Kraken chief legal officer Marco Santori expects his outside counsel to have strong knowledge of cryptocurrency and the attendant slew of regulatory complications, as his team at the growing crypto exchange doesn’t have time to play teacher.
Santori joined San Francisco-based Kraken, owned by Payward Inc., in April after serving as the president and CLO of Blockchain.com for just over two years. The former Cooley partner known as the “Dean of Digital Currency Lawyers” is also chairman of the Bitcoin Foundation’s regulatory affairs committee.
Santori believes in managing legal work and outside counsel using a strong in-house base and this year aims to double the size of his law department—with the help of Twitter, where he frequently advertises job openings.
Bloomberg Law is conducting a Q&A series highlighting some of the legal industry’s most important relationships: the often fruitful but sometimes complicated connections between general counsel and their outside law firms. We’re talking with general counsel across industries about how they select outside lawyers and handle issues like billing, fees, and tracking performance.
Santori spoke with Bloomberg Law about what he wants from his outside counsel, how his team budgets legal spend, and why he believes “crypto lawyers” will someday become relics.
This conversation has been edited for clarity and length.
Bloomberg Law: What are the unique legal challenges that your team and your outside firms face?
Marco Santori: The most obvious one is regulatory. Every time you wake up, there’s a new regulator announcing that the laws they administer should apply to you. And it would be a much easier job if they were always wrong, but here in the real world, oftentimes they’re right and there is a really good reason for why the laws they administer ought to apply to you, either on the actual text of the law or based on the principles behind the law.
Building that institutional knowledge in the regulatory space is of outsized importance in crypto over other industries. Because crypto is so novel and because it represents such a fundamental set of technologies that could potentially form the infrastructure for almost everything we do, not unlike the Internet has done, it potentially triggers almost every regulatory regime on the planet.
BL: You’ve said you want to double your in-house team to 12 lawyers by the end of the year. Why is building your in-house team so important?
MS: Outside counsel can be a weapon that you can bring to bear on difficult legal questions, but at the same time, they’re transients. Every hour you invest to educate outside counsel so that they can be responsive to your issues is an hour that you are not dedicating to building institutional knowledge within your own team. That just doesn’t make sense for a growth-stage tech company.
A robust internal legal function means we can actually secure the experts in their fields for each of our diverse legal needs. If it was just me or it was just one or two lawyers, we couldn’t manage a stable of 12 to 15 experts like we do now. Our in-house litigator works with four or five law firms, our commercial attorneys work with two or three law firms, and our corporate lawyers work with two or three law firms. Managing outside counsel is a key part of being inside counsel, and everybody here needs to be able to do it.
BL: Do you typically pick outside firms that have an existing specialization in crypto or blockchain, or are you open to training them from the ground up? How do you evaluate them?
MS: I’d love to say that I give back to the community, and sometimes we’ll hire a firm that I really believe in and educate them on the topics. But we just don’t have that luxury and maybe some companies do, but we expect that our outside counsel are already up to speed on the issues that we’re sending them, but also on the industry and the underlying technology. So they understand the consequences of their decision on the company, but also in the wider crypto market.
We actually do have quantitative rankings internally. We rank them on a level of responsiveness, ability to stay within their budget, their substantive knowledge of the issues and their substantive knowledge of the industry, among some other factors. We use them as carrots and sticks. To be transparent about it, we’ll be direct with outside firms and say, “Hey, we’re really happy with your ability to spot issues that we couldn’t spot internally.” Alternatively, we will regularly, unfortunately, have to say, “You came in way over budget and why was that, or we expected you to be the expert in this issue.”
BL: Have you negotiated any unique fee arrangements with your outside firms, before the pandemic or as a result of recent events?
MS: Of course we negotiate rates, but at the end of the day, we pay our lawyers. Something I’ve learned from being outside counsel is the best way to get cost efficient work from your lawyer is to be a good client.
But what we do employ internally is personal accountability. Each one of the lawyers on the legal team here at Kraken is empowered to engage outside counsel. They are also responsible for creating budgets and meeting those budgets. Right now, I oversee the budgets, but I don’t think that’s a cornerstone of managing outside counsel spend.
Each individual attorney brings me a proposal for a budget, and we talk about that proposal based on what’s expected for the quarter, and then in the event that any unexpected matters come up—which is every quarter—we talk about a budget for those individual matters. What is a little bit different is that each individual attorney is responsible for keeping outside counsel on budget and keeping them on task, and if they do that’s to their merit during the review process. And if they don’t, that’s a demerit at the review process.
BL: We’ve spoken before about the growing need for legal talent in crypto. Do you think more firms are going to develop crypto practices?
ML: I think that they will. But I also think that if we’re successful here in the world of crypto, then crypto lawyers—of which I was probably an early one—will sort of cease to exist in the same way that internet lawyers ceased to exist. There are very few lawyers today who would call themselves ‘internet lawyers.’ But that didn’t used to be the case.
In the 90s and early aughts, there were internet lawyers the same way that crypto lawyers now will hold themselves out as crypto lawyers to cryptocurrency companies and crypto projects. If things go well, the same thing will happen to crypto lawyers. There will be no crypto lawyers because everything will kind of have to do with crypto just like everything today kind of has to do with the internet.
BL: What is the most frustrating thing an outside firm can do when working with Kraken?
MS: It’s not frustrating to me when outside counsel doesn’t understand crypto, and it’s also not frustrating to me when they try to understand crypto and fail, which happens all the time because frankly, that’s how you learn. What is frustrating to me is lazy lawyering and failing to recognize how difficult and how transformative crypto is. What’s frustrating is lazy wiring and taking shortcuts based on limited knowledge. Lawyers who take a “walks like a duck, quacks like a duck” approach to regulatory work frustrate me to no end. There’s just a whole world of argumentation and a whole world of analysis that can be done if you understand the technology.