Robert Cohen, the director of the U.S. Securities and Exchange Commission's (SEC) Cyber Unit, spoke on October 19, 2018, and his remarks provide some insights into the Commission’s cryptocurrency enforcement priorities.
The past seven days have been tumultuous for the cryptocurrency world. Federal regulators and law enforcement recently announced settlements and the press reported investigations. On Friday, November 16, the SEC announced settlements with two “Initial Coin Offering” (ICO) issuers. This news came just eight days after the SEC announced it settled with the founder of a “decentralized” exchange, EtherDelta. And this Monday, November 19, Bloomberg reported that the Department of Justice (DOJ) is investigating Tether, which is a “stable coin” closely linked to the Bitfinex exchange.
What appears most significant about the past week’s events is that they effectively erased any residual doubt that “decentralized” projects such as ICOs or exchanges might escape the jurisdiction of U.S. law enforcement and regulators.
Back in October, Cohen spoke at the LA County Bar Association’s annual Securities Regulation seminar. He said the unit’s two current priorities are (1) ICOs and digital assets and (2) trading based on the nonpublic information obtained in security breaches.
ICOs and digital assets refer to offerings and sales of cryptocurrency (sometimes referred to as “tokens” or “coins”) to retail investors via the internet. These offerings and sales leverage DLT (“blockchain”) to accept payment and to distribute the digital assets. There are a number of exchanges, many offshore, which facilitate trading in these digital assets.
Most notably, Cohen outlined the questions he asks when evaluating a potential cryptocurrency investigation:
Cohen also said that
the Commission plans to pursue the issuers of smaller offerings when resources
permit. He said that when the assets are
beyond reach, the DOJ, the U.S. Attorney’s offices, and
the Federal Bureau of Investigation (FBI) will pursue the culprits.
Cohen explained that in digital asset and ICO cases, the Commission has the rare ability to bring actions under Section 5, referring to the Securities Act of 1933’s requirement that an issuer register securities with the SEC before offering them to the public, not sell securities before its registration statement is declared effective by the SEC, and not violate the Act's prospectus requirements.
(As is typical of statements from SEC officials, Cohen said that his views do not necessarily represent the views of the Commission, its staff, or others.)
Likely patterns
of enforcement in the cryptocurrency and DLT world are of interest to me. I’m a third-year law student who’s interested
in – and I have a bit of relevant professional experience in – financial
regulatory matters.
I completed courses in Securities Regulation in Fall 2017 at Pepperdine Law and was fortunate to study at Georgetown Law Center in Summer 2018, where I completed a course in Securities and the Internet and audited a White Collar Crimes course. Current/former SEC and DOJ staff taught those courses, respectively. I also worked at the American Action Forum (AAF) on financial services policy, where I analyzed financial regulators’ proposed rules. Before that, I worked in government relations at Invariant, where I had the privilege of monitoring legislative and executive developments for the financial services and technology practice groups.
I expect to publish a more substantial post on DLT when time permits (I’m currently preparing for law school finals and a mock trial for Trial Advocacy class).
]]>This post will be one part status update and one part vision statement. At the end, I will announce an exciting development in my educational career and identify two fascinating issues I’ve been following, which I believe make living here a bit more interesting.
***
Having grown up in Santa Monica and worked in the California
internet industry, I initially had little interest in Washington, DC. I sported an exclusively private sector resume
and my professional interests were mostly in emerging technologies investment, financial
services, and management consulting.
Paradoxically, writing about legal technology led me to become interested in Washington. Because the first year of law school was just not demanding enough, and because I had questions about how technological diffusion might dictate the way I should allocate my attention in law school, I began writing this blog in the spring of 2017. I didn't (and still don’t) know of any other student at my school who writes a blog, but that did not deter me from publishing. I think that is because my first job after college was at StartEngine, which was then an early-stage technology investment firm. That role required me to develop an uncommon blend of skills, which most lawyers lack, that includes tunnel-vision-like pursuit of competitive advantage, marketing, sales, public relations, and contrarian thinking.
This background led me to believe the most pressing question for law students was, essentially, “when will computers do lawyers’ jobs?” Investigating this question led me to discover Ben Heineman’s excellent book, "The Inside Counsel Revolution," which was the foundation for my substantial analysis of corporate legal departments, published back in 2017. I felt that, as former General Counsel of General Electric, Heineman's credibility was high. I thought reading his book, which details broad-based changes he observed in his own legal department, as well as across the legal industry more broadly, would provide most of what I needed to know about legal technology. But what I learned from the book was mostly legal career-related, and almost entirely non-technological. Indeed, one of the biggest takeaways for me was, “I should learn more about the government.”
What further cemented my conviction to act upon this impulse was seeing how legislative and regulatory developments, specifically the passage of the 2012 Jumpstart Our Business Startups (JOBS) Act, which permitted the Securities and Exchange Commission (SEC) to regulate equity crowdfunding, permitted StartEngine to transform from a financier into a financing platform. Seeing the company where I’d worked grow markedly illustrated the impact that developments in Washington could have as far away as California.
***
Intuitively, it seems to make sense that as the nexus of federal power, there is something unique about the dynamics of this town, and understanding them is valuable for lawyers.
As it turns out, there is evidence to support that intuition. Last fall, after breezing through uncomplicated second-year coursework such as securities regulation, taxation of business entities, and corporations -- sometime during the final exam study period -- I became aware via TaxProf that a Pepperdine professor published a book entitled, “Lawyering in the Nation’s Capital” (LNC).
To flesh out the seemingly-intuitive hunch described above that, since so much legal activity occurs in Washington, there is unique value to being in and understanding Washington, I present three voices in support, pulled from LNC:
For those thinking about buying it, I will tell you that because it's city-specific, LNC stands apart from typical law school textbooks. It does rely on appellate caselaw, but not exclusively. For example, it contains the author’s insights about important Washington legal dynamics, which often deviate from the strictly jurisprudential into the executive and legislative, as well as topics that seem to have recently "come out of nowhere" such as special and independent counsel, which are not particularly new phenomena in Washington. For the entrepreneurs among us, it explains what can be done by litigants or by Congress to neutralize undesirable regulations. Finally, the transcripts of experienced legal professionals explaining how Washington (really) works it contains are probably most accessible to a general audience.
***
By purchasing LNC, I hoped I would get more insight into where I could work in the District to maximize learning. I spent nearly all of mid-to-late-December and some of early January, yes, the sunny Southern California winter break, trying to find an externship placement in Washington for the spring 2018 semester. With the help of Professor Nancy Hunt, author of LNC, I ultimately landed full-time at Invariant, a government relations firm with some interesting clients, and enrolled concurrently in the companion course to LNC and advanced legal writing, both evening classes. I plan to return and more fully detail that educational troika soon, if time permits.
I chose to live here in Washington for the summer. Philosophically, I believe Washington is a great place to be right now, especially having a background in technology, in addition to law. I’ve learned that knowledge tends to compound. Currently, I think knowledge of how the government and agencies work seems highly relevant for scaled businesses, the sorts of organizations I’m most interested in. More specifically, I have at least three more or less concrete reasons to be here: (1) I was admitted to take summer courses at Georgetown Law; (2) a topic I have been following fairly closely, distributed ledger technology, is subject to more than a few interesting developments that seem to originate from Washington; and (3) I would like to learn more about a few select topics which essentially blend national security and the private sector, including inbound transaction review regimes, export control regimes, and the Treasury’s secondary sanctions apparatus.
This summer in the District, I look forward to meeting interesting people, developing useful skills, and gaining valuable insights in my coursework. If you’re in town this summer and reading this, I would love to meet you.
Please email me at john.conkle@pepperdine.edu, or, if you prefer, jc2967@georgetown.edu.
]]>Ben Heineman Jr. wrote a ~400 page book about what he’s calling the Inside Counsel Revolution. For our purposes as law students and legal innovators, it is the best entry point for learning about the business of law.
As the "revolution" in the title suggests, Heineman tells the story of an industry in flux, that for quite some time has been driven by changes on the client side and in the broader economy. Because corporate legal departments are probably the largest discrete segment of legal spend (estimated at over $100B), "the revolution" will continue to be relevant to us:
A few of the highlights:
As retired General Counsel (“GC”) of General Electric, he was the top lawyer in a company that employed ~1200 lawyers. Before that he was Supreme Court litigator (you can listen to one of his oral Arguments to The Court here), he clerked for Justice Potter Stewart on the Supreme Court, and also was the Editor in Chief of the Yale Law Journal.
I bet you’ll be most confident if you start off with a structured approach. This post includes 3 templates that’ll ensure your work is useful and interesting for readers.
Executed well, you might discover that your writing is a unique source of opportunities.
Personally, I started blogging because I wanted to think about, talk about, and perhaps get a job working on problems that weren’t emphasized in my first-year courses.
When I first started publishing it wasn’t entirely clear it
would be anything but a fun side project to help me keep perspective during 1L.
That changed when a litigator who was involved in the
famous Tam case (it ended up in the Supreme Court) shared my post on Twitter and drove a couple hundred views.
I was sitting in Property when I realized what happened, and
my heartbeat picked up a bit.
I started to think that maybe my project had legs, and wondered who else might want to read.
Long story short, quite a few posts, missed classes, plane rides, and coffee meetings later, I ended up as one the few students at my law school who had a paid internship for 1L summer (I worked at Elevate Services).
It was sort of fascinating to watch other students conduct a job search. Their process seemed to mainly consist of checking the job boards, sending out resumes, and dressing up in a suit and tie to go to multiple rounds of formal interviews. Mine consisted of emailing the top people at interesting employers a link to something I’d written (or introducing myself to them at industry events) then setting up coffee or Skype meetings. After those, an interview felt like a mere formality.
I should say that the second approach only works if you know what opportunities you’re looking for and can communicate why you’re a good candidate. Your writing should set you up to do both.
We’ve set the table, so now let’s talk about your first post. Here are three tried and true templates you should use. I would recommend just loosely modelling one of the posts I’ve written, because your writing will be most valuable when your focus is articulating your unique perspective. (You have one!)
I’ve used Posthaven for quite some time and highly recommend it. Here’s the signup link. Because I use Twitter to follow/tweet at interesting people, my Twitter biography links to my Posthaven. Alternately, you might consider publishing on Medium.
I look forward to being your first reader!
**
Thanks to Professor Henderson of Indiana School of Law who inspired this post.
Second semester legal writing emphasizes persuasive argument and oral advocacy. The capstone of the persuasive course is to present your brief argument orally in front of a 3 judge panel.
Whether you're thrilled about doing this or dread it, it's likely you'll spend a lot of energy prepping for it. I spent 105 minutes total in one afternoon.
I'm sure this is an excellent system, but it looks very time consuming to put together. Plus, you'd need to practice shifting your attention between speaking and flipping the cards. Complicated.
By then it was too late develop a folder system or notes that I could use seamlessly during my argument.
I decided to just memorize my whole argument using the Memory Palace technique. The palace is a mental landscape that you can navigate while you're doing other things - typing on the computer, talking, or in our case, presenting your oral argument. Each important point of my argument (eight total) got matched with a discrete landmark along a familiar path, and during the talk I visualized myself 'walking' the path.
You can use landmarks that exist in the real world, or you can just construct a memorable landscape using your imagination. I chose to use this actual walking path, from the front door of Pepperdine Law to a bench overlooking the ocean:
I had 8 points. Notice there are 8 stops. Each stop corresponds to one short prompt, i.e. "Use," or "Protectability," that I wrote down on a notecard. "Use" would remind me to begin making my desired point, "Trademark ownership is established by use, not by registration of the mark . . . " That first sentence said, I'd remember to follow up all relevant cases and facts from the record.
I began committing my points to memory by physically walking the path, and where I wanted to 'place' one of my points, I stood there and spoke the portion aloud. I started doing this at 12:30pm on Friday, and finished around 2:15pm - 105 minutes total.
By the way, I put a notecard with all my prompts in my suit jacket pocket, as a backup, just in case :).
I noticed that there seems to be a 'pathfinding' compartment in my brain that remembered where I was in the argument, even as judge's questions knocked me off script. After stepping up to the podium, all I needed to do to complete my argument in order was to remember was "have I been here yet?" to recall if I'd made a given point yet. One more thing - this system is how easy it was to maintain eye contact with the panel.
Here's the agenda (click Day 1, and then toggle on the ILTA track).
Most memorable for me was Bryn Bowen's (of the Wall St firm Schulte Roth & Zabel) discussion of the impending feasibility of quantifying legal risk, which greatly appeals to general counsels and other 'business people' who engage with firms like his. He recommends LexPredict. For more on legal quantification of risk I recommend familiarizing yourself with Daniel Martin Katz's material (here is a good audio interview with him) and taking a look at his LegalLab, part of Illinois Tech's Chicago-Kent Law School.
Perhaps will add more commentary soon.
Legal technology is one subset of Legal innovation. I'd file eDiscovery under legaltech, though it may be a service. eDiscovery is an aspect of most major litigation. The basic goal is for defendants to 'produce' (turn over) electronic information in accordance with the courts' requirements, and for plaintiffs to find useful evidence within that data. Recently the Duke Conference and the 2015 Amendments to the Federal Rules of Civil Procedure (FRCP, pay special attention to rule 16, 26, and 37e, which enforces) explicitly concern(ed) electronic evidence. I have to say, linking to supremecourt.gov is always fun.
I asked my professor for 'homework' to do over Winter break, because I'm that sort of person. Here is what he recommended for eDiscovery.
Information Retrieval (IR for short) is the discipline of using technology to access information. Google and search engines are obviously is the logical extension of IR. It's a bit funny - the intro of the book mentioned below points out: "people preferred getting information from other people rather than from information retrieval systems." My generation of course prefers to interact with a machine as it's more option-rich, usually quicker, and arguably more accurate for the bulk of retrieval activities, ie. getting facts or data.
Here is the recommended book, Introduction to Information Retrieval by Manning, Raghavan, and Shutze of Stanford. (NB: pay attention to the pre-requisites).
My understanding of Machine learning (ML) is that it's almost the "opposite" of programming.
Programming requires a person to use specific language to tell a machine what to do - for example, in generic terms, a programmer could tell the machine how they would like something done (e.g., when I invoke the "double" function, multiply my input by 2), which would later provide an output on request (e.g. run "double" on 3: input = 3; double multiples input by 2; so calculate, 3*2; output is 6).
Machine learning instead stipulates a set of inputs and outputs to the machine, and the programmer asks the computer to create a program that conforms. This is "training" a model and as far as I'm currently aware ML is backwards-looking - in simple terms, it's suitable when you want to understand cause and effect or more specifically, which inputs tend to correlate with which outputs (e.g., does a yellow background increase or decrease advertising clickthroughs?).
Before entering law school I was fairly skeptical of what I was signing up for. I feared dutifully investing my time in learning skills and practices that would not be useful for long.
I've seen plentiful examples of malinvestment into an old paradigm. When I worked as an employee of a technology investment firm in Los Angeles, we often funded people who desired to gain market share by creating things that obsoleted their predecessors. Sometimes they succeeded. Witnessing it happen is eye-opening.
Probably due to this rare vantage point, my pre-enrollment hunch was that a significant amount of the routine knowledge work lawyers do would soon be redundant. After getting a sense of just how complicated law practice is during my first semester, doing a bit of reading on my own time, and comparing notes with a legal technologist, I've leveled up my thinking. I'm now confident lawyers are nowhere near obsolescence. What seems most likely is a pronounced barbell effect, where many lawyers perform low value work, and a sophisticated few use innovation to create disproportionate value.
Perhaps you'd like to form a viewpoint of your own about the future of legal services. Here are the resources that, so far, helped me develop an outlook which I hope is more sophisticated than where I started. The beauty is that many of them contain a bounty of citations and references for you to go deeper on topics of interest.
In my experience, when making predictions about technology and innovation, people often:
The truth is that fixing flawed systems should not be your priority unless the solution is 5x-10x better (Bill Gross article), that a technological possibility only starts to make a pronounced impact once it is economical (on its own or with subsidies), and that even though 'progress' seems to march on its own, people need to work to drive it.
-Two of his relevant books are "Tomorrow's Lawyers," which talks specifically about where he sees the legal profession [evolving to], and "The Future of the Professions," which theorizes more broadly about the mission of all professions and how that mission could respond to advances.
-"The Future of the Professions" provides what I think is a powerful abstraction explaining why we have professions, and then desecrates the cathedral by suggesting that at some point, the "Grand Bargain" of the professions will be deprecated. Making a sweeping observation like this (if you believe it's true) and doing something useful with that insight are entirely different matters, of course.
Remaking Law Firms is the best quality overview I've found of changes that have been proven to work and how they've been implemented by law firms or new entrants.
It relies on experts' quotes and perspectives. The book focuses on ideas that have at least some track record, which is good because as I pointed out above, we should care most about what's feasible instead of what's merely possible. Contributors include Liam Brown, a legal entrepreneur whose recommendation of the book on the ILTA podcast led me to discover and buy it, and Professor Henderson, who teaches law at IU, was recognized as the most influential person in legal education in 2014 and 2015, and is known for his perspective on problems and opportunities for American law schools.
http://abafuturesreport.com/ -- you should read the executive summary which is 4 pages (link).
My highlights:
Andreessen is the founder of Netscape, a board member of Facebook, a leading venture capitalist in Silicon Valley, and a billionaire.
Andreessen's thesis is ambitious, the metaphor feels accurate. A thinker who worked with Andreesen compares software to other "soft technologies," like the written word and money, that changed civilization. I'd probably say that Andreessen's stuff is derivate of Clayton Christiansen's idea of disruptive innovation, but if not, it's closely related.
Another interesting quote from Andreessen - "The spread of the internet and computers will put jobs into two categories. People who tell computers what to do, and people who are told by computers what to do."
The firm's logical purpose is to ensure that inputs are obtained for a lower cost internally than they could be externally. Ask yourself, if communications technology, for example, improves makes acquiring external inputs more cheaply, how does that affect a firm's optimal size and setup?
http://www.sjsu.edu/faculty/watkins/coase.htm
It was tempting to decide where to go to law school based on the legal community's dogma. For example, my LSAT tutor recommended picking the best-ranked school, evaluating prestige factors, and scrutinizing Law School Transparency. This approach probably makes sense for many students.
For my own decision, I wanted to find a way to incorporate hard-won experiences, insights, and skills from my professional life into my studies. I spent several years thinking about the future in a disciplined way in the technology industry before applying to law school. As a technologist, I strove to predict what direction technology, the economy, and society was headed. I tried to use some of the same analytical skills to pick a law school.
Ultimately, I evaluated law schools for Innovative DNA, and chose to go to Pepperdine based on three factors: (1) its innovation track record and entrepreneurial alumni, (2) my "boots on the ground" impression of the school, and (3) its practical orientation and diverse offerings.
Innovative Track Record, Entrepreneurial Alumni: