Do Web3 Engagements Put Lawyers in the Crosshairs?

Grayscale Hires Top Obama White House Lawyer David Verrilli

Grayscale Investment LLC has brought in a top legal mind from the former Obama administration as it weighs the possibility of the US Securities and Exchange Commission rejecting its application to convert its $20 billion Bitcoin trust into an exchange-traded fund.

The crypto asset manager announced Tuesday that is has hired Donald Verrilli, who worked as US solicitor general from 2011 to 2016, as additional legal counsel. Grayscale’s decision to hire Verrilli comes after the firm’s CEO Michael Sonnenshein said “all options are on the table” if the SEC rejects its proposal to turn Grayscale Bitcoin Trust (ticker GBTC) into a physically-backed ETF. The regulator has repeatedly denied similar applications. The SEC has until July 6 to make a final decision.

Time For Fintech Lawyers To Rethink Web3 Engagements

The Letter makes clear that the time is now for a fintech sea-change. For fintech lawyers, this is not just a matter of doing what is right, it may also be a matter of self-preservation. Reading between the lines, The Letter puts fintech lawyers on notice that when things go south, lawyers could become perfect targets for culpability, including for malpractice suits, regulatory enforcement actions and even criminal prosecutions.

After all, in light of The Letter, how could any lawyer facilitate a crypto-partnership deal like the Nationals did; draft a contract for a crypto-commercial like Embiid did; or support engaging a 5-person Cayman Islands firm serve as an auditor like Tether did?

Crypto Bill Condemned by Consumer Advocates in Washington

The wide-ranging crypto bill introduced Tuesday by U.S. Senators Cynthia Lummis and Kirsten Gillibrand didn’t draw any praise from consumer advocate groups.“The bill gives the industry what it wants most: the Commodities Futures Trading Commission (CFTC) as its primary regulator, even though it exists to police markets where physical producers and purchases of commodities like corn, wheat, oil, natural gas, hogs, and cattle hedge their price risk to facilitate the delivery of everyday goods to the American people,” said Dennis Kelleher, CEO of Better Markets, a Washington-based group that often seeks to counter financial industry lobbying.Kelleher noted that the crypto industry wants the CFTC as a watchdog because it’s the smallest regulator with the smallest budget.

Lummis-Gillibrand crypto bill would elevate CFTC

Self-regulatory organizations “form the first line of defense for regulating large, complex markets” that “can write their own rules as well as enforce SEC or CFTC rules,” he added. “If you want to see digital assets regulated, that almost certainly means developing one or more SROs.”

Marc Fagel, the SEC’s former regional director for San Francisco and now a lecturer at Stanford Law, offered a more cautious view of setting up SROs for a relatively young and still rapidly evolving industry.“

I’m curious how it would work,” he told Protocol. “With FINRA, you have long-standing broker-dealers whose legitimacy and financing are well established. How many players in the crypto space have the same bona fides such that the regulators are willing to delegate oversight authority?”