Crypto Firms Bolster Legal Support Amid Regulatory Crackdown

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In response to increased regulatory scrutiny in the United States, crypto companies have begun to place more emphasis on hiring legal professionals. This follows recent developments regarding the ongoing SEC lawsuits against Binance and Coinbase.

The SEC targeted Binance on Monday for allegedly participating in the illegal sale of securities and failing to register under the Exchange Act, among other charges.

The US securities regulator then sued Coinbase, claiming it operated as an unregistered exchange. Individual US state agencies have also sued the company’s trading and staking services in separate lawsuits.

Both exchanges denied wrongdoing.

Ari Redbord, head of legal and government affairs at TRM Labs, noted that the crux of cases alleging unregistered titles hinges on whether certain digital assets are, in fact, titles. Redbord was named vice-chairman of the CFTC’s technology advisory committee in March.

Redbord said he expects this issue to be addressed initially by the courts and eventually by Congress.

In the meantime, crypto companies can seek legal advice from those familiar with these complex issues, invest in compliance teams, use blockchain intelligence solutions, work with law enforcement to root out bad actors, and build strong corporate governance structures, Redbord told Blockworks.

Some companies said the new developments did not impact their longstanding focus on compliance. However, they recognized the need for extra vigilance after the latest allegations against Binance and Coinbase.

A representative from crypto exchange Bitstamp told Blockworks in an email Thursday that while the company has been a premier compliance exchange since its launch in 2011, it takes new regulatory developments very seriously.

As such, we are currently reviewing new information released this week to determine what action to take, the spokesperson added.

Marc DAnnunzio, general counsel for the Bakkt crypto market, said the firm intentionally separated its crypto trading and custody functions, and historically chose to move slowly and assess the implications of its decisions.

He added that shares against Binance and Coinbase continue to trend. The company is actively discussing with regulators and legislators ways to develop clear and actionable guidelines alongside the app for crypto companies wishing to comply with the laws.

Although some of the titles are new, our approach is not, DAnnunzio said. While there are arguably more developments to monitor every day, our process for doing so and considering the impacts on our business remains unchanged.

After closing its deal to acquire Apex Crypto last month, Bakkt delisted 25 coins to maintain its focus on compliance and consumer protection, DAnnunzio told Blockworks on Thursday.

The company also acquired a brokerage license from Bumped Financial earlier this year. This was done so that when there is a clearer framework to offer coins that are considered titles, we would be able to offer them, DAnnunzio added.

A boost to build legal teams for the latest actions

Zachary Plotkin, chief executive of staffing firm Madison-Davis, said crypto firms have traditionally prioritized professionals who specialize in know-your-customer (KYC), onboarding and due diligence. However, in 2023 there has been a noticeable increase in demand for legal assistance in specific areas.

In terms of full-time positions, Plotkin said more crypto companies have hired lawyers in recent weeks.

Crypto.com posted a job posting on Thursday for a legal advisor to represent the company in negotiations and interactions with regulators, policymakers and industry stakeholders on technology-related matters, says he.

Last week, Kraken announced the opening of a Senior Corporate and Securities Counsel position to join its growing corporate legal team of nearly a dozen.

Representatives for Kraken and Crypto.com did not return requests for comment on the job postings or other efforts.

Crypto asset manager Grayscale Investments, in the midst of its own legal battle with the SEC, posted a job posting for a regulatory advisor last week. The professional would engage with the SEC and FINRA as grayscale regulated entities expand their private placement, public listing, ETF and ETP businesses, the listing says.

Even eBay, which acquired NFT marketplace KnownOrigin last year, is looking for crypto counsel to offer legal advice related to NFTs, blockchain, and other Web3 matters.

WorkInCrypto.Global founder Sam Wellalage said he has recently helped various major players hire senior legal and regulatory professionals, noting that the market for such talent has recently warmed up.

In addition to full-time professionals, demand for temporary legal consultants, as well as those focused on fraud and third-party risk, has increased over the past six months amid regulatory uncertainty in the segment, Plotkin added. .

These employees are mostly hired on a contract basis for periods ranging from three months to two years, which Plotkin attributes to companies keen to remain profitable and nimble during what he called an economic downturn.

SEC lawsuits against Binance and Coinbase, however, have caused major crypto firms to suspend hiring, Plotkin said, adding that the space has entered a waiting period.

[With] Coinbase, Binance and all these other companies are definitely under pressure from the government, Plotkin said. Before people take action or spend money on new resources, they want to see how the government will react.

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