technology. Prior to the involvement of the Malta Gaming Authority, an operator shall need to undergo a Financial Instrument Test that is issued by the Malta Financial Services Authority to be able to determine the nature of the distributed ledger technology asset, be it a virtual financial asset or a virtual token. Once this has been established, the operator shall submit the Malta Financial Service Authority’s findings with other appropriate documentation to the Malta Gaming Authority as a stage of the application process to be approved for the sandbox.

Regulating the use of virtual financial assets

If the asset is deemed to be a virtual financial asset, it adheres to established statutes of Maltese law. Operators can then use virtual financial assets that are overseen by the Malta Financial Services Authority in accordance with the Virtual Financial Assets Act. Those deemed to be financial instruments, per the Investment Services Act, or electronic money, per the Financial Institutions Act, can only be accepted as a method of payment if they are specifically approved by the Malta Gaming Authority, which shall be decided on a case-by-case basis at the Authority’s discretion.

When users sign-up to gaming websites with the intent to use virtual financial assets, only wallet addresses that are specifically tied to the individual will be permitted within the gaming ecosystem. Once the wallet has been recognised, for a deposit of virtual financial assets to be successful, the operator must verify the individual’s details and their wallet. Once verification is complete, players receive their gaming funds. Withdrawals can only be performed to verified wallets, and if a pending transaction does not match the player’s verified wallet address, funds will be returned to their point of origin or shall be frozen.

The operator must clearly identify and forewarn all players to withdrawal and deposit transaction fees should these exist on their platform. Within the operator’s ecosystem, virtual financial assets and fiat currencies shall be treated as separate entities, with an exchange between the two not permitted. For the sandbox framework, the exchange rate applied shall adhere to that of the virtual financial asset exchange declared to the Malta Gaming Authority by the operator. The exchange rate shall be taken for the virtual financial assets permitted against the Euro (€) at the time of 12:00 Central European Time on the last day of the reporting month with the taken exchange rate unable to change throughout that same reporting month. However, exchange rates can change from reporting month to reporting month. Operators shall enforce a maximum deposit to the value of €1000 in virtual financial assets per month.

Regulating the use of virtual tokens

The use of virtual tokens shall also be decided on a case-by-case basis by the Malta Gaming Authority: a decision which is guided by their distributed ledger technology economics criteria as well as an evaluation of token’s technology, the company’s structure, human resources, market applications, and security. Registered players can acquire virtual tokens from the operator on the operator’s platform for use on the platform. Virtual tokens can purchased with the use of fiat money as long as withdrawals following the use of the virtual tokens can also be made in fiat currency at the same rate of exchange as they were initially acquired.

Regulating the use of innovative technology arrangements

During the operation of the sandbox framework, the Malta Gaming Authority shall be accepting games and components of games that are fully or partially hosted in a distributed ledger environment, but these technologies shall also be subject to an audit. Other essential components hosted on distributed ledger technology will also be accepted if the Malta Gaming Authority is satisfied by the technology’s compliance with regulation and is successful in an audit.

Approval from the Malta Gaming Authority and inclusion within the sandbox framework is required of any operator seeking to make use of innovative technology arrangements as a part of its key equipment, and each element of innovative technology arrangements shall be audited by registered auditors of the Malta Digital Innovation Authority. The technology is only accepted if the audit report concludes with a positive outcome and the Malta Gaming Authority is satisfied that its regulatory requirements will be adhered to by the operator.

Smart contracts will only be permitted if: the smart contract’s code is reviewed by an audit; necessary amendments are made following the results of the audit; necessary safeguards are put in place to protect the transferred assets; revocation of a smart contract can occur should a flaw generated in the code be discovered; and wallet verification is part of the player’s identity. The main focus of the Malta Gaming Authority, with regards to smart contracts, is where the funds placed in escrow during a contract are held by the smart contract.

According to the Malta Gaming Authority’s Guidelines on Technical Infrastructure Hosting Gaming and Control systems, hosting architecture must be located within the nation of Malta, a European Union member state, or a member of the European Economic Area to ensure that the same principles are upheld, which would seemingly exclude the use of public distributed ledger technology platforms. But applications to the sandbox framework using such technology will not be scrutinised for not abiding by these guidelines. To gain a license, however, the operator of this technology will need to establish a node in Malta to adhere to requirements.

Once approved by the Malta Gaming Authority, the licensee will be rewarded with a dynamic seal, acknowledging that they are a participant of the sandbox framework.

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Cryptocurrency in 2019: Things to Expect

Cryptocurrencies continue to surprise us with their behavior through the years. Amidst all the instability and unpredictability in terms of performance, trading, litigation, regulation, and taxation, miners and investors brave the odds and explore what these cryptocurrencies have to offer. Pessimists and optimists alike have much to say about the future of cryptocurrencies like bitcoin – such as bitcoin’s supposed nearing end because of the consistent drop in bitcoin price after reaching its peak. But it’s more viable to focus on observable trends in order to have an idea on what to expect as far as these cryptocurrencies are concerned. Here are some of them.

The Market

The word “bubble” is thrown around in the finance world, and if you’re wondering what it means, it is simply the cycle created by the fast escalation of asset prices followed by a contraction. The bubble deflates when investors cease to buy at elevated prices and massive sell-offs occur. As for bitcoin, yes it is a bubble, and it indeed popped. The market is expected to calm down a bit after the Crypto bubble and cryptocurrency trading will remain profitable.

Cryptocurrency as Payment

Retailers are starting to accept cryptocurrency as payment. At this point in time, including cryptocurrency in the list of payment methods can potentially boost income, in the same way that establishments that accept credit cards do have a wider reach than those who do not. Now you can book flights, purchase household goods, get web domains, buy computer products, and so much more with bitcoin. As of December 2018, more travel services, web services, food, and general merchandise have started to accept bitcoin payments. Those with a Microsoft account, for example, have the “Redeem Bitcoin” option upon checkout and can add up to $100 at a time via Bitpay.

Cybersecurity

In the recent years, crypto traders and holders have seen security threats such as phishing and mining malware. Cryptocurrencies, in theory, are secure; however, we expect that new crypto exchanges and platforms will bring about new cybersecurity threats and challenges.

Blockchain

The blockchain industry has always been associated with cryptocurrency, and in 2019, it is expected to work on its image as an industry that has a lot more to offer. If the industry wants to operate on a larger scale, it needs to be communicated that the blockchain technology has a lot of uses that are unrelated to cryptocurrency.

Taxation and Regulation

2019 is set to be the year of more widespread, formal, and international crypto regulation. In cryptocurrency news this year, Malta became the first country to have a clear regulatory framework for cryptocurrencies. Countries such as Russia and India have also begun to draft national legislation for cryptocurrencies; and we expect other countries to follow suit – giving way for cryptocurrency to become more legitimate. Preventing money laundering, fraud, and terrorist funding is a prime motivation in putting these regulations in place. If cryptocurrencies are safely policed, more and more people will be confident to use and adopt them.

Contact us at Hogan Injury for expert legal advice.

None of the content on https://www.hoganinjury.com/ is legal advice nor is it a replacement for advice from a certified lawyer. Please consult a legal professional for further information.

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Bitcoin and Cryptocurrency Litigation

Bitcoin and other cryptocurrencies are gaining more attention as days pass. Aside from the advantages that cryptocurrencies have like anonymity and easy international transactions, people are enticed by the fact that it can become a good investment. Apart from trading bitcoins for cash, you can also use bitcoins to buy gift cards, book flights, and hotels, buy furniture, or even buy real estate properties. Bitcoin purchases are not taxed at the moment since there is no way for third parties to identify, track, or intercept transactions that use bitcoins. Transaction fees are considerably lower as well compared to credit card transactions or services like Paypal.

Although there are many advantages in using bitcoin or other cryptocurrencies, just like any other investments, you should always be careful with your transactions. Since cryptocurrency is not regulated, many unscrupulous people have taken advantage of this and incidents of fraudulent cryptocurrencies, and other types of scam related to cryptocurrency have happened. One example of this is Prodeum, a cryptocurrency start-up that scammed its investors in just one weekend.

Because of these scams, law firms have now been involved in helping the victims. Cryptocurrency litigation has now become something that some lawyers specialize in. There are a lot of factors to consider when a cryptocurrency dispute arises. Aside from fraudulent Initial Coin Offering (ICO), lawyers could get involved if the cryptocurrency was used to launder money or hide assets; they could also get involved when there is an issue with the company, commercial, or intellectual property laws being violated in relation to cryptocurrency.

Here are some things that you can do as a cryptocurrency user to avoid being scammed:

  1. Research. – Just like with any other investments that you will make, research is essential. When investing in an ICO, make sure to read and dissect their white papers to ensure that you’re working with reliable people. Take time to research the people behind the ICO, their whole team, board members, and other investors. It’s vital for you to learn as much as you can about the company before investing so that there will be no unpleasant surprises.
  2. Be vigilant. – Cryptocurrency is still primarily bought and sold at exchanges. Because cryptocurrency is something new and the fuss around it is its value, many people get scammed by the promise of unrealistic prices. If an exchange promises incredible discounts or offers that seem too good to be true, it probably is. Another thing that you can do to avoid bitcoin exchange scams is to check the exchange’s URL. If a website’s address starts with HTTPS instead of just HTTP, that means that the traffic is encrypted and therefore has more protection.
  3. Only use trusted sources. – Hardware wallet is a physical device that stores your private keys. Hardware wallets offer more protection from hacking since there is no way for hackers to access them when you’re not online. However, hackers have now found a way around that. Some hackers sell hardware wallets that have a backdoor for them to access all your cryptocurrency and the best way to avoid this is only to accept hardware wallets from trusted sources.

In need of expert legal advice? Contact us at Hogan Injury.

None of the content on https://www.hoganinjury.com/ is legal advice nor is it a replacement for advice from a certified lawyer. Please consult a legal professional for further information.