Crypto Turns to Big Law for Defense Amid SEC Crackdown

Several former SEC government officials are defense counsel for the crypto companies.

A suite of Big Law firms are defending crypto companies sued by the U.S. Securities and Exchange Commission this week, as the commission steps up its enforcement against the crypto industry. Several former SEC government officials who now practice in law firms’ white-collar defense and securities departments are their defense counsel.

Coinbase, sued by the SEC on Tuesday, has turned to Sullivan & Cromwell. Meanwhile, Binance, sued on Monday, is advised by Gibson, Dunn & Crutcher, while its U.S.-based affiliate BAM Trading Services Inc. has turned to Wilmer Cutler Pickering Hale and Dorr. Latham & Watkins is defending their founder, Changpeng Zhao.

In the Tuesday suit filed in New York federal court, the SEC claims that Coinbase, the largest crypto exchange in the U.S., violated securities laws by acting as an exchange, a broker and a clearing agency without registering with the agency.

Steven Peikin, who leads Sullivan & Cromwell’s securities and commodities investigations practice, is serving as defense counsel for Coinbase. Peikin previously served as co-director of the SEC’s division of enforcement from 2017 to 2020, overseeing the agency’s enforcement priorities, before rejoining the Wall Street firm.

Tuesday’s lawsuit against Coinbase comes just one day after the SEC, in Washington, D.C., federal court, sued the world’s largest crypto exchange Binance, as well as BAM Trading Services and Zhao for violating securities laws, mishandling customer funds and misleading investors.

Binance hired Richard Grime, co-chair of Gibson Dunn’s securities enforcement practice group, as defense counsel. Grime previously worked in the division of enforcement at the SEC from 1998 to 2007, serving as assistant director for four years.

Bill McLucas, a partner at Wilmer, will serve as defense counsel for BAM Trading Services, and Doug Yatter, global vice chair of Latham & Watkins’ white-collar defense and investigations practice, will serve as Zhao’s defense counsel. Both lawyers had prior governmental stints.

“The actions this week are the most significant enforcement actions to date and reflect the agency’s willingness to claim jurisdiction over the activities of the largest crypto trading platforms,” said Coy Garrison, a partner in Steptoe & Johnson’s blockchain and cryptocurrency and financial services practices, in a statement.

“The SEC’s complaints set the stage for long, difficult legal battles and may provide the opportunity for definitive judicial determinations on the fundamental questions of when is a crypto asset sold pursuant to an investment contract and, if sold pursuant to an investment contract, does the security label attach to the crypto asset itself?” Garrison added.

Under Chair Gary Gensler, the SEC has made cryptocurrency-related enforcement a top priority and the recent actions from the agency this week signals that heightened scrutiny from U.S. regulators toward the industry will not be slowing down, which has fueled demand for legal services.

Big Law’s cryptocurrency and securities investigations practices have reported more litigation, enforcement, restructuring, bankruptcy work and public policy advising.

“There’s going to be a lot to follow on private litigation,” said Kayvan Sadeghi, co-chair of Jenner & Block’s fintech and crypto assets practice. “I think the plaintiffs bar is likely to follow the lead of the regulators and seek to bring a lot of actions leveraging the complaints and other statements by the SEC.”

Sadeghi suggested the demand for different types of legal services will shift if crypto companies exit the U.S. market and move to other overseas markets. Bittrex announced earlier this year that it was leaving the U.S. market, citing the economic and regulatory environment. The SEC has since filed a lawsuit and the cryptocurrency exchange has filed for bankruptcy protection.

“There are a number of other markets around the world that are actively building for this industry from a regulatory perspective and other necessary infrastructure for supporting the industry at the same time that the U.S. regulators seem to be doing what they can to stifle the industry,” Sadeghi said. “I think the United States will still be the world leader in enforcement actions, but outside of enforcement and litigation, I think the other work will be trending to other places.”

Recent hires have suggested law firms are investing in their fintech and other digital assets practices in response to the current enforcement environment. Jenner & Block expanded its fintech and crypto assets practice with the addition of former federal prosecutor Laurel Loomis Rimon as co-chair. Gibson Dunn brought on Sara Weed and Jason Cabral as partners in its fintech and financial institutions practices, as the firm scales up its regulatory groups.
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Last year, Akerman also rebranded its consumer finance practice to include data and technology services in light of demand for regulatory counsel from clients in the fintech and cryptocurrency industries.