Feb 27, 2024 - Business

SEC's revolving door has crypto lawyers switching sides

Illustration of a revolving door with a crypto coin floor and top

Illustration: Annelise Capossela/Axios

Lawyers who helped build the regulatory case against crypto are now advising firms on how to navigate it.

Why it matters: It's an example of the SEC's long-criticized "revolving door" with the companies it regulates, and is all the more notable given the power shift under way in crypto following several high-profile court losses for the agency.

The big picture: The issue raises strong concerns of regulatory capture, a phenomenon where the regulatory scheme and laws governing an industry are influenced in favor of regulated entities.

  • But for crypto, an industry that's been regulated mainly through enforcement, the movement of key agency lawyers is likely to have a more immediate direct impact — in the courtroom.

Between the lines: Ladan Stewart, the lawyer overseeing the SEC's lawsuit against Coinbase, recently left the agency for White & Case.

  • She served for over eight years in the agency's enforcement division, and oversaw its crypto litigation program taking on Ripple, Do Kwon's Terraform Labs and multiple FTX execs.

Her experience at the SEC "is a significant asset given the heightened regulatory scrutiny of the crypto industry in recent years," Joel Cohen, the head of White & Case's white-collar practice, said in a statement.

  • "Ladan is extraordinarily well positioned to counsel crypto industry players and defend them against regulatory or private actions."

Case in point: In the Coinbase lawsuit, the SEC is already facing off against one of their own — Steven Peikin, of Sullivan & Cromwell, who was co-director of the SEC's Division of Enforcement from 2017 to 2020.

  • Axios observed SEC lawyers on the Coinbase case showing deference to Peikin in July as the crypto exchange was defending itself in a New York courtroom.
  • Ripple claimed victory against the SEC in a different courtroom in the same building that same day.

What they're saying: The Office of Inspector General's annual report on SEC management and performance challenges lists "recruiting and retaining a skilled workforce" as an issue:

  • "Although the SEC has hired an average of over 300 staff members from external sources annually over the past four years, until 2023, most of those gains were offset by staff departures."

Reality check: The revolving door may benefit the industry, but it doesn't necessarily indicate regulatory capture.

  • A securities lawyer Axios spoke to called SEC defection a "time-honored tradition." But the argument — that regulators go easy on the industry to snag those jobs later — is mostly wrong, the lawyer says.
  • "If Elizabeth Warren decided she wanted to leave government and go work for Big Law or Wall Street, she could name her price and place of employment."

The bottom line: One theory that may have legs came from Bloomberg's Matt Levine in 2014: "Strict regulation makes the revolving door spin faster."

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