On The Brink with Castle Island - Brian Klein (Baker Marquart) on High-Stakes Crypto Litigation (EP.66)

Episode Date: April 13, 2020

Brian Klein, trial attorney at Baker Marquart, joins the show. Brian has represented clients in the crypto industry since 2014 and has been involved in some of the most impactful cases in that time. In this episode: How he got his start at the San Jose bitcoin conference in 2013 Representing Erik Voorhees in a case relating to SatoshiDice Whether the SEC has provided sufficient clarity on the application of the Howey test to token issuance Brian's view on the Hinman guidance on the security to commodity transmutation Brian's take on the SAFT Brian's take on disclosure in the industry The little-known variables that affect sentencing outcomes in criminal cases Brian's experiencing representing Marcus Hutchins Why Brian allocates so much time and effort to pro bono cases

What's up, everyone? This is Nick Carter with another episode of On the Brink. This week, we have a fascinating guest. So if you follow litigation in crypto, you will definitely have heard of him. I'm speaking, of course, of Brian Klein. Brian is a trial attorney with Baker Markhart, and he has participated in some of the highest profile court cases in the crypto industry today. So Baker Markhart is a nationally recognized litigation boutique, and they're actually in the process. of rebranding. They're moving away from the traditional use of the names to the more modern approach of a trade name like Google or Amazon, reflecting their forward-looking client base. So stay tuned for an announcement on that front. So Brian has been involved in a string of recent successes in

litigation. He was part of the team that negotiated the class action settlement on behalf of the Brightmans relating to Tezos. He also represented Block 1 in their settlement with the SEC last year. of those cases are perceived as ending in a very favorable manner for Brian's clients. Brian has also represented individuals like Charlie Shrem and Eric Forgeys. He's been active in the crypto industry for a long time. So I wanted to get him on the show to discuss how and why he first started taking cases in the crypto industry and how he rose to prominence. And to get his views on controversial topics like token issuances, the SEC's role in this industry, and of course the controversial SAFT model, which is currently being interrogated in the telegram case.

We also talk about some of his high-profile pro bono work, like his representation of Marcus Hutchins, also known as malware tech. I personally hope I never have the need for high-powered legal counsel, but if I do, I know who I'm calling. Let's jump right into it. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion.

This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of constituted easing. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin.

So, Brian, welcome to the show. great to be here. Thanks for inviting me. I think it's no exaggeration when I say that you are probably the most impactful litigator in the crypto industry right now. I very much appreciate that. There's obviously a lot of litigators in the space and I've been working really hard to do what I can for my clients. Yeah, you've had a string of kind of high profile cases, settlements mostly which I'd say resolved, you know, in favor of your clients and almost at the point where your household name, I'm curious how you came to be so deeply involved in the crypto industry. How did you get your start? So I first really focused and heard about Bitcoin back in early 2013. I remember I was a federal prosecutor for five years in Los Angeles.

I had recently left the office to go back into private practice, focus on criminal and regulatory defense at a boutique firm in Los Angeles. And I had read about FinCin, which is an arm of the Department of Treasury, issuing some guidance on virtual currencies. And that piqued my interest immediately. In the back of mine, mine I had heard about Bitcoin, but I hadn't spent any time thinking about it or focus on it.

And then I went down the rabbit hole that many people go down when they first learn about Bitcoin. Now at that point, it was a very different world in early 2013. I remember setting up like a Google alert for Bitcoin and maybe you'd get like one story a day, but it felt like one a week. Wow. And there weren't any real lawyers in the space that I could tell. There weren't cases on it.

There weren't like litigations happening or prosecutions or, you know, it was a very, very small industry at that point. But I was totally enthralled. I had grown up in the Bay Area in Seattle and always been around technology. I was always had liked technology, I was always interested in it. And so then I wrote this short article for a legal journal out in California about Bitcoin and the significance of that ruling, which actually, looking back, I've looked back at it recently. It actually holds up pretty well.

And then I typed in Google. I was like, Bitcoin conference and literally one popped up. And it was this San Jose conference put on by the Bitcoin Foundation. I think that was in May 2013. And I signed up for it and I saw the spreadsheet of speakers and I got put on a panel talking about regulatory compliance, I believe, and sort of the space was really focused on the fencing guidance. That was really big news back at the time. You know, the space was a buzz. Now, I didn't really know that until I went to San Jose.

I really, I remember that conference very well. I remember going up there, not knowing who any of the players. were not knowing how big the industry was even other than knowing it was pretty small. And I went to the speakers dinner the first night. This first thing I did in this industry at all, walked upstairs at this Mexican restaurant. And the first person introduced himself, having to be Brian Armstrong with Coinbase, which I think at the time was three employees. And he's a very gracious, nice person.

And then I was at that conference. And that really was a deep dive into the early parts of the industry. It was sponsored by Satoshi Dice, the Winkley, the Winklevoi or the Winklewaws twins gave a keynote speech. I remember very clearly that next door was some sort of anime conference and it was sort of hard to tell the difference between the two. People were in masks, wearing masks and both. You know, I met a bunch of other early industry people.

Ripple had a small table. I mean, these were like little foldout tables in this giant warehouse sort of cavern at the San Jose Convention Center. And Ripple had a table. Coinbase had a table. I remember meeting Patrick Merck, who was at the time at the Bitcoin Foundation. Yeah. He's a lawyer. He's well known in the industry. And he was the first person who got me involved substance and doing legal work. I volunteered to help the foundation and ended up heading up a committee on legal advocacy and really started going from there and started to meet

a lot of people in the industry and get more involved. Do you remember what you said on the panel about FinCEN, about money transmission? I remember the general conversation. I'm sure there's a video of this. The tone was this is real serious guidance. And this means that law enforcement and regulators are paying attention. There is sort of a halo effect. And it sort of intrigued me when I saw because I'm like, oh, the government's taking this seriously. That means this must be something that is growing and is something that's becoming, it's getting on people's radar, not just in the tech circles, but even in government circles. They're taking it very seriously. The issue guidance is a process. And I remember the general advice was sort of you have to take this seriously and you have to comply with the law.

And I remember some people asking questions like, well, it's Bitcoin. Do I still need to follow. I mean, this wasn't exactly the question, but sort of the tone was like, well, we really have to follow the law kind of with some. of the questions from some people. And it's like, no, yes, you really do have to follow the law. Otherwise, you will get in real trouble. And I was the defense lawyer, criminal defense lawyer on the panel and the former federal prosecutor.

And you know, could of course speak to that, that now that there were these laws that the FinCEN intended to apply to this, that there would be prosecutions. You know, that's the next step. They're putting this guidance out so they can start to bring enforcement actions, whether civil or criminal. And that's exactly what happened over the next, you know, since that. And at the time, I mean, I think Bitcoin might have been kind of around about a billion

dollars in its total market cap. Was it surprising to you that FinCun was spending real energy on this, you know, tiny kind of minuscule upstart currency? It was, and it wasn't to me. It was in the sense that you're right, it was very small. I remember I bought my first Bitcoin and I think I bought it for around $80, $90. I bought it through Coinbase. And I think they saw some of the potential. They also didn't fully understand it. And there was a lot of confusion for a lot of people, both in the mainstream media,

mainstream business is about the synonymy of it, right? And how it could be used and how it might be able to be misused the way the government would look at it. Now, the other thing was I think there were people at Vincent who like me had read the white paper, read about it, and were enthralled and very interested and felt like, you know, in terms of like regulating money, there hadn't been a lot of developments for a long time, right? Now of a sudden you have this explosion of a new type of money, sort of unprecedented.

And so I think that's what made it really interesting. I think during that time period, that first year or two, a lot of banks were interested in. I remember getting invited to go to a bank and talk about Bitcoin. They weren't going to bank Bitcoin or even let people do it, but they were fascinated by it. This idea that there was this currency out there that wasn't issued by a government and that people were using to purchase things. I think a lot of people saw the real potential. What was the first case that you took in the crypto industry? I think my first case was representing Eric Voorhees in connection with,

his SEC settlement. This, I think the settlement was announced in 2014. It related to Satoshi Dice and the issuance of unregistered securities on a Romanian exchange. So the whole, everything about it was very novel for, I would say everybody, both the SEC and for me. It was the first unregistered security settlement in the space.

Eric is a genuinely amazing person, a real visionary, and just a really kind, caring person. So it was a real pleasure and honor to help them through that process. And I think it was widely viewed as a very favorable resolution for Eric. Was that exchange the one that Marcia Popescu set up? I believe that's right. I don't remember the name precisely, but I know it was Romanian and that name sounds Romanian to me. So I think you're right. I think it was.

That's so crazy. I wonder what happened to that exchange. So Eric effectively sold a financial product relating to the usage of Satoshi Dice. Is that kind of the crux of the matter? Yeah, the settlement covered the sale of shares of Satoshi Dice through that exchange. And if you read the settlement paperwork from the SEC, you'll see that as I remember it. I haven't looked at it recently, but everyone received a refund, actually, or sort of had their shares purchase back. It's another way to put it.

And then Satoshi Dice was substantively sold. Yeah, he sold it. Yeah. If you look at the usage on chain, Satoshi Dice was like a preposterous fraction of the usage of Bitcoin Blockspace in, from, I guess, 2011, 2012 kind of time frame. Yeah, I think it was like 60% potentially in certain time periods of all use of the blockchain. But I think, you know, it showed one that people could trust it because it was the way the Stoci Deist was set up, as I remember, was the sort of provable, verifiable role of the dice and you got rewarded if you hit basically based on how the blockchain came out.

Yeah, I think it relied on vanity addresses, if I'm not mistaken. So you would send a Bitcoin payment to an address, which had the odds encoded in the address name. That sounds right to me. I always thought that was very clever. Yeah, vanity addresses kind of went out of style, I guess because they're not good for privacy, obviously. for one Christmas, I made vanity addresses for my family. Because you can kind of mine them, right? It's the same process as mining, except you can't make a whole one because you'd be able

to crack effectively in a dress. So it's thermodynamically difficult to do a whole one. I can tell you, I know when sort of the power of Bitcoin first hit me, which is somewhat related, which was I joined the Bitcoin Foundation at that time. you had to donate, I think it might have even been a Bitcoin. Maybe it was a quarter at that point. I forget where the price was. And so I bought my first Bitcoin to join the Bitcoin Foundation.

And I remember sending it to the foundation's address. And then I was like, well, how do I know it got there? So I actually called them. This sounds so silly in hindsight. I literally called and spoke to a woman there and said, hey, I sent my donation and did you receive it? And she's like, yeah, you can just check the blockchain. I'm like, duh, right?

It hit me. I was like, duh, that's the whole point. It's the whole point. Yeah, but it, and it was funny because it just, it didn't occur to me because my mindset was so used to the way the Fiat system works, right? Which is you write a check and you see it cashed or you do a credit card and you check your receipt or your balance of your credit card or online. And sort of that like silly moment.

in hindsight, really naive moment, you know, really like imprinted on me like the power of Bitcoin, which is I didn't have to, I didn't have to trust that she was even telling me the truth, right? I could just check and know. So in your trajectory throughout this industry, did you take cases because you were interested in the subject matter? Or was it just you went from one to the next and people referred you and you gained a reputation within crypto? was it kind of due to some ideological motive, a desire to work on crypto, or was it just kind of a sequence of referrals? I think it's a lot of both of that, or it's a mix of all of that. Maybe it's a better way of putting that.

I am, by nature, have a lot of libertarian impulses. So there's a lot of attractive things to me about Bitcoin based on it not being attached to a state. And then I think it's also, I'm always interested in technology. So Bitcoin kind of really combines a lot of those. things together. I think a lot of the early adopters were libertarians or people very interested in technology. And I also think, you know, I was fortunate that these cases are all interesting, right? You were sort of charting a new path on each of these cases. And to me, that was really exciting. You know, it wasn't like I was doing defending the 4,000th person accused of running a

Ponzi scheme, right? I was like it was the first person ever to be have an SEC settlement basically or the first person to be charged under this statute or one of the first people, right? And there wasn't a lot of case law or decisions by judges about these issues. So there was a lot of very interesting legal arguments you can raise that would be heard for the first time. That's still true to this day. There's a broad swathes of legal decisions.

that haven't been made. There's a lot of open territory still, which makes it really exciting. Yeah, I was going to say there's new ground being broken, especially on the securities laws front, but I'm sure also in the context of the Bank Secrecy Act and AML and so on. But yeah, I mean, that's kind of a nice segue to get to securities laws in the context of crypto. So you're obviously known for having negotiated Block 1 settlement with the SEC. And it seems like one critique of the SEC is that it's very unclear where token issuers stand, whether the effectively what happened to Ethereum can be replicated, you know,

whether there's a path to decentralization that's possible, even if you have an issuance that looks like an investment contract. What do you make of the SEC's kind of evolving stance on this? Do you think that they've provided industry with sufficient information, in terms of the how he tests as it applies to tokens? I don't think they have. I think there's a lot of, in my mind, they could be doing a lot more. And I remember a couple anecdotes to get to that point,

which is I remember there was a, I think it was the first consensus. So it must have been right before the ICO boom. Maybe not the first consensus in New York. It wasn't consensus in New York. This was 2017. And I think the Dow was happening at that time. time. Right. Or it started to happen. A lot of people were wondering, like, where is the SEC or what, what are the rules on this? And I was at consensus in York and I ran into an SEC official I

know really well from other cases. And I said, are you guys going to do anything about this? Are you going to put out any guidance? A lot of my clients are trying to understand what the rules might be and want to comply, but they don't, they're having a hard time figuring out how the SEC might view this and that would be very helpful for them to know. And then they ended up issuing the Dow report. I had a client I represented in connection with that. And the Dow report, you know, in the SEC's mind, I think, was like, well, here's how you should understand how we. The problem was the Dow is very different from the token offerings that happened. Yeah. Right. The Dow was essentially a virtual venture capital fund. That's right. What I could tell. And the token offerings were

incredibly different. They were people raising money either not for a percent of equity or even for a percent of profits, but raising, you know, funds through the receipt of Bitcoin or Ethereum most often, and then providing people with access to tokens down the road and building out projects or blockchains. And I think that guidance really didn't answer. And then there were a bunch of decisions or actions they brought after that, including Munchy, which is a well-known one. And for the most part, they were going after things that were, um, that the SEC thought were either very blatant violations or, um, fraudulent in nature.

But even those, they were, it wasn't clear. And I think there was a lot of mixed messaging. I think there was a lot of people at the SEC who understand that technology don't want to trample on it. Um, but I think there's a, it's a big bureaucracy and there's a lot of, um, sort of things in the way of probably getting, clear, concise guidance out, like the kind that Hester Pierce, who's one of the commissioners, seems to be strongly advocating for both externally and internally.

You know, I have good relationships at the SEC. I deal with them a lot. I think there's a lot of hardworking honest, decent people there who, you know, in their mind, think they're doing the right thing and think that they're properly enforcing securities laws, and often we have disagreements about that. But I think the SEC could do it in a lot more. And frankly, I think I would prefer that they did less, right? You could say, oh, they could be doing more in terms of guidance,

but I would prefer they did less in terms of enforcement action. That they had sort of let the space figure it out a little bit and only jumped in where there was real fraud rather than jumping in when it's an unregistered offering or in their mind an unregistered offering. So I might have, you know, if I were in charge of the world, I would have had a much lighter touch on these things and focused on the really cases that are real obvious abuse. What did you make of the Hennman's speech where he was pretty explicit about outlining how something could begin life as a security in that?

and transmute potentially to a commodity. I know in the legal analysis, apparently those are actually overlapping categories. And then the question is whether there's an investment contract pertaining to a commodity. But the point is I think there was an attempt there to outline how something could be understood as sufficiently decentralized. And thereby avoiding some of the prongs of Howie, maybe the efforts of third part, prong. Did you find that that was helpful, kind of informal guidance? Because I know a lot of tokens started to try and kind of design against that. But then it seems like maybe that's been jettison now. I think it was, I think the intentions were good there. And I think, you know,

he did offer some insights. The problem is how he doesn't talk about decentralization, right? That's a concept. I'm not saying it's invented, but it's a concept that. It's a concept that was out there before. And, you know, it was a speech he gave in Silicon Valley that they did publish and provided some guide posts, but it wasn't definitive, right? And it was just guidance. And, you know, the factors were so many. And then there's been subsequent follow on guidance, the framework they issued later, I think, a year later.

There's just so many factors. And of course, you could find ways that your token does or doesn't apply with some. but not all of them. Again, I think it's just the intention, I think, was probably the right intention. But the reality is it didn't really give anybody any comfort, right? You need clear guideposts, and they just weren't there. And I think most of the guideposts they've offered have been through their enforcement actions, which are, you know, sometimes like reading tea leaves.

Yeah. I mean, do you think that with enough cases may be resembling Block 1 or Telegram will eventually get sufficient case law for there to be a set of precedence which are ironed out and a set of effective rules? I think we will. I mean, I think the one thing the SEC's actions did do was it really shut down the quote ICO market, right? the number of ICOs, also the collapse in the price probably shut it down too, but I think those kind of might have gone hand in hand a little bit. So I think we will get to a place where courts will be providing more insights into things. I think that takes a long time for things to work through the court system, though. You know, if you look at, for example, the Telegram case now, that case,

you know, the SEC brought a complaint sort of late last fall. the judge just issued a order on a preliminary injunction, which I understand Telegram is now appealing. If that gets appealed, it goes up to the Second Circuit. And that could take, you know, maybe six, nine months. That would probably be fast, actually, especially what's happening now with the pandemic. So you're talking still years from the courts really starting to give some clear signals about what's appropriate.

And then again, that case is in the case. the Southern District, New York, which is in New York. So that judge's ruling is not binding precedent on a judge, for example, in California. It's not even binding on a judge in the same courtroom there. It's persuasive and it's supposed to be valued, but it's not binding. You have to wait for an appeals court to issue a decision for it to be binding. That hasn't happened yet. So I think we, you know, waiting for the courts, I think, is waiting too long.

This might be a silly question, but what are the odds of one of these cases ends up in front of the Supreme Court in the next couple years? I think that's a real possibility. I think the issues are important and novel. Usually you want a circuit split, though. The Supreme Court is looking for two circuits saying different things. That's not always the case, of course, but that is often something that causes the Supreme Court to decide to review a case and appeal. But I think, you know, the Howie test, and, you know, it wouldn't shock me if Telegram or even Kick, which is happening in the Southern District 2. Yeah. Ultimately, it went up to the Supreme Court. I'm sure either side who lost would appeal as far as they could, whether it's the government or the private parties in that. So I think that's a real possibility. Speaking of the Telegram case, so I am a.

layperson, but I found that I very much agreed with the judge's reasoning in granting that injunction, who, you know, effectively the logic was, well, there was the sale, the saft, you know, to a hundred or so, you know, investment vehicles, you know, venture and hedge funds and so on. And the judge was effectively saying that those weren't just the end buyers. they were actually planning, implicitly planning on redistributing the grams on the open market. So they're actually effectively acting in the capacity as an underwriter, which has sort of always been my view on this, that the SAFT and then this like public release that happens in an informal way on the secondary markets,

that's sort of the objective of the issuers all along. I mean, did that seem persuasive to you? No. I mean, I disagree with his opinion. I disagree with the analysis. I disagree. I don't disagree that, you know, the SEC did win that day. Of course, they did.

They got what they wanted for now, at least. But I wasn't persuaded by the judge's reasoning or his presentation. Really? And I think that, you know, the SAF framework, like any framework, depends on how you execute it. So, and I'm not saying telegram did something improper here, I'm just saying in general. So like any framework, you could follow it or not. And so I don't think this was the death and all the SAF by any means,

nor do I think it means that telegram is ultimately going to lose. I think there's a lot of issues there that are right for an appellate court to review and change that decision on. And if I were representing telegram, I would be strongly advocating for an appeal. I would be, you know, I think there's a lot of issues they can raise on appeal just about how the judge chose to look at things. I think it was very clear how the judge felt. You know, the judge wasn't persuaded by telegram's arguments. For example, if you look at the opinion, I don't have it in front of me, but I remember that the judge very specifically cited to investors that the SEC had interviewed who said that this was really in their mind like an investment, like a stock or securities offering, not quite like. that but that's the gist of it. But I know from just looking at the docket that

in reading the filings that Telegram had submitted a number of declarations from people who had engaged in the sale and were saying something different. I don't those weren't cited and given as much authority. I also thought it was interesting that the judge, the opinion spent a lot of time talking about how well you have to look at it at the time of the sale, but then he also spent a lot of time talking about what happened was going to happen in the future. So there was a sort of a mixed message there. Yeah.

To what you were getting at. He said, well, it only matters what happened at the time of the sale. But then let's see what they were going to do, you know, six months a year from now when they got the tokens. Well, that's then what matters is not what just happened to the sale. Right. So I think there's a lot of good legal arguments that telegram can and will, I'm sure, Marshall to defend itself.

And I think they will get some traction or should get some traction on appeal. Now, I think, if I remember correctly, this appeal, the second circuit, it's by permission, so it's not an automatic appeal. I think the second circuit might be, should be interested in this issue and we'll hopefully hear this appeal. So given that the kind of vanilla ICO is out of favor and the SAFT is, you know, in the middle of this controversy, do you feel that there is a plausible way to issue a token in 2020? You know, what choice to issuers have today? Absolutely. I think there are plausible ways to do that in 2020.

I think there were plausible ways in 2019, 2018, 2018, 2017. I think there were legal ways. I think it's, you know, my saying is I don't give opinions. I defend them. So I don't advise companies. If a company comes to me and says, hey, Brian, we plan to do a token sale, tell us how to do it. That's not the kind of advice I would give. I would give advice on sort of like, well, here's how the SEC enforcement arm might view that.

And here's the things they might care about. But you still need to consult with securities counsel, compliance counsel, in addition to me. I very much try to stay in my lane on that. because, you know, my strength, I'm a litigator, I'm not a compliance attorney. You know, I go to court, I make arguments, I marshal the facts and the law to help my clients. I defend them when they're being investigated. But you don't call me and say, how do you set up an AML program or how do I make sure I do this, you know, form D filing, I don't give that advice.

One thing that I've noticed is that a lot of the kind of secondary participants or ancillary participants in these offerings that are engaged in some way in the industry that maybe, you know, derive their revenue from the existence of these issuances, you know, exchanges being the primary ones. And in many cases, exchanges were kind of direct underwriters when they had IEOs happen last year. they've been sort of spared scrutiny as far as I can tell, especially this offshore exchanges. Is that surprising you? Have you expected the SEC or other securities agencies to kind of turn their eye to them?

Well, I think I'll answer that question sort of from a different angle, which is I think anytime you're offshore, it's a lot harder for any U.S. agency to engage with you, whether it's to issue a subpoena, to interview people, to try to get you into the fold, right? Because you're offshore. You may be in a jurisdiction that doesn't honor U.S. laws or reciprocally honor them. You may not choose to engage, right? So I think it's not that surprising that when you see enforcement actions in the U.S., whether it's from the SEC, the CFTC or anybody, They're largely U.S.-based companies or individuals.

That's not always true, of course. KIC is up in Canada. But for the most part, it's a lot easier for them to connect with those people or those companies. So I think that's one element you might be seen at work there, which is Bitcoin or the token world is a global community. You know, the U.S. is frankly, I think the exchange, activity in the US is a relatively small percentage compared to the global exchange activity. Yeah.

Coinbase is, Coinbase Gemini and Cracken and Bitrex, I think are less than 25% of the global exchange activity. I could have that number wrong. It changes, but yeah, it's hard to measure. Yeah, most of the activity seems to be abroad and I think, you know, finance at one point has been the clear leader. I don't know where it is today. So I think that's part of it.

I think the other thing is that a lot of these tokens. aren't securities by any means, right? So, and I think, you know, the SEC's job is to enforce the securities laws, not to enforce other laws. My understanding is the threshold question for them in every case, and it should be is, is there, does this implicate the securities laws? And so if it doesn't, they may not choose to look at it. I'm not saying they're not looking at all these tokens

or maybe you haven't looking at some exchanges, but I think that's a real issue for everybody here. And I also know that the exchanges in the U.S., from what I know, have done a very good job of putting in place programs to vet tokens, do their own Howie analysis, come to great comfort that they're not. You know, there's that group that has put out now the scale, sliding scale of one to five. Yeah. So I think the U.S. industry has been pretty, or not pretty, has been very responsible.

about how it's undertaken this process of getting tokens before they get listed. Yeah, this has always been kind of my interpretation is that, you know, from my lay point of view, securities laws are all about getting material information out to the end users, to the end purchasers, you know, and having good disclosure standards. That's one thing where I think the industry lags. I mean, I feel like there is no single repository for disclosure. There's nothing even resembling Edgar. There's no equivalent of annual filings.

And a lot of token projects will say, well, it's all on chain. That's also, there's a lot of complexity involved in auditing that stuff. And like, in my opinion, a lot of the material stuff is not stuff that's strictly on chain. Well, but if it's not a security, why do you need those disclosures? So those disclosures, I agree with you, the SEC's general purpose is to, if it's a security, to make sure that people who are purchasing that security are involved with it have the necessary information to make informed decisions, right? And to protect investors. But if they're not securities, then, you know, they don't necessarily have to provide the same level of information. The other thing I would say is I know there are projects that are trying to do things like Edgar, I think Masari,

you know, Ryan Selkis' project is building a platform that's trying to provide, or is providing transparency in a lot of projects. Although I understand it's a voluntary who participates in it. So it probably doesn't cover all the tokens. I guess my point was if there's some gradualism here between security and then something that looks like Bitcoin, which is like entirely voluntary and, you know, very decentralized, if there's some like intermediate step, it seems like there should also be some like intermediate standard of disclosure that exists

if there are buyers for these things and if the whole spirit of securities laws is to help investors discover the important facts about these issuances. Yeah, I mean, I'm not saying I disagree with you, but I think one thing you should keep in mind or anyone should keep in mind is it wasn't always clear that Bitcoin wasn't going to be considered as security. I mean, it seems obvious to us now. and I'm not saying I ever thought it was a security, but I have heard very definitively that at the SEC internally,

they spent years thinking about it, and frankly, from what I know, trying to make it a security in terms of like, how can we fit this into the how we test? Ultimately, they couldn't. Really? So I don't think, you know, and I'm not saying everybody, the SEC felt that way,

but I think there was definitely, from what I know, a real sense of that, all the way up to the higher reaches. Now, that didn't happen, and it was, you know, the CFTC said it's a commodity and, you know, FinC said it's money and et cetera, et cetera. But I think, you know, regulators really need to stay in their lane. I think that's a really important thing for me philosophically is that there's a concept of like overreach. And regulators love to expand their grasp because it means they can.

to do more things. It means they get more budget and they grow in size and importance. And I think we need to try to keep a limit on these regulars as much as possible so that they stay in their lane and focus on their missions as much as possible. This might be a bit of a controversial question. But if you had to grade the various regulatory agencies that engage with crypto in the U.S., in terms of in terms of who has had the best light touch yet most prudent approach,

which one would you give an A to? Well, I think a light touch, like I said earlier, is the best touch. So, you know, I don't want to grade them because I would resist that concept as a good one, but I will say this. I think, you know, what you've seen is the CFTC has done fewer things.

I mean, their mandate is somewhat smaller. They're a smaller agency. I think they've been very surgical for the most part. I think the Department of Justice, and their mind has focused on what they view is criminal activity and haven't tried to sort of really overreach. Doesn't mean they haven't brought cases they shouldn't have. It doesn't mean I disagree with any of all their decisions. But I think they have, you know, at least in some areas, I'm aware of some of their their informal guidelines on what kind of cases they bring.

And I think they feel like they're trying to do their prudent thing. So I don't really want to give the agency's grades, nor do I think they care what grade I give them. I'm sure they don't. Sometimes, you know, if I said they get an F, they might view that as an A too, right? Didn't mean to put you on the spot on another topic. So I think the number one case that Bay Corner's fixate on is the Silk Road case. Well, there are actually lots of cases relating to the Silk Road.

But Ross Albrook specifically. So, you know, unfortunately or fortunately, depending on your stance, he ended up with, seems like a double life sentence, I believe. Do you think that that was a proportional sentence? And would there have been something you would have done differently if you had been representing him? So I represented a client tied to the Silk Road, a guy named Gary Davis, who was extradited from Ireland and was sentenced. It was essentially an admin on the Silk Road. He pleaded guilty.

So I'm somewhat limited in what I can comment on in that case because of my representative, Gary, who is a terrific client to help. But I will say this. I wouldn't give anybody a life sentence barring, you know, a terrorist, right? who's killed a lot of people. I think people should be given a chance to get out. They should have something that they can, when they go to prison, know that they're not going to spend it,

they're not going to die there, that they can work on bettering themselves or get through the process and get out. So I am opposed to almost every life sentence. And I think Judge Forrest, his judge was known as, she's now left the bench, back at her law firm,

was known as particularly, tough sentencer. So I don't think that was the appropriate sentence as to what I would I have done differently. You know, that's really tough to say because I didn't represent him. I don't know all the things that happened there. I don't know the decisions that Ross made. You know, one thing I think people forget is, you know, lawyers, obviously, we can do our job and we control a lot of the case in a criminal case particularly in terms of legal strategy and things to do. But there's a few decisions that are very much up to the client and two of those are whether they testify at trial or not and whether they take a plea offer or want to engage in

plea discussions and you know it might have been the case where Ross did not want to entertain a plea I think if he had pleaded guilty and not going to trial I think he would have not gotten that strict of a sentence I think he probably would have gotten I would guess based on what she sentenced him to after going to trial probably 20 to 30 years. But I think his going to trial really cost him. I don't think it should necessarily be that way, but I think that often is unfortunately the way it happens that if a client goes to trial and loses, they're going to get a much longer sentence than if they had pleaded guilty

before trial. So in that sense, it didn't surprise me that he got a draconian sentence. But I do think that was much too harsh of a sentence. Do you think that the, occasionally what appear to be disproportionate or very harsh sentences are kind of part of the social contract that we have with our criminal justice system in terms of some of these cases are meant to be cathartic for society and that's why we tolerate occasionally extreme sentences or is it just a function of the fact that some judges have different kind of sentencing guidelines? Yeah, I don't accept. I don't want to be in a position where we accept extreme unnecessarily long sentences.

So I don't think you do or most people do. That's not the social contract I want to participate in. But I think judges having been involved in lots of sentencings, both as a prosecutor and his defense lawyer, you know, there's a spectrum of judges. Some judges would be considered if you're a prosecutor, more lenient. And if your defense lawyer, they'd be just more fair, right? Some judges are much more harsh if you're a defense lawyer. And some judges are much more law and order

if you're a prosecutor. There is definitely a spectrum there. And it's on some level, unfortunate that a lot of what's going to happen to any defendant depends on that very initial role of the dice or the parlance in the legal term. is like you you what happens on the wheel these judges are on like it used to be probably a little wheel you'd spin and then you get a judge now it's just all done with sort of electronically but you know it's unfortunate that so much of justice depends on the judge you get thankfully we have some very good judges who are very fair and compassionate and kind and thoughtful in their sentencing you know not every judge you know necessarily approach a sentencing the same way.

I didn't know that there was so much randomness. So there's a moment there where you're waiting to see what judge you get and then you like your heart sinks as you find out if you're the defense attorney. Yeah, I remember this was when I was a prosecutor. I remember sitting there in the arraignment court and, you know, the defense lawyer and another case turned over and said, you'll be fine as long as you don't get this judge. don't worry, you'll never get this judge. You know, it's a one in 30 chance or whatever.

Boom, they announce the judge. It's that judge. I mean, everyone, you just saw the defense lawyer just put his hand in his head and the defendant just put his head down, you know, and it was just, and it, I'm laughing now in the sense that it's sort of funny that the lawyer sort of overpressed it, but it was, it was just unfortunate that so much depends on, you know, who you draw. But I think it's hard to. design a system that's not like that, or at least it's hard to design a system, you know,

where everyone would agree on what judge you get, right, because everyone's going to have a different conception of justice. So speaking of arbitrariness in the criminal justice system, you had a really interesting case that I had followed even prior to this being a case, which was the Marcus Hutchins case, who is a infosec, really well-known infosec personality. who went by the handle of malware tech blog, I think, on Twitter. And I remember, you know, he was the guy, one of the guys that helped mitigate the Wanna Cry hack. And then I believe it was a few months later, he went to a conference in Vegas and got picked up by, I guess, the FBI.

Yes. And eventually he was stuck in this kind of limbo in the U.S. for a long time because he was British and eventually pled guilty to, having being involved in some selling black hat software on Alpha Bay, right? The last part is a little different, but he did plead guilty to some criminal conduct he committed when he was a few years younger. Marcus is a remarkable person. I did that case pro bono. He really did save the world that day at Wanna Cry, which during the pandemic, it doesn't feel like it could get any worse. But that day, if you remember back a few years ago today, when it every hospital in England was shutting down worldwide.

Institutions, hospitals were shutting down because of this virus. And Marcus, by sort of his genius and being in the right place at the right time, which was, you know, shouldn't take away from it, was able to stop that and really save the world that day from what it would have been in a really epic meltdown and probably inflicted incredible harm if you hadn't stopped it right away. So that was such an interesting case because there was, definitely an element of the judge mitigating the sentence because he had done, he'd used his skills for something so profoundly good after the fact. But I guess the reason I brought it up

is because it seems like was there a suspicion that he was maybe targeted by prosecutors because he became such a high profile individual? I think, you know, for better or worse, a lot of times if you are well known, you may be more likely to be prosecuted. Now, the Department of Justice or prosecutors might say, well, that's because if we prosecute you, it shows that no one can't get away with this, right? It also gets more coverage, so it has a greater deterrent effect. The other way to look at that would be, well, you're being prosecuted, so the prosecutor can make a name for him or herself, because it will get a lot of media attention.

But I think, you know, I don't know what happened behind the scenes there. I think the judge, we had a very good judge there at sentencing who saw how Marcus really wasn't the person who committed these crimes years before, how he was a radically changed person who had done an incredible amount of good and should be given credit for that. I think a good judge looks at the whole person and tries to sentence based on a lot of factors not just the crime that person has pleaded guilty to or was convicted of. And that's what that judge did. And it was remarkable sentencing because the judge actually suggested that Marcus seek a pardon.

There's a lot of rules for that and it's to wait five years, et cetera. But I mean, I probably never have a sentence like that again where a judge suggests that. And I think that judge did a very good job of looking at the whole person and what it really happened. there. And frankly, he adopted all the arguments or a lot of the arguments we made in our sentencing position. So sometimes the judges, sometimes they really do make a holistic determination. Yeah. And I mean, the prosecutors under that plea agreement, they just, they made no recommendation, right? They were saying one sentence or the other. And of course, we came out and said, they should have no prison time and should just go home, a free person that day. And that's what

happened. Essentially, he was put on supervised release for a year. So that wasn't your only, you've done some other high profile pro bono cases, right? Yes, I try to, I mean, fortunate that I can help people out who need helping out. That's probably not the most eloquent way to put it, but I've been, you know, really fortunate that, you know, people reach out to me who need health. And right now I'm helping out the woman who is accused of hacking into Capital One last summer, the last fall. That's when she got charged the last fall. So that was allegedly one of the largest data breaches, cyber crimes

and history of the country. One thing that she or through her friends reached out to me to help her, I'm participating in that case pro bono. And what a number of things helped tracking me to that case and to page was that she's transgender. And I think our justice system is really just starting to understand that people who are transgender need to be treated with more respect and kindness and care. And also there's a lot of interesting legal issues with that case. The CFA Computer Fraud and Abuse Act is very broadly drawn.

I would argue overly broad. And I think there's a lot of very interesting defenses that we, can raise in that case. And we plan to vigorously contest the government's charges there. And when you take a pro bono case, do you see something in the press for a defendant you think could use your help specifically, or is it typically a referral? That one, they just reached out to me. I mean, I was aware of the case as it was all over the media last summer and fall, but I just got a reach out. So, you know, to your point earlier in this interview I've been fortunate and gotten some attention for some very good results I've

gotten and now you know people contact me a lot of times and want my help so that's how I got to that case a number of her friends and I think even seen the result in Marcus's case I'm aware of me so you know it's just it's nice to help people when they can't help themselves it's one of the reasons I became a lawyer is there are a lot of people who get enmeshed in the legal system for the first time and it's really a very scary trying stressful difficult process and it's nice to help guide people through that process hopefully get the right result for them and you know be there to comfort them and provide them with you know the voice that they can't use right because you use you speak through your lawyer once you've been charged well I I sincerely hope I never have to call you for

your assistance, but it's good to know that you're there. Yeah, I mean, I would say just, you know, I don't only do criminal and regulatory defense. I do a lot of other things, and I don't just do Bitcoin, too, but I handle a lot of civil cases right now representing Crackett and Jesse Powell in the first antitrust case, civil antitrust case out of the Southern District of Florida. I've handled a number of disputes, civil disputes, like I represented Charlie Schramm against the Winkelvoss twins. And so I do a lot of things.

But I think the, you know, in all those cases, I feel like I'm, you know, really helping people. And I think that's a, that's a, you know, it's one of the nice parts about my job is that you can really help people, I'm in a tough spot. Not that I want you to, not that I want you to be in a tough spot, so I still. I don't plan on being a tough spot. I would like not to have to ever need your assistance. So where, where can people follow your work? You're on Twitter, I think, right? Yeah.

I mean, I became really engaged in Twitter because that's where a lot of the tech community is. Bitcoin, but also, you know, Infosec and a lot of the tech communities there. And I really enjoy Twitter and find it very valuable to stay up on top of events. So I'm on Twitter a lot. I would say that's the number one place that people want to follow me and see what I'm working on or doing. Right now, it's a lot of, you know, coronavirus stuff is happening in this world. And I will say Twitter, frankly, was very helpful for me in terms of seeing that coming before a lot of other people saw it coming. You know, there were certain people on Twitter, Bology, Selkis, who were really beating the drum on the coronavirus long before a lot of other people were.

And they merely made me stand up and pay attention. So I think that Twitter can be a very valuable resource for people. Yeah, same for me as well. I mean, Balogie was so early to sound the alarm. Got so much criticism about it, too. But it's sad, but he was completely vindicated. Yeah. I mean, I think, look, anybody, people criticize me.

They criticize my clients. I think if you feel like you're doing the right thing, you just need to brave the criticism, right? I mean, you can't worry about your critics. Otherwise, you'd be paralyzed. So I think I'm glad he doesn't care about them, or at least doesn't let them stop him from doing what he wants to do. Well, thank you so much for,

appearing on the show. Nick, I've had a great time. Thank you for inviting me. It's been real privilege to talk to you and tell some stories. My pleasure.