Summary:
In this episode, Lisa Rubin, a lawyer specializing in cryptocurrency and blockchain, discusses various legal aspects of the industry. She shares her background and experience working with startups in the space. Rubin explains the Howey Test, which determines whether a token is considered a security. She also provides insights into the recent Ripple decision and its implications. Rubin discusses the SEC’s enforcement strategy and offers advice for companies navigating the regulatory landscape. Listeners can find Rubin on LinkedIn and reach out to her for further information.
Takeaways:
Working with startups in the cryptocurrency and blockchain space requires navigating legal pitfalls and providing guidance on marketing statements and token design.
The Howey Test is a crucial factor in determining whether a token is considered a security, and it involves assessing elements such as investment of money, common enterprise, expectation of profit, and efforts of others.
The Ripple decision clarified that the XRP token itself is not a security, but the circumstances surrounding its sales can make it an investment contract.
The SEC’s enforcement actions in the crypto space aim to address fraud and protect investors, but compliance with regulations and proactive measures can help companies mitigate risks.
Companies should focus on the utility of their projects, be thoughtful about entity formation, and make efforts to comply with laws and regulations, including sanctions.
Chapters:
00:00
Introduction and Background
02:14
Working with Startups and Navigating Legal Pitfalls
04:13
Understanding the Howey Test
11:32
Challenges and Misconceptions about Securities
17:26
The Future of the Howey Test
24:32
The Ripple Decision and Takeaways
32:31
SEC Enforcement and Compliance
35:23
Advice for Companies in the Crypto Space
36:41
Where to Find Lisa Rubin
37:28
Conclusion
Hi everyone, welcome to Highly Regulated. Today I’m talking to Lisa Rubin. Lisa practices in the cryptocurrency and blockchain practice at Paul Hastings. I’m super thrilled to have her on today because she’s amazing. She is an expert in this space who is gonna answer a ton of questions that I know I hear.
I’m sure she has additional questions that people just throw at her every day. So we’re just gonna jump right in. Lisa, thank you so much for being here today. Thank you so much for having me. I’m really excited to be here. Yeah. So you have had a amazing career.
Let’s talk a little bit about that. Tell me everything I need to know about you, your career, how you got here. Like this is such an amazing thing. When I first started practicing in cryptocurrency, you know, eight years ago now, there were no women in this space.
So for me to see someone who’s achieved so much in this space, I think this is amazing. So tell us how you got here. What’s your background? Thank you so much. So I grew up in LA. I went to UCLA for undergrad and USC for college. And I love living in LA.
And I started working in general commercial litigation. So pretty much anything that goes to court, I was working on anything from real estate to securities, commercial litigation. And so after a while, I really wanted to focus on working with innovative companies.
Like companies that were working in tech and building things for the future that people were using. And so I started looking around and then I found Paul Hastings in San Francisco, which has a top fintech practice. And so I started working with amazing blockchain and crypto clients and diving
Into the issues every day. I was like, this is exactly what I’m looking for. And so now I do that full time and I work with anyone from large exchanges. to web three startups and founders or investors or even traditional finance
Companies that are not in the space, but are interested in like launching a product or something in the blockchain space. So it was really exciting. And I love getting to help companies innovate and find legal solutions so that they can keep building. Yeah, that’s awesome.
I’m sure you work with a ton of startups or companies that are just very nascent. They might be ideas on a napkin. Is that true? Is there like a sweet spot for you that you’re like, this is the stage of company I like to work with. What’s that look like for you? Definitely.
So I have worked from anywhere from super small companies to large companies. So for example, if I’m working with a Web3 founder that maybe just has an idea beginning, a lot of the work that we do is like, I would be meeting with them for
Like 30 minutes as they’re building just to kind of redirect like, this is a good idea or this is high risk legally, or if you kind of just avoid certain marketing statements, that would be really helpful. So it’s more like kind of navigating as they’re building to kind of
Keep them from avoiding like, you know, from falling to big legal pitfalls later. And then, yeah. thinking about is I’ve been there when you’re like, okay, let’s not say this in marketing and then they say it and you’re like. It’s so true.
And like the marketing statements really get a lot of companies in trouble and especially like smaller founders as they’re not realizing that, you know, they’re just promoting their project and gathering excitement. They don’t really realize that like something they say have a ton of legal
Implications, like, you know, talking about your coin as having high yield or in like as an investment or interest or kind of like ways to describe it as like an investment mechanism instead of like the utility that can really put some red flags on their projects for regulators.
Yep, yep, those juicy red flags. So one of the biggest things that comes up for me and I’m sure for you as well is the question of, is this a security? I feel like anyone operating in the crypto blockchain space, that’s the number one question. So let’s just start there.
I feel like there’s a ton of confusion. Everyone has a different interpretation. Everyone has… synthesized and gone through what the word is, is here, or there, is there, to the point where there’s a lot of people who still don’t know what a Howie test is.
They still don’t know how to actually appropriately gauge whether something is a security or not a security. There’s also all the confusion of how do I register? If I need to register, what does that look like? So let’s dive in. What is a security?
Let’s just, let’s have the final say here so that we don’t have to kind of keep getting weird DMs from people on Twitter that are like, this is what I’m building, is it a security? Definitely, I know.
So I’m sure everyone has heard of the TOWIE test, but there is still a lot of confusion. And we get this question all the time, because there are certain, there are four factors which I’ll go into, but there is confusion about how to, what do they mean exactly?
So background, the definition of securities comes from a statute. So the Securities Act and also the Exchange Act, and there’s a ton of things that could be different types of securities. And so for cryptocurrency, the definition that we are looking at is investment contract.
So something as an investment contract, it is a type of security. And if it is a type of security, it will be regulated by the SEC and you’ll be required to register. And you have to disclose things about your company, like the financials and things like that.
And it’s actually pretty expensive to be a company that’s registered with the SEC. which is why a lot of people try to avoid being a security. So to figure out if something is an investment contract and thus a security regulated by the SEC, the main test for that is called the Howey Test.
And the Howey Test has four factors. So you have to say yes to each of the four factors for something to be an investment contract. And if you say no to even one element, then it’s not an investment contract. And some people- Yeah. And some people say it’s three elements.
Some people say it’s four. It doesn’t really matter. It’s the same test. So and the same rules apply. So the four elements are one, was there an investment of money? This one is typically met. Usually like you have to buy your crypto token.
If you pay money for it, there’s an investment of money. So prong one was usually met. Prong two is, is there a common enterprise? Now there’s a ton of different tests for this and different courts rule different ways. Um, generally the second element is also usually met.
It’s if the price of the token goes up or down, this could be enough for common enterprise. If you’re pulling the sale of money to build a network that isn’t developed yet, this could be enough for common enterprise token allocation. So this one’s pretty complicated, but generally one and two are typically met.
And so that’s not really the big focus. So it’s prompts three and four that everyone really fights about and focuses on. And so the third is, is there an expectation of profit? So if you’re buying this token, are you expecting to get kind of like passive income?
And so like, as we were saying with the marketing statements, that’s a big thing that could, you know, indicate that. So if someone is marketing their project and a way that you should get this token, cause it’s going to go up in value and you’re going to make so much money or you
Should hold this token and you’re going to get. high yield or interest. And so the way that people describe their project on Twitter or white papers or their website, that could be enough so that people buying their token would expect to get passive income. So that, and it’s also like emojis.
Oh my gosh. So many emojis and court cases, which is pretty hilarious. The rocket chip emoji, the moon emoji, all these like emojis, like the stock price going up emoji, like all these. emojis are enough, the courts have said that like, it can indicate that you’re
Telling the public that we think that this is a good investment and you should buy it and you’re going to make money. So that’s expectation of profits and the way a coin is designed can also affect that too. So that’s number two.
Important one too for people is they don’t understand those early stage design decisions. Make a difference. They’re like, oh, it’s something we can, we’ll do with that later. And it’s like, actually you’ve already kind of laid the groundwork for this to either be a security or not a security without even realizing it.
So that’s definitely something I’m glad you mentioned because people just kind of gloss over that sometimes. It’s so true. And that’s why it’s honestly better that when a project even is first starting out, maybe they don’t have so much funding, even just like a 30 minute quick check in
With an attorney to just figure out like, hey, is this kind of okay? Like, are there any major pitfalls with this design of the token or marketing, just to be in the right direction, even if you want to like do legal work later, it’s
Better to at least the beginning to just kind of it’s so much harder to change the whole design of your project, you can’t take marketing statements. I mean, you can, but people can still find them. There’s like the way back machine and stuff.
So once they’re out there, it’s better just to not do it in the first place. So yeah, the expectation of profits is the big one for sure. And so the fourth prong is the expectation of profits have to be from the efforts of others.
So pretty much if someone is buying the token and they’re not doing any of the work to get the rewards and someone else, like the project team is doing all the work and someone just sitting back profits without doing anything. That is expectation of profits from the efforts of others.
And the more like involved the person that has a token is maybe with governance or other things like this could help that they’re actively participating. So they also, um, it lowers the risk. Sorry. I don’t know if you can hear the construction in the background.
I’m in SF and there’s con yeah, our neighbors are having constructed. Hey, SF is coming back everyone, there’s construction there. We have proof. I love it. So you’re fine. You’re totally fine. Construction and dogs are always welcome on this podcast because dogs make people
Have like a little emotional, like, yeah, it’s like my little emotional security animal. And to me, anytime there’s building happening, I’m like, yay, the economy’s good, let’s go. So you’re fine. Definitely definitely. Hopefully they slow down a bit, but it’s not like they’re in full gear at the moment.
Yeah, no, it’s totally fine. Yeah, I mean, so the Howie Tessa has those four prongs. What are the areas where you think people really, I mean, I know I have a couple where I’m like, oh yeah, I think this is where people are just totally wrong.
Where are you seeing people make the most mistakes? I know you mentioned a little bit, but like dive in a little bit there. Like where are the ones where you’re just like, bar none, like the buck stops here, get a lawyer, like you need to have that. in your pocket.
I know I’ve seen a ton of people who are just like, oh, I got a memo and it says that I’m a security, I’m not a security from a lawyer, a VC. How helpful do you think those have been with the Howie tests, especially now that
The SEC is really enforcing things at a much higher rate than they were two, three years ago. Yeah, sorry, the construction just came back on. Okay, so I’m going to move this closer to me, so hopefully you can hear less of the construction and more of me.
But yeah, so pretty much I would say the easiest place for projects to really lower their risk under the law, generally every project is different, and this is not legal advice, but the marketing, it really can get make or break a project. At the beginning, like it’s good to…
For example, if there is utility, like the project team is building this token or network because they want to usually solve some problem or it’s for some utility, the token has the ability to be used as currency or for governance or for some active thing.
And then showing that people are actually buying that token and using it for that purpose. For example, there was this case regarding the Mango token. And it was a governance token, but the, you know, the SEC found that no one was
Actually, in their opinion, no one was actually buying the mango token to use it for governance. Mostly the project team had the token. And so if the general public wasn’t buying it for the intended utility, then the SEC completely disregarded that that’s what the purpose of the token was for.
And the SEC thought it was for investment purposes. And so as you’re saying with the memos and stuff, I think that can be really helpful. But I think what’s more helpful is really just having a conversation with an attorney and figuring out what are the high risk areas?
What are the low risk areas? Because people complain all the time that there is not clarity. And I agree, there definitely needs to be more clarity. But there is enough out there where you can tell what is high risk or low risk and you can really lower your risk.
And if you’re trying to play within the lines and really doing stuff to lower your risk, then there’s a ton of companies out there that are probably doing stuff worse than you. So perhaps, you know, if you’re really making an effort, you could really lower
Your risk of being a target by a lot. So I think marketing is probably one of the first areas. And also for projects, this doesn’t apply to everyone, but sanctions is a big issue, like making sure that you’re collecting information. from customers so that they are who they say they are.
So you’re not accidentally transferring money to a terrorist organization in a banned country or something like that. Cause that is probably the most severe criminal liability that you could get even more than whether something is a security. So those are probably two really big areas to focus on.
I have a couple of concerns here because like KYC is becoming, in this AI age, we have more and more companies that are starting, they’re like, oh, we’re gonna automate your KYC, and I’m just like, this is the thing that if you mess up, it’s not
A slap on the wrist from the SEC, and they’re like, oh, well, you have to find a new job, well, you’re a developer, you can go do whatever. No, this is something where they send you to jail, like. you no see people no more. Like, not good.
And it’s, yeah, I just, I really have a ton of concerns because I just see so many companies in the AI space that are like, we’re gonna do KYC, we’re touching KYC now. I’m just like. It’s so true. And for those listeners who don’t know what KYC is, it stands for know your
Customer. And it’s generally just means that you have to collect information from your customer so you can verify who that they are, who they say they are, and that you’re not accidentally helping transfer money to like ban countries or people and
Just kind of creating policies and making sure that you’re making an effort at least to keep bad actors off your platform from transferring money to each other. And it’s like super, super important and like really severe risk if people don’t.
And the thing is, like, even if someone makes an effort, that would be helpful and lower their risk in this area. Because like if an regulator comes after a company, it’s like we really try. These are, look, these are our policies.
This is like what we do to try to collect information rather than someone saying like, oh, well, we really only sold to this country, so we’re not really subject to US law. It’s like regulators don’t buy that. They’re like, where are your policies? Yeah, were there US customers? Like, did you know?
So it’s always better to err on the side of really trying to comply with laws, even if you can’t be perfect. Yeah, it’s so funny. People are just like, yeah, no, we’re just going to tell the SEC that we paid for a company to do this. And they made all the decisions.
So clearly, it’s not our fault. And you’re like. No, you have no ultimate decision maker here. So all of y’all are in trouble now. I feel like the more people try and make things easier on themselves and cut corners, the more ultimately they end up putting themselves and their companies at risk.
So I could rant for days on this one. No, thank you for that deep dive into the Howie test. Do you think, I’ve heard a lot of people talk about like, oh, the Howey test will go away. What do you think there?
I know I have my internal inside thoughts that I say every once in a while, but what are your thoughts? Do you think the Howey test is gonna stay? Is this something people should know from the get go?
Obviously, I think it is, but some people are like, no, we just need to worry about it later. Yeah, I mean, I think it’s obviously important to do you thinking about the Howey test from the beginning and you know, maybe one day one So right now the
Howey test is the main test like whether it will change maybe one day But that’s like maybe five years away, maybe ten years away so this is like the test and right now the SEC is the regulator and In a fact that you know may very well change
There’s a lot of bills to potentially change that and at the end of the day Congress has the authority to create a law that could completely change this, where the Howey test wouldn’t be relevant anymore. But Congress is pretty slow to move, which in some ways is good, because you don’t
Want them making laws about a technology they don’t understand. But it also means it’s gonna be a really long time until things change. And the first thing that probably is gonna come about is stable coin legislation, because that’s easier to understand. It’s- one coin peg to usually a US dollar or one fiat.
And so, and you know, the US is more interested in that at first. And once that gets settled, they’ll probably move on to more complicated things, but to completely change the Howe test and change whether the SEC is the
Regular and how to split that up, those are a lot more complicated issues that Congress is gonna take a very long time. And honestly, they’re not just dealing with legislating. crypto, they have, you know, the entire economy, they’re dealing with all sorts of issues and fires that come up every day.
So unless crypto makes the headlines, it’s usually not on the top of their list to figure out. So yeah, how we people that you get the people who are like crypto, it’s going to change. And I’m like. We have some bigger issues that they and their constituents care about, so we’re
Going to need to manage expectations. They’re like, it’s tomorrow. And I’m like, we need to get there. Yeah, yes, and, and yes, but. So got to love. Got to love impatience. I’m a very impatient person, so I get it. But I’m just like, oh, I really wish we taught more.
Political science in like high school. Y’all need, I know, I tell everyone, I’m like, you need to watch the little cartoon about how a bill becomes a law. Like every person needs to watch that. It’s like, like every startup I talk to, they’re like, I don’t know how this works.
I’m like, it’s a cartoon. Like literally a cartoon, jump in there, get it, watch it. All of y’all. Yeah. Yeah, because people get very excited. I’m also excited about that. There are more bills being proposed because that means people in Congress are thinking about these issues. They’re trying to figure it out.
It also means that people who vote for them are caring about these issues more or else they wouldn’t focus on them. So I feel like there is so much progress and it is so exciting, but I don’t think that it’s going to move as fast as some people hope it will move.
And like I was saying, in some ways, that’s good because you don’t want something to be. It’s really hard. If something does get signed into law, it’s gonna be really hard to remove it or change it if it turns out that wasn’t actually not the best way to regulate something.
I always use prohibition as an example there. I’m like, we had prohibition. Let’s talk about that. So like it does happen where you’re just like, that was bad, let’s not do that. So it definitely being thoughtful really does help and we have proven time and time again that rash decisions sometimes are bad.
Yeah, this is, this is, oh no, go ahead. sorry, go ahead. Oh, so one of your questions earlier, you were like, what should project teams like think about? Another area besides like securities and sanctions is generally like another question I hear a lot is entity formation.
And I think a lot of companies think that if they form their entity in a different country, then suddenly they’re not subject to US law. And that’s probably one of the biggest mistakes I hear. And so there’s actually a lot of other things to consider, but if the company,
Even if it’s based and, you know, formed in a different country, if they’re doing business with people in the US, the US is going to say that they’re subject to US law, even if they don’t wanna be.
And so there are, you know, sometimes it does make sense to be based in a different country, but then they really have to focus on the other country’s market. It’s not like you can kind of find loopholes to do country, to do business in the US.
With US customers and not be subject to US law. So I think that’s something that is really good for project teams to be aware of, because I feel like that’s actually one of the most topics that people get confused about. I would agree with that as well.
I work a ton with the Bermuda Monetary Authority and like I love them just because they’re a great government entity that’s really being thoughtful about crypto, but I don’t think we’re, like I get a lot of people who are like, I wanna
Work with them because we’ll be able to, you know, do all these things and there’s loopholes. And I’m like, that’s not how this relationship works. The reason we have a close relationship with them is because they wanna talk about crypto and blockchain and be thoughtful about this technology.
Very different from, we want to do this so we can somehow create a scam that will navigate this and get us what we want. That’s not it. That’s not it at all. I’m really glad you brought up entity formation because I think especially in
The post-FTX era where people saw FTX’s entities and they’re just like, this is a spider web. And a lot of people were like, wait, should we have done that? Should we not have done that? And I’m just like, the more confusing it is.
Each entity, you’re now under a different regulatory agency, a different country, you have to make all of this work. A lot of times it just doesn’t make sense for startups. When you’re a much larger company, yes, but you don’t need to be a pre-Series A company with subsidiaries in five different countries.
That’s just a lot of administrative oversight. Yeah. And a lot of the small companies hear about all these different complicated ways to form entities and they’re like, oh, we should do that too. Right. Cause you think that that’s maybe like the standard, but it actually is the more your
Project teams end up making things more complicated and more expensive and time consuming. And like someone has to oversee all of these and it turns out they like really didn’t need it. Usually a lot of the time, like especially projects that are just starting out or better with just like
A basic like corporation or LLC or something to start out and as they grow, maybe their needs will change. But usually it’s better to start out simple and then if you need to get more complicated, you can. Yeah, totally agree. I hope people take that to heart.
Because also unwinding a lot of foreign corporations is very expensive. So if you decide later, you don’t need something. Not cheap, not easy, it can be a pain. Yeah, so let’s talk about something also that’s been in the news and that’s the Ripple decision.
I feel like this has really been on a lot of people’s minds. I think a lot of people were just eagerly awaiting the Ripple decision, so it was like, Ripple’s gonna come out and it’s gonna change the world. I don’t think it changed the world.
I think it also, again, added to a ton of confusion because you have people who are like, well, this is actually what it means, and then you’re like, Is that what it means? So let’s talk about that. What are the takeaways for you, for Ripple, and what are the things that you
Really hope people understand about it, and what do you think are the biggest misconceptions there with the case and the decisions? Definitely. Yeah. I mean, Ripple, the Ripple decision is just so exciting in that it is like, you know, everyone was waiting to hear what would happen and what does this mean for
The industry. And so I think there was a lot of good language. Like as you were saying, I think people have taken all different sorts of spins on it. So kind of just like, just staying on the facts and not like, you know, other opinions.
It was the court did say that the XRP token by itself is not a security. the circumstances around how a token could be sold could make a token a securities offering. And so I think that language was really, really important to have it just plainly
Laid out in a court case and I think is really good for the industry. And so then the details of the decision went through three different types of sales and it was saying that the circumstances around each of those sales for the token is what made the court’s decision.
You know, as to whether that sale was an investment contract or not. So the first one for institutional sales, so this was like two sophisticated, um, institutions, the court ended up ruling that was a investment contract because of the sales and marketing material again, as we’re hearing was like really important
With various aspects and they, the court believed that there was pulling of the token sales to build the platform and that since they were sophisticated financial investors, they were expecting a profit when they bought the token.
So whether or not, I’m not saying whether or not I agree with any of these is just going over like the facts of people. So like, yes. Because there’s also misinformation about the facts. I’ve literally seen people on Twitter being like, this is the facts of the case.
I’m like, this isn’t even the basic information of the case. So no, no. Oh. And so the second type of sale was programmatic sales. So this is pretty much when the token was sold on exchanges and, you know, token
Exchanges are not owned by the project team who is making the token and the public was buying it from the exchanges. The court ruled in the, in those types of sales, it was not an investment contract because those sellers were not really buying it to kind of help build and
Develop and get an expectation of profit. So that sale was not an investment contract in that court’s opinion. And the third type was when the company was giving tokens to employees or brands or like third parties to kind of build on their platform.
And that also was not an investment contract because the first prong of the Howey test was not met. These employees didn’t invest money in the court’s opinion. And as a result, the first prong wasn’t met. And if one of the prongs are not met at the Howey test, it’s not an investment contract.
So that was the opinion. And I think there was some really good language. You know, both sides had some wins and both sides had some losses. But overall, I think there was some great language in there. And so following, oh, sorry, were you going to say something?
And so following that, you know, people were speculating, is the SEC going to appeal this decision or what’s going to happen? And so after that, in a different case for Terra Luna, The court, it’s in the same, you know, Southern District of New York, it’s the same area. The court ruled slightly differently.
I don’t think it was completely in conflict to the Ripple decision. In the opinion, it did say it is possible that the tokens by themselves are not investment contracts. And so that part, the court did not disagree with. The part that the court disagreed with in the Terra Labs case was…
Whether or not you should look at the expectation of buyers and whether that, you know, they’re just kind of figuring out which circumstances constitute investment contracts. So yes, the court in that case did not agree with everything in the Ripple case, but they didn’t disagree with everything either.
And I think that’s like important to remember. And so recently the SEC filed and, you know, a request for an interlocutor, sorry, I’m not even saying that right there. They have to request. love Latin, you know, it’s not a dead language to lawyers. Exactly.
And so pretty much the SEC has to request permission if they want to appeal the decision because the case in the ripple case is not done. Usually you can’t appeal a case unless it’s all the way towards the end. You have a trial and all this stuff.
So it’s not at that stage yet. And so there, they have to request permission in order to appeal the decision in ripple. And in the SEC’s request, they also were not, you know, they were they were arguing about whether the sales and certain circumstances were investment
Contracts, but they didn’t argue with the fact that the token by itself is not an investment contract, it is the circumstances. So I think that’s actually a really interesting thing to gain from all of these cases together. Yes, there’s still confusion and yes, things can change and an appeal court
Could change things, Congress could change things, but as of right now, I think there is at least some general agreement that the token by itself is kind of just You know, a code of numbers, it could really be so many different things and by itself, it’s not necessarily a security.
You have to look at all the circumstances around it to kind of figure it out. Yeah, yeah, I think that’s a really interesting thing to kind of see develop in the court cases. And I think there’s a real difference in the cases from like the 80s and the 90s
That have been traditionally used as precedent within arguing elements of the Howie case. I think now seeing those kind of thought processes kind of develop, it really does make sense. I think you’re seeing. a lot of common sense being applied and that actually makes me really happy.
And why I say I like common sense is the SEC has obviously, they’ve really been stepping up enforcement actions against companies in cryptocurrency and blockchain. We’ve seen it a lot just, you know, pretty much since FTX. I think that really spurred a lot of enforcement, which is not always a bad thing.
I always tell people, I’m like, we don’t want bad actors in the space. Mm-hmm. across the board that enforcement is bad is not accurate, that’s not it. We don’t wanna have Ponzi schemes, we don’t wanna have rug pulls, those are things that aren’t gonna help cryptocurrency or blockchain in any sort
Of a way. So tell me kind of what do you think about the SEC and their enforcement kind of strategy right now, do you think it’s gonna scale back, do you think it’s just the beginning for companies? And also, you know,
Being a lawyer in this space, how do you think companies, not legal advice, again, we are not your lawyers, but there’s going to be a lot of that just like scrolling on the screen, we are not your lawyers.
But do you think that there are ways that are just basic things companies can do that are common sense things companies can do to interact with the SEC in a way that… me either abates or just, again, it’s a common sense building of that relationship. What are your thoughts there?
Um, yeah, so as we’re saying, not legal advice, but, um, it’s, it’s kind of hard because I think that a lot of the companies and project teams that actually did reach out to the sec and we’re like, here are all our plans laid out. We really want to comply.
They didn’t end up getting the clarity that they wanted from the sec. And in fact, like the sec ended up turning it and having an enforcement action on some of the companies that came to them. So I don’t necessarily know right now is the best time to have that dialogue.
Maybe that will change in the future, but it may have last year that SEC doubled their enforcement team and they are looking for different projects. And some of the projects they have gone after, if they’re fraud related, that is actually good for the industry to kind of get rid of those actors.
And then the public will trust the industry more if there’s less fraud. And I’m not saying that crypto. has fraud, every industry has fraud and bad actors. Not exactly, it’s not one industry that is like, oh, this is the fraudulent industry.
It’s like, just because there is some fraud or some bad actors in an industry, doesn’t taint the entire industry. There’s a lot of really exciting projects and utility being built as well. and SEC actions in agriculture. So whenever people are like, it’s just crypto, I’m like, no, there are farms that
Have SEC actions against them. So calm down, calm down. Yes, yes, definitely. It’s all over the place. So I think what projects can really do to kind of lower the risk at the beginning is be really thoughtful at the beginning, you know, and have a plan laid out and just
Kind of understand generally what are high risk marketing statements that maybe we shouldn’t avoid. Like should we, you know, it’s best to kind of focus on the utility of the project and really like what is the utility of your project? What…
Kind of solution do you want to solve and really like focus that and highlight that and you know, promote your project in a way so that people are using your network and token for the reason that you intended. And also like thinking about entity formation, usually simpler is better at
The beginning and just doing your best to comply with the laws, especially like sanctions. That’s not really applicable to every company, but I would say especially for like, you know, exchanges or something like doing your. Even making an effort to comply is better than just trying to find an excuse that if
The regulators come like having those policies in place, doing your best to try to keep bad actors from transferring money on your platform to, you know, banned countries and stuff is, it’s helpful. I think the more that someone can comply, even if they’re not perfect, is definitely better.
Yeah, no, I think that’s a great place to start. I was gonna ask you one last question, and then I realized we’ve actually gone through everything. Because I was gonna say, what are the things that you should do from the get-vote? But honestly, we’ve covered that.
So I’m gonna end with just, where can people find you? You are an amazing lawyer in this space. You’re a great voice in this space. I am usually honest with people when they’re like, oh my God, I wanna find people on Twitter, on social media who are experts in crypto law.
And usually I’m like, Oh God, please don’t, please don’t. I think a lot of people that I know got to see my experience of learning that there’s not real lawyers in crypto. I was like, wait, what?
So I will say you are one of the voices in this industry that I really do trust, and I think people should trust as well. Just because again, you know what you’re talking about, and that is. rarer than it should be sometimes. So where can people find you?
Whether they are looking for a lawyer, they’re looking to interact with you on social media, they’re looking for some of your really cool writings that are again, very informative and a great place to start for people that might be thinking
About things and they might not be at the point where they need to engage a lawyer, but they need just a right direction to go down. Absolutely. I am pretty active on LinkedIn in waves, but at least I check the message regularly. So Lisa Rubin, R-U-B-I-N on LinkedIn is helpful.
And also, I mean, I always check emails as well, lisasrubin at paulhastings.com. And I’d be happy to even just like grab coffee with someone or connect on Zoom and love to hear what different projects are working. Yeah, no, thank you so much Lisa. This has been super informative.
I really, I’m gonna just start using this episode every time I, just as like a form answer, because I get the How I Test questions like all the time and I’m just like, oh my God, cut pace, cut pace, cut pace.
Yeah, I really do hope this was informative for people and I hope it gives them. the right direction to go down. I know that there’s a ton of confusion in the space and it’s gonna be that way for a
While, but hopefully we can kind of help people at least start down the right path. So thank you so much, Lisa. Thank you so much for listening, everyone. And yeah, looking forward to continuing more discussions like this in the coming weeks and months. Thanks everyone. Perfect.
