Crypto firms beefing up legal support amid regulatory crackdown
Industry exec suggests that Web3 companies seek advice from counsel and invest in compliance teams as latest SEC actions highlight ongoing securities questions
N K/Shutterstock modified by Blockworks
In response to increased regulatory scrutiny in the US, crypto companies have begun placing a greater emphasis on hiring legal professionals. This follows recent developments regarding the SEC’s ongoing lawsuits against Binance and Coinbase.
The SEC targeted Binance on Monday for allegedly engaging in the unlawful sale of securities and failing to register under the Exchange Act, among other charges.
The US securities regulator then sued Coinbase, claiming it was operating as an unregistered exchange. Agencies from individual US states also went after the company’s trading and staking services in separate legal actions.
Both exchanges have denied wrongdoing.
Ari Redbord, head of legal and government affairs at TRM Labs, noted that the heart of cases alleging unregistered securities hinges on whether certain digital assets are, in fact, securities. Redbord was named vice chair of the CFTC’s technology advisory committee in March.
Redbord said that he expects this issue to be initially addressed by the courts and eventually by Congress.
“In the meantime, crypto businesses can seek legal counsel from those versed in these complex issues, invest in compliance teams, use blockchain intelligence solutions, work with law enforcement to weed out bad actors and build robust corporate governance structures,” Redbord told Blockworks.
Some companies said new developments don’t impact their long-standing focus on compliance. They have acknowledged the need for additional vigilance after the latest allegations against Binance and Coinbase, however.
A representative for crypto exchange Bitstamp told Blockworks in an email Thursday that while the company has been “a compliance-first exchange” since launching in 2011, it takes new regulatory developments “very seriously.”
“As such, we are currently reviewing the new information that has come out this week to determine what actions to take,” the spokesperson added.
Marc D’Annunzio, general counsel for crypto marketplace Bakkt, said the company intentionally separated its crypto trading and custody functions, and has historically chosen to move slowly and evaluate the implications of its decisions.
He added that the actions against Binance and Coinbase continue a trend. The company is actively discussing with regulators and legislators ways to develop clear, actionable guidance — alongside enforcement — for crypto companies wanting to comply with laws.
“While some of the headlines are new, our approach is not,” D’Annunzio said. “While there’s arguably more developments to monitor on any given day, our process for doing that and considering impacts to our business remains unchanged.”
After closing its deal to acquire Apex Crypto last month, Bakkt delisted 25 coins to maintain its “compliance-first and consumer protection-focused approach,” D’Annunzio told Blockworks Thursday.
The company also acquired a broker-dealer license from Bumped Financial earlier this year. This was done “so that when there is a clearer framework for offering coins that are deemed to be securities, we are in a position to offer them,” D’Annunzio added.
A push to build legal teams in lead-up to latest actions
Zachary Plotkin, a managing director at recruiting firm Madison-Davis, said that crypto companies have traditionally prioritized professionals specializing in know-your-customer (KYC), onboarding, and due diligence. However, in 2023, there has been a noticeable increase in demand for legal support in specific areas.
In terms of full-time roles, Plotkin said more crypto companies have been hiring counsel in recent weeks.
Crypto.com posted a job listing Thursday for legal counsel tasked with “representing the company in negotiations and interactions with regulators, policymakers and industry stakeholders on tech-related matters,” it states.
Kraken last week listed the opening for a senior corporate and securities counsel to join its “growing” corporate legal team of nearly a dozen.
Representatives for Kraken and Crypto.com did not return requests for comment about the job postings, or other efforts.
Crypto asset manager Grayscale Investments — in the middle of its own legal battle with the SEC — posted a job posting for regulatory counsel last week. The professional would engage with the SEC and FINRA “as Grayscale’s regulated entities grow their private placement, public quotation, ETF and ETP business lines,” the listing states.
Even eBay, which acquired NFT marketplace KnownOrigin last year, is seeking crypto counsel to offer legal advice related to NFTs, blockchain and other Web3 matters.
WorkInCrypto.Global founder Sam Wellalage said he recently helped various “major players” hire legal and regulatory senior professionals, noting the market for such talent has recently heated up.
In addition to full-time professionals, the demand for temporary legal consultants, as well as those focused on fraud and third-party risk, has increased in the last six months amid regulatory uncertainty in the segment, Plotkin added.
These employees are mainly being hired on a contractual basis for periods ranging from three months to two years, which Plotkin attributes to firms wanting to stay cost-efficient and nimble during what he called an “economic downturn.”
The SEC’s lawsuits against Binance and Coinbase, however, have caused larger crypto firms to pause hiring, Plotkin said, adding that the space has entered “a wait-and-see period.”
“[With] Coinbase, Binance and all these other companies … there is definitely pressure from the government on them,” Plotkin said. “Before people take action or spend money to bring on new resources, they want to see how the government is going to react.”
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