Big lawyers buy crypto despite lack of firm guidance

Big Law lawyers feel free to buy cryptocurrencies – and some do – as most firms lack policies restricting investments in digital assets.

Lawyers including Joshua Ashley Klayman of Linklaters and Joe Cutler of Perkins Coie confirm they have bought Bitcoin, and in Cutler’s case Ethereum as well, and others say they have opened crypto wallets to familiarize themselves with the technology.

“I’ve known more than a couple of lawyers who made a ton of money” investing in crypto, said Stephen Palley, co-chairman of Brown Rudnick’s digital trading group in Washington. “I have also known others who bet big and lost everything.”

Lawyers are going their own way when it comes to crypto investing in the absence of clear, firm guidelines and a lack of federal regulations. Some call based on companies’ general warnings to avoid mixing their own finances with the client’s business interests.

Crypto investing is “not permitted or prohibited” at Hogan Lovells, said Liz Boison, a Washington-based partner with the firm. “There is no instruction.”

She opened several digital wallets to help improve her guidance to clients, she said, adding, “I don’t know how lawyers could do this without knowing how it all works.”

Klayman, the US head of fintech, blockchain and digital assets for Linklaters in New York, said she limits her investments, as “I don’t want to be a speculator in the market.”

The key is to avoid even the possibility of insider trading scrutiny by being careful and doing the right thing, Klayman said. This is especially important when small crypto clients share material, non-public information about their growth plans, she said.

Kirkland, Roche

Kirkland & Ellis, the world’s largest law firm by revenue, acknowledged in a court filing in July that some of its lawyers are clients of cryptobroker Voyager Digital Holdings Inc. “These lawyers have not and will not” perform work related to the firm’s representation of Voyager is in its bankruptcy, it says in the filing.

Roche Freedman, a boutique launched in 2019, has said some of the lawyers own AVAX tokens or have a personal stake in Ava Labs, the issuer of the tokens. The firm has denied claims, fueled by the leak in August of secret recordings of a company founder, that it used class-action lawsuits to target competitors of Ava Labs.

Several firms – including Goodwin Procter, Davis Polk & Wardwell and Sidley Austin – declined to answer questions about their crypto investment policies.

Two firms cited in a news account last year as having policies limiting lawyers’ ability to trade crypto, Sullivan & Cromwell and Latham & Watkins, also declined to respond.

Kari Larsen, co-head of the digital practice at Willkie Farr & Gallagher, said her current and former firm requires approval for lawyers to trade publicly held securities “whenever a client may be involved.” She previously practiced at Perkins Coie.

There is no “significant evidence” that crypto-specific policies are necessary at law firms, said Tonya M. Evans, a professor at Penn State Dickinson Law.

Still, firms should consider updating their policies to ensure they apply to all capital assets that could trigger insider trading rules, Evans said in a statement.

Federal confusion

Companies seeking federal guidance to set their crypto policies will find little clarity. The law hasn’t quite caught up with the technology, and getting there will likely require years of action in the courts, in Congress, and at regulatory agencies.

Currently, the Securities and Exchange Commission defines many crypto-tokens as securities, with Bitcoin being a prominent exception. That means the SEC will have jurisdiction, and issuers must follow the same registration and disclosure laws as any company that issues stocks and bonds.

But the crypto industry, many members of Congress and the Commodity Futures Trading Commission tend to see tokens as commodities. It will expose tokens to the lighter touch regulation of the CFTC.

There is some federal guidance that firms can work from.

In July, the US Office of Government Ethics issued a legal advisory stating that federal officials who have invested in cryptocurrencies or stablecoins are prohibited from working on regulations that could have “a direct and foreseeable effect” on the value of these digital assets.

Funds

After booming in recent years, the digital asset market has swooned. By some estimates, about $2 trillion in market capitalization has evaporated, and 12,100 crypto tokens have actually stopped trading this year, Bloomberg News reported on Oct. 3.

On October 4, Bitcoin was selling for around $20,400 – less than half of what it was worth a year earlier, when it was selling for more than $49,000.

Market discontent has helped drive lawsuits against crypto companies, which have been accused of everything from money laundering, to pump-and-dump schemes, to trading against their own customers.

On October 3, reality TV celebrity Kim Kardashian agreed to pay around $1.3 million to promote EMAX crypto tokens without noting that she was being paid to do so.

And that leads to a key point, several lawyers said. Although they feel free to trade crypto, and some do, their main purpose in the area is still to advise clients.

“My personal preference is to focus more on providing legal advice and not on whether or not I want to buy any of these tokens,” said Cutler, co-chairman of Perkins Coie’s fintech industry group in Seattle.

Lawyers can best avoid crypto pitfalls by following the long-standing advice of the Bar Association, he said: “This is more about the ethical duty not to get involved in your clients’ business.”

– Justin Wise contributed to this story.