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Big Law Attorneys Buy Crypto Despite Lack of Firm Guidance (1)

Oct. 7, 2022, 9:30 AMUpdated: Oct. 7, 2022, 8:11 PM

Big Law attorneys are feeling free to buy cryptocurrencies—and some are doing so—as most firms lack policies that restrict investments in digital assets.

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

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

Lawyers are following their own paths when it comes to crypto investing in the absence of clear firm guidance and a dearth of federal regulations. Some make calls based on firms’ general cautions to avoid mixing their own finances with client business interests.

Crypto investing is “not permitted or prohibited” at Hogan Lovells, said Liz Boison, a Washington-based partner with the firm. “There isn’t instruction.”

Hogan Lovells attorneys “certify that they do not trade on material nonpublic information gained while at the firm,” a firm spokesperson said in a statement. The firm’s conflicts policy also prohibits individuals from engaging in activities, generally, that would “bring direct or indirect profit to the individual at the expense of Hogan Lovells or a client.”

She opened multiple 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 do not wish to be a speculator in the market.”

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

Kirkland, Roche

Kirkland & Ellis, the world’s largest law firm by revenue, acknowledged in a July court filing that some of its lawyers are customers of crypto broker Voyager Digital Holdings Inc. “These attorneys have not and will not” do work tied to the firm’s representation of Voyager in its bankruptcy, the filing said.

Roche Freedman, a boutique launched in 2019, has said some of its lawyers own AVAX tokens or have a personal equity interest in Ava Labs, the issuer of the tokens. The firm has denied allegations, fueled by the August leak of secret recordings of a firm 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 respond to questions about their crypto investing policies.

Two firms mentioned in a news account last year as having policies that limit their 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 previous firm require approval for lawyers to trade publicly-held securities “when a client might be involved.” She previously practiced at Perkins Coie.

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

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

Federal Confusion

Firms seeking federal guidance for setting their crypto policies will find little clarity. The law hasn’t fully caught up with the technology, and getting there will likely require years of actions in the courts, in Congress and at regulatory agencies.

For now, the Securities and Exchange Commission defines many crypto tokens as securities, with Bitcoin being a prominent exception. That means the SEC would have jurisdiction, and issuers would need to follow the same registration and disclosure laws as any company issuing stocks and bonds.

But the crypto industry, many members of Congress, and the Commodity Futures Trading Commission tend to see tokens as commodities. That would subject the tokens to the lighter-touch regulation of the CFTC.

There is some federal guidance from which firms can work.

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 predictable effect” on the value of those digital assets.

Capital Assets

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

On Oct. 4, Bitcoin sold for about $20,400—less than half what it was worth one year prior, when it sold for more than $49,000.

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

On Oct. 3, reality television celebrity Kim Kardashian agreed to pay about $1.3 million for promoting EMAX crypto tokens without noting she was paid to do so.

And that leads to a key point, several lawyers said. While they feel free to trade in crypto, and some do, their biggest purpose in the space is still to counsel clients.

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

Lawyers can best avoid crypto pitfalls by following the long-time advice of bar authorities, he said: “This is more about the ethical duty not to entangle yourself in the business of your clients.”

—Justin Wise contributed to this story.

(Updated with statement from a Hogan Lovells spokesperson in sixth paragraph.)

To contact the reporter on this story: Sam Skolnik in Washington at sskolnik@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com