On this episode of the R&G Tech Studio, asset management partner Melissa Bender sits down with litigation & enforcement partner Helen Gugel to discuss the evolving regulatory landscape for digital assets, cryptocurrencies, blockchain and related technologies, and potential impacts for clients operating in this space.
Transcript:
Melissa Bender: Hi, I'm Melissa Bender, a partner in the asset management group at Ropes & Gray. I want to welcome everyone to the latest edition of the R&G Tech Studio podcast. In this edition, we have my friend and partner Helen Gugel. Helen is a partner in our litigation & enforcement practice and is based in the New York office. More importantly, though, Helen and I work very closely together in our crypto and blockchain practice, serving the needs of many clients and folks that have connections to that space. Helen, I'd love to hear just more generally about your practice and who you work with on a regular basis.
Helen Gugel: Thanks so much, Melissa, for having me, and it's a pleasure to talk with you as always. As you mentioned, I'm a partner in our litigation & enforcement practice group based in New York. As part of the work that I do, I interact primarily with government agencies—the DOJ, CFTC, SEC, SROs—on various issues relating to market conduct that impact our clients, and also conduct internal investigations on related issues. Crypto and blockchain work is an increasing component of our practice.
An interesting thing, and something that is very unique to Ropes and our practice, and you touched on it earlier, is that element of cross-collaboration and a true interdisciplinary approach in how we address and tackle questions relating to digital assets, cryptocurrency and blockchain. We work together quite a bit on the litigation & enforcement side with our colleagues—Melissa, like you on the asset management side—to make sure that we are staying abreast of market trends, that we have real market intel in terms of what peers are doing across the board that we can bring to bear on our knowledge of what regulators are looking into, what they've publicly commented on, what they've privately commented on in various inquiries to our various clients, and making sure that we pull together all of that information and all of our intel and resources to apprise clients in a very practical, real world way that takes into account therealities of their respective businesses in what can sometimes be a murky regulatory climate.
Melissa Bender: Yes, that's absolutely right, and that's one of the really interesting and powerful parts of our practice. We have a lot of clients that come to us where they're essentially looking to be making decisions in relation to their business in an environment where the regulatory landscape is murky at best, as you say. I think one of the really fantastic parts is that we have to bring together the strengths on the corporate side of the house as business counselors, as people are looking to essentially make decisions and move forward with their businesses in the crypto and blockchain space, but a lot of that decision-making really has to be effectively tempered or evaluated in the context of the enforcement and litigation risk that comes along with being in this space. And so, it is a truly uniquely collaborative environment, I would say, in terms of folks working across the table on the corporate and the litigation & enforcement side, and really needing to work hand-in-hand in order to get clients to that place where they need to be.
As you're thinking about some of the challenges that clients face, what are some of the types of questions and issues that you have been fielding, particularly in the context of the recent SEC enforcement actions?
Helen Gugel: It's been a consistent question for some time: What are the regulators thinking? What is the plan for this space? We've known since at least 2017, and arguably earlier, that the SEC has asserted jurisdiction in this space, that it takes a very expansive view of what sorts of digital assets constitute securities under their purview. We've heard from the CFTC about which digital assets they view as commodities and their right to oversight in this space. We've seen even the IRS stepping into the fray. And so, I think there is a very relevant question that comes up quite a bit, which is, "Who are we subject to regulation from? We are interested in embarking on a new initiative involving digital assets. What do we need to think about in terms of do we need to register as a securities offering? Is there a precedent for that? We know what the SEC is saying, but we don't see a lot of other folks taking those steps."
There are a lot of associated considerations in terms of how you might structure your activities based on the ultimate regulatory framework, and what we've seen the SEC doing is applying the Howey test to determine, in its view, what constitutes a security—but it is a fact-specific test. Arguably, when you are coming up with a fact-specific test, you can come out with different answers as to whether the various standards are satisfied, and so, there are a lot of, I think, fair questions from actual participants in this space saying a fact-specific test doesn't really give us the guidance that we need, and it doesn't take into reality that any of this is a new digital asset class, that maybe a regulatory framework that was appropriate 50, 60, 70 years ago needs to be expanded and evolved to account for new technologies and this new way of doing business. I think what many are hoping will come next is some sort of congressional action to provide some increased clarity in this space in a way that we haven't seen and that we don't have quite yet.
Melissa Bender: Yes, that's absolutely right, because currently, it is such a fact-specific test. Even looking at the court decisions that we have in the digital asset space, they come to different conclusions around whether or not particular digital assets are securities or not, including, arguably, different applications of the Howey test. And so, it becomes even more challenging to be counseling clients without additional regulatory clarity. There have been discussions and proposals that have been put forth over the last year in Congress in order to be addressing some of the issues around digital assets in order to clarify some of these areas, but I think both you and I are not necessarily hopeful in the current political landscape that those bills are going to necessarily see the light of day in terms of regulatory clarity in the near term. So, I think we are where we are in terms of being able to counsel clients on that front.
Just turning to some other aspects of this work that we do, I'd love it if you could tell us a little bit about some of the work that we've been doing with Starling Lab, which is a pro bono client of the firm, which has been involved in some extraordinarily compelling news cases associated with digital assets.
Helen Gugel: Starling Lab, is an exceptional example of the potential use cases of the blockchain and the ways in which blockchain technology is able to solve, alleviate, and contribute to the resolution of real-world problems. The initiative that we have with Starling Lab is a collaboration to try to solve a basic problem, which is: How do you determine the truth in one set of facts? In a crisis situation, in a war, for example, the conflict between Ukraine and Russia, where each side has very different narratives of events, where Ukraine says Russia has bombed a maternity hospital and Russia says no, it's a false flag operation, it was actually Ukraine, how do you establish to the international world and to skeptics who the culpable party is and what the truth is? What Starling Lab is trying to do is use blockchain as a way to authenticate evidence from real-world conflicts, from real-world situations, in a way that everybody can believe in the process and say, "Alright, so this is actually what happened." So, what they're seeking to do is figure out a way to take images, photographs, sounds, videos, or any sort of contemporaneous evidence or proof relating to a real-world event and put it on a blockchain in a way that inspires public confidence, that there's been no distortion of those original influences, that you can trace them to the original source, that you can verify where they came from, so that at the end of the day when you were trying to hold Russia or other culpable actors accountable for what has happened, you can use the blockchain as a way to authenticate that evidence.
There has been precedent in the U.S. court system and internationally for admitting evidence from the blockchain. Often, we see it in criminal prosecutions in the states where prosecutors have relied on the blockchain to, say, trace the source of illicit funds or to trace the movement of funds in that way to a specific party. And building from that precedent and what courts have already deemed to be admissible, we are trying to find a way forward to hopefully get to a place where evidence from the blockchain, along the lines of what Starling Lab is focused on, can be self-authenticated in court. It can be used in U.S. courts, it can be used in international courts, in a way to bring out the truth in these very complex conflict situations where there is not a lot of media, where things move very quickly, where you're relying on people who are there on the ground and in real time to hopefully overcome that old adage that history is written by the victors, and to really get the perspective of the people who are on the ground, bearing the kind of trauma and the realities of what is happening there now and hearing their voices directly through the blockchain. So, it is an incredible project, and we are very privileged to be able to work with Starling Lab and hopefully be helpful to them in what is a very incredible and impactful mission. I'm very impressed with the work that they are doing, and hope that we can help further it in some small way.
Melissa Bender: For me, it's very inspiring to be working with a group that is focused on these fundamental use cases for blockchain technologies and is relative to a lot of the fraud and Ponzi schemes that have really been present in the news over the past year in relation to these technologies. Being able to work on projects for Starling Lab and lots of other clients that are very focused on how it is that these technologies can actually improve real-world problems is very inspiring.
Switching gears a little bit, tell us about what you do for fun.
Helen Gugel: I've got three small kids who are hilarious, incredible, and just adorable, exhausting and wonderful in every single way. It is obviously incredibly fun to spend time with them and have relay races, play games, and all the other things that they are very into at the moment. But I also love to read. I love to take walks with my husband. I love to go to brunch. I love brunch.
Melissa Bender: Do you have any favorite brunch places that you like to go?
Helen Gugel: I do—I have a favorite brunch spot that's in the neighborhood. It doesn't take reservations—you've got to be there on the dot when they open. They make a very mean cocktail. One day you're going to have to come visit me and I will take you. You can tell me how it stands up, but it is my favorite cocktail in the world, and it is only made at this one specific place—it is a perfect brunch accompaniment.
Melissa Bender: That sounds fantastic. I also heard through the grapevine that you really like ice cream. Do you have a favorite flavor?
Helen Gugel: This is true. I'm very committed to my ice cream, Häagen-Dazs coffee ice cream. I am a true believer in Häagen-Dazs coffee ice cream—it is the best ice cream of all time. We have a Häagen-Dazs in my neighborhood, and I'm embarrassed to say that they often say, "See you tomorrow."
Melissa Bender: Alright, next time I'm in New York, you're going to take me to brunch in Brooklyn for a cocktail followed by coffee ice cream. That sounds like a fantastic mix.
Helen Gugel: Sounds like a perfect day.
Melissa Bender: Thanks, Helen. I really appreciate your time—it's been great to chat with you. And for our audience, once again, this is the R&G Tech Studio podcast. It's available on the Ropes & Gray website, on the R&G Tech Studio page, and it's also linked and available wherever you get your podcasts. Thanks so much—have a great day.
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