Hello, and welcome to the Votes and Verdicts podcast, hosted by the litigation and policy team at Bloomberg Intelligence, the investment research platform of Bloomberg LP. This podcast series examines the intersection of business policy and law. I'm Elliott Stein, an analyst with Bloomberg Intelligence covering financials litigation.
And my name is Nathan Dean, and I'm an analyst with BI covering financials policy.
So we're delighted today to be joined by Jason Gottlieb, partner and chair of the White Collar and Regulatory Enforcement Group as well as Chair of the Digital Assets.
Group at the law firm Morrison Cohen here in New York.
Jason he is one of the pre eminent lawyers in the digital assets space, and he was named to the National Law Journal's inaugural list of Cryptocurrency, blockchain, and Fintech Trailblazers. He's been widely published and quoted in the media for his cryptocurrency and blocking expertise, and he's one of my favorite Twitter accounts to follow when it comes to crypto and law, since it takes I find to be always smart and measured.
So we're really excited to have Jayson.
Here today since there's in my mind, really no one's better to discuss some of the legal and regulatory issues around crypto, and I think it's a really good time to discuss the future of crypto law and policy, since just last week SEC care Gary Gentifler testified before the House Financial Services Committee, and we also had a stable point here in before the same committee, and we are in the midst of what appears to be a pretty aggressive regulatory enforcement crackdown on crypto in the US.
So with all that, Jayson, welcome to the Votes and Verdict podcast.
Thanks so much, Ali, it's great to be here, and welcome to Nathan as well.
Thanks all right, So Jason, before we jump into some of the substantive discussion about crypto law and policy, you know, we'd like to ask our guests a little bit about their background. So maybe before we get into, you know, the real content, maybe you can tell us a little bit about your legal career, your current practice, and perhaps.
Most importantly, how you got into crypto law.
Yeah. Absolutely, I've been a long time nerd, right going back to you know, blowing all my bar Mitzvah money to buy an Apple two see computer to try to learn to code. So technology has always been a part of my life. Before law school, I worked at a computer and internet company in Tokyo. Before coming back to New York for law school. I started at the law firm Cleary Gotlieb and was trained there and had a
really terrific time. I wanted to branch out through a sort of smaller, more entrepreneurial firm where I could build up a technological practice, and really that's what I've been able to do here at Morrison Cohen, building up a practice that started as a general fintech litigation and enforcement practice, but in the last few years we've moved very heavily into digital assets, which includes cryptocurrencies, but all aspects of
a Web three environment. It's been fascinating to me ever since, sort of early on I read the Satoshi white paper, and my first thought was not about the privacy implications or the cryptography implications. My first thought was, oh, man, regulators are going to hate this. And it took him a while to catch on, but when they did, they certainly did hate it. So we're dealing with the aftermath of all of that as well.
What was it in particular that made you think that regulators are going to hate it.
The fundamental insight in that white paper and of cryptocurrency in general, is disintermediation, the ability to conduct financial transactions in a secure way without having to have them go through banks or other financial intermediaries. The regulators are going to hate that because regulators rely on intermediaries. Right, Regulators both set the rules for the markets, but they're also
the enforcers. They're the cops who make sure that nobody's doing anything bad, whether it's money laundering or securities fraud or commodities markets manipulation. That they need to watch the
entire markets, But cryptoregulators are not Michelle Yal. They can't be everything everywhere, all at once, so they need to rely on intermediaries to watch the markets for them, and they essentially deputize the big banks, the broker dealers, the transfer agents, everyone who plays an institutional role to follow rules designed to prevent wrongdoing. Cryptocurrency sweeps all that away. It says, we don't need any of the intermediaries. We
can do all all of this ourselves. And if you're taking away the regulator's ability to monitor the markets, they're going to resist that. They're going to insist on having these intermediaries for a legitimate consumer protection and even national security issues.
Yeah, that's that's actually really interesting, and I think it tees up my next question, which is, you know, I'm gonna talk a little bit about SEC chair Gary Gensler. He's obviously taken an aggressive stance and saying that basically every digital asset other than bitcoin is a security and needs to be registered as such. And what you were just talking about, I think also ties into one of the reasons we reached out to you because you had
a really interesting thread on Twitter. It was like twenty five tweets, so I won't read the whole thing, but you know, let me read the first tweet of that thread, because I think it sets things up. You wrote, quote people asking why the SEC fraash Gensler are taking a ridiculous position on crypto, I e. Come in and register, but ha ha, you can't, actually because crypto doesn't fit our REGs. Is it dumb evil just protecting incumbents. No, it's that they don't see the paradigm shift.
End quote.
And I think that disintermediation is probably the paradigm shift that you're talking about.
But my question really is you.
Know what happened to Gary Gensler, Because prior to coming to the SEC he was a.
Professor at MIT, he taught an intro class.
On blockchain, and I think there was a sense of optimism in the industry that he understood the benefits of crypto and that he would be favorable to the industry.
But you know, it's in the exact opposite.
He's essentially become enemy number one of the crypto industry, and I'm curious to get your thoughts on what happened.
I think that what's happened is he's, as I said, missing what you would call this this fundamental paradigm shift. And it's not just the disintermediation, because that's really more on the exchange front, but on the security front, where a Chair Genstler has taken a position where virtually every cry cryptocurrency is a security. I think he's missing what makes cryptocurrencies fundamentally different from securities, and it is really
a fundamental paradigm shift. Now, I had had some hopes that when Chair Genzler came in he would do very much the same thing that he did when he was at this CFTC. He went on a rule making binch. And you know, many people in the industry didn't like the rules he was making, and you could differ whether they were you know, the best rules, great rules, okay rules,
and not so good rules. But they were rules and they could be followed and all you had to do is follow the rules and you could have a good, successful business. He did that with fearless abandon at the CFTC. Some of those rules got some pushback in court. Some survived,
many survived, some didn't. But he was really against the rule maker, and I had had some hope when he came into the SEC, then he would be against the rule maker again to take an area where the rules weren't very clear and to put some sort of order in it. And nobody in the industry was going to be thrilled with every single rule. And there are a lot of people in the industry who don't want any rules,
and that that's just not realistic. But I had thought he would come in and create a set of rules that would balance technological innovation and consumer protection, both of these are goals of the SEC. But instead all we've gotten is crypto No, you can't do that, And that's really quite unfair both to this industry but also to consumers, both consumers who want to be using these technologies, but also to consumers who are looking to the SEC for
customer protections. I think what happens if you take this hard line saying that crypto just has to obey the rules, but you don't have rules that are capable of being obeyed, then what happens is you start to lose the domestic cryptocurrency industry. It all goes abroad. Now, some people may say, well, good, if we thought they were all lawbreakers and we don't want them here anyway, good riddance to them. But the
problem is we live in an interconnected economy. It is a global internet system, so Americans can just as easily find their way to international exchanges and other kinds of ways to trade by hold use cryptocurrencies, and if we're not going to allow them here and provide for robust consumer protections, then people will go get them elsewhere and
they may have robust consumer protections. Right if you're using a platform that is registered in Europe, or in Singapore, or in Caymans or BBI, you will have the benefit of those countries' regulatory regimes, but there's no guarantee that that's going to be the same as our regulatory regime, and there's no guarantee you'll be using a system that was designed for those regimes, or designed for any regime
at all. And the result is more and more of the economy either goes underground, becomes anonymous, which is not good for consumer protection because there's nothing you could do if something goes wrong, or it goes offshore where the protections may be robust but they may not be. They may be in countries where we are friendly and can
cooperate with law enforcement, but they may not be. So all of this is, on a net position, extremely bad for American consumers and it's extremely bad for American financial innovation.
So I'm going to take the conversation a little bit in the policy front, and then you bring up an excellent point with the international piece, because we saw several members testify at the House Financial Services Committee last week on stable coins and they're expressing that exact viewpoint. Now, in your opinion, is there a jurisdiction that you think will win versus others, Because you know, we've seen MICA, we've seen the HM Treasury people have been talking about Dubai.
Is there anything off the top of your head that you're thinking is where the industry is going to be going well.
Financial regulations around the globe, it's always a bit of a push and pull game. Countries and regions are always trying to attract a strong innovation by creating friendly rules. But also, you know, nobody wants to be a pushover. Nobody wants to be known as the jurisdiction where all the scoundrels come and hide out. So we've seen a lot of very good regulations and regulatory frameworks springing up in Europe with the Amiga for work in the United Kingdom.
In Singapore, Dubai has its own way of doing things. Switzerland even before Mika and as I said Caman m bv I both have a Virtual Asset Service Provider Act. There's also an element of international coordination, right Everyone recognizes that a race to the bottom, whatever the bottom might mean, might not be very helpful. So you have coordination with the Financial Action Task Force countries to combat money laundering,
which is a global problem. So there's an interrelation between the areas both trying to compete for business but also cooperating to form a strong global protection system. The United States doesn't really seem to be interested in joining this international conversation. Again, we're taking a very negative approach which is going to be replaced by some of these other regimes.
So if people come to me now and say, you know, I want to start a crypto platform that does X, y Z, some of those conversations are fine, yeah, sure you can do that here, But many of them, increasingly we either say no, just absolutely not, there is no path to do it here, or we have to say there is a path, but you need to get a license, and they're not granting licenses for that right now, which effectively is the same thing. There is no path.
So let's go back to the States then, you know, and just a reference that twenty five tweet thread that you did. In your twenty first tweet, you stated, the quickest way to change the game is legislation. We need Congress to pass new and favorable laws. So if you control Congress, I'm going to give you the power to control both the House and the Senate and so forth like that.
What would you like to see pass Well, definitely, it would be a terrible idea to give me that much power, because if I controlled Congress, probably the first thing I would do is make illegal the Firemen sam theme song. But that's probably more of a personal issue than anything else. I think, yeah, parents everywhere rally to that cause. But in terms of the crypto world, I think that what I would want to see is a framework, something like MICA or something like the Vast Acts. And you know
I won't. I won't sit here and detail the statute that I would pass, because if you thought my tweet threads were long, you should see the legislation that I would write. It would put everyone to sleep by somewhere around page four hundred and seventy six.
That doesn't sound much different than legislation.
That's exactly right. But as a general principle, what I would have is essentially a regulatory regime where people could experiment. If you wanted to issue a token, you could do so. You just had to register with a very short paper that says who you are, what your plan is, what your so called tokenomics are, and what you plan to
do technologically. Because I think providing that sort of disclosure in a public doxed sense is going to get rid of ninety five percent of the problems that we're looking to avoid in this space. What are we worried about. We're worried about people without the technological capacity to build something that has consumer protections. We're worried about people rugging
and taking the money and running. But if you have people who aren't anonymous, and everyone can see what kind of technological expertise they have, or what kind of security audits they're going to undergo, what's their plan, I think you'll eliminate virtually all of the fraudsters because very few people are going to line up and register if they're planning on absconding with the money. But also enact what we have a giant reserve of in the United States,
which is trigger happy plaintiffs lawyers. So if you file your five page easy registration statement and you end up doing something completely different, or you end up rugging and taking all of the money, then the private lawyers will have some recourse as well. So I think that the SEC and Congress could solve ninety five percent of the problems we have in this space by making a much lighter touch regulatory framework. Now, is there.
Just can I just ask a question?
But it would be the SEC as the main regulator in this hypothetical legislation.
I don't think that it matters much for something like this, whether it's the SEC, the CFTC, or some new regulator.
Right if Congress is defining the laws and it wants to essentially define an offering like that as a security and provide that that kind of regime, it makes it less important whether it's the SEC, which is regulating investment contracts and securities, or the CFTC regulating the tokens as commodities, or some new agency, as long as we sort of pick someone and go with it, because right now we've got one of the problems that we have in the industry is that all these tokens are you know, I
call them Schrodinger's tokens. Right, It's a token in a box, and what it is you have absolutely no idea until you open up the box and take it out and look at it. Is it a security, is it a commodity? Is it money? And you don't actually know until a regulator takes out and looks at it, and then it
magically becomes whatever it is that that regulator regulates. So you know, at the end of the day, As long as we have one regulator who is reviewing these statements, we don't actually have to upset the entire regulatory framework very much for this. It's a fairly low touch way of providing a path for crypto companies to operate and survive.
So do you think Congress will actually do anything this year or even you know, there was some momentum I think in stable coins until you know, ranking member the House Financial Services Committee makes me more ar sort of gave some tough language on that. Can we see Congress do anything or are we just going to be talking about regulations for the next two years or sorry, regulators for the next two years.
I think it's possible for Congress to pass something on stable coins because I think that there is some broad agreement on some basic principles. And you know, I see that crypto may be edging more towards a partisan political issue, which is unfortunate, But I think that it is not quite there yet. I think that there are some prominent folks on both sides of the aisle who would like to see a sensible set of financial regulations come into play.
Stable coins may be a sort of lowest common denominator bill you know, I think we can get.
There on that.
The DCCPA and the RFIA that were being considered in the last Congress seemed to be getting some momentum. But then, unfortunately, after FTX collapsed, I think a lot of people wanted to distance themselves from the notion of crypto at all, even though the collapse of FTX, you know, frankly, to me sounded exactly like MF Global or refco and nothing, having nothing whatsoever to do with the fact that it was crypto.
So I want to ask you a question that's sort of been on my mind for a while and has to do with, you know, whether something is a security versus a commodity. And you know, I mean that's obviously one of the bigger questions in the current regulatory framework.
And you know, last week, and I could say that we're recording this on April twenty fourth, but.
Last week, Congressman McHenry opened his question in for Genswer with you know, a question that hit right on that issue, and he asked Gensler whether ether is a.
Commodity or security? And I thought it was a really effective.
Opening question, and Gensler, I think, really struggled to answer it. But my question for you is whether it's possible for a digital asset to be both a commodity and a security, which we saw in the New York Attorney General's enforcement action against Qcorn, where the ag alleges, you know, in various places and that complaint that ether in some is a commodity but also a security in different parts of that complaint, and the complaint cites.
To New York law one old case I believe.
For that position. But you know, my question for you is whether there's anything allowing or preventing a similar approach under federal law. And maybe what I'm going is, you know, it's an investment contract is more of a transactional test. Why couldn't you have an asset that's a commodity in one instance, but then transactions involving that asset would be considered securities.
Well, I think that that lot of approaches the right way to approach it. And we can look at the origins of the definition of an investment contract in the HOWI case to for an illustration of this. Right in how we we were talking about interests in an orange grove, and the oranges themselves were not the securities. It was the interest in the profits that they would generate that
was the subject of the investment contract. So similarly, I mean fast forward, and you can have a gold or any other kind of traditional commodity repackaged and sold as securities. If I sold interests in my gold fund, it may well be considered an investment contract or a security, but the gold itself would not be. And here, I think is where we were discussing the paradigm shift before, and this is I think the fundamental point that the sec
is still grappling with securities. In the old world, securities can printed on share certificates, right, It's say you own, you know, one share of IBM, and that piece of paper embodied certain rights that you had for voting, for dividends, for ownership, et cetera. But the piece of paper was just a piece of paper, like you didn't really need that. And when we digitize securities and everything resides in digital form at DTCC, we can sort of realize how unnecessary
that piece of paper is. So we're used to thinking of it as the security is just disembodied nature of the rights of the investment contract. But with cryptocurrency we have something that is fundamentally different. It is software, it is code, and that code, like the piece of paper, can convey certain rights, but those rights are divisible from the medium in which it is delivered. So the SEC's notion that the crypto token embodies those rights is completely wrong.
And my good friend Lewis Cohen has written about this at great length and a fantastic article that he and his colleagues put out. The SEC's embodiment theory just doesn't make sense and it isn't supported by the courts. What you have now is something where you can peel the rights away from that share certificate, that piece of paper. But the piece of paper, being software, is as infinitely
flexible and composable as your imagination can allow. It's just software and the division of the commodity and the medium that embodies it is the paradigm shift that I believe that the SEC is missing. You know, every ten or twenty years, as I said in that tweet thread, someone comes along and says, my thing's not a security. It's interested in orange growth. It's oranges. Those aren't securities, or
it's you know, beavers or whiskey or chinchillas. They come around and saying this time is different, and the SEC and to be fair, courts generally look at it and say no, no, no. The securities laws are very flexible, and this is swept into the definition of an investment contract. I think fundamentally this time actually is different, and for the reasons I've described, reasonable minds can disagree.
Right.
I don't think that Chaired Gensler is dumb or evil. I just think that he is disagrees with this notion of a pair paradigm shift.
It's sort of related to that you were recently quoted in an article saying, uh, and I'll quote again, uh.
The SEC is simply seeking.
To ban DeFi protocols in America, and then I'm doing so. The SEC is substitute in its own opinions for Congress's prerogative on a major question central to the future of the American economy end quote.
So that that that touches on a couple issues that I wanted to ask you about. The first is what's.
Been called Operation Choke point two point zero, which I think you know it was the two point overs and was a.
Term coined by Nick Carter. I think to refer to, you know, what's perceived as a coordinated effort to.
Marginalize crypto and cut it off from the banking industry. But the second part of your quote has to do with I think the Supreme Court's Major Questions Doctrine, which you know for listeners who don't know, holds that agencies have to have clear congressional authors to act on issues of major political or economic significance. So I was just wondering, you know, if you thought that the Biden administration is in fact engaged in from sort of operations chow point
two point oh. But then I also want to ask you about the Major Questions doctrine and how you see that playing out in the courts in terms of crypto.
So I think that there's been efforts from all corners of the administration, from CFTC, from SEC, from Treasury, from from OCC to put more pressure on the crypto industry. I'm not sure you know that that I would label it choke point or not. It sure seems like that, but we haven't seen sort of an announcement this is a coordinated attack. It's it's just it just happens to
be coming. So I'll let other people debate whether you know how much coordination is going on behind closed doors, or whether there's anyone behind closed doors who's calling up the chairs of these various agencies and directing them to
clamp down on crypto. But you know, if we're going forward on that, and you asked about the major questions doctrine, and you're exactly reading that quote correctly, I think to the extent that the SEC is saying crypto cannot exist in America, and we're seeing that through its action against cryptocurrency tokens. We're also seeing that coming out of the recent meeting on amendments to the Exchange Rule and the
recent meeting extending the comment period. Chair Gaenstler made crystal clear that these rules were designed to apply to defive protocols and frankly in a way that defive protocols are literally technologically incapable of meeting. And the result of that, I think really very much, is that regardless of what the law says or what the regulations say, the SEC is just interested in saying that DeFi exchanges have to be exactly as regulated as traditional exchanges or ATS's, which
by their own nature is just impossible. So it's another version of coming in register, except the time. Instead of coming and regisue your token, it's coming in regisue or exchange. But the rules won't allow an exchange with that design
to be registered in any way. So the result of this is that the SEC is simply saying that cryptocurrency tokens and crypto exchanges can't exist in America, and that, I believe is a question of major importance to the American economy because we're seeing other countries around the world, as we've talked about, explore how to embrace this new wave of technology where anyone at any time could launch a fork of a defive protocol and have that be
a new exchange. This is frankly a title wave that I you know, whether I fear or welcome, it can't be stopped. So the question is how are we going to deal with it. Are we going to embrace it? Are we going to look to take advantage of all the benefits that it can bring and look too consciously and conscientiously blunt any downsides, or are we going to step out of the arena, abandon dealing with it at all, and seed leadership in the next generation of financial instruments
and exchanges to the rest of the world. That question is I believe of critical importance to the American economy, and I don't believe that the SEC or the CFTC have clear Congressional authority to decide that question. I think a question of that kind of importance, the Supreme Court has already instructed us those kinds of questions need to be answered by Congress. So you asked if we're going to have legislation in the next two years, or we're
going to talk about regulators until we die. I would certainly hope that Congress can put aside whatever other differences it may have and come together to create a framework that will allow for the future of financial innovation in America.
And we're certainly going to see that kickoff because you know, we've heard that several crypto bills are going to be released in the next few weeks.
So just we want to go.
To the grant back portion of our podcast. And you know, we saw on Twitter that you said you were a musician, and you know, for the listeners who are familiar, Elliott's also a musician. So we've got several musicians here. What kind of music do you play with instruments? And most importantly, we saw on your Twitter feed that you, uh, you debuted a song called Folding Hexa Flexigons with your son at the New York Museum of matt Can you just give us a heads up on what.
Your debut album is gonna look like? Well, So, I started playing piano when I was five, and i've been You called me a musician, and I think that's an extremely kind way to describe it. I've picked up a number of instruments across the years, and I've recorded a number of albums just kind of all by myself in my living room. And I believe that my mother has purchased a couple of copies, but probably not even of all of them.
Uh.
And that that goes to the uh, the essential quality of these albums. I make music for myself and for my friends and and for fun, and that's pretty much it. So, you know, it's it's been a lot of fun over the years to exercise the right half of my brain
and to kind of noodle around. Uh. And and yes, I guess we started this podcast describing how much of a nerd I am, so, you know, doing a an Alexander Hamilton parody called Folding Hexaflexigons at Live at the New York City Museum of Math is quite possibly one of the nerdiest things that anyone has ever done, but we had a lot of fun doing it. My eight year old at the time was obsessed with folding strips of paper into hexagons that could be unfolded and refolded.
It's actually a way of folding them that creates multi dimensional shapes in a very interesting way. So, you know, we decided to write a song about it. You know, we're folding hexaflexigons. My son is folding hexaflexigons and is going to fold them all day long and all night, Yes, all night. It goes on it's on YouTube. That's embarrassing enough, I'll stop. That's great, we love it.
Yeah, it's not embarrassing at all.
And you are our first guest to sing a sample of a song on an episode.
So just one more question for you, also related to music. Before we go, we asked this of all of our guests.
If you were stranded on a desert island, what three pieces of music.
Would you want to take?
And it can be a song, it can be an album, it can be you know, catalog of one artist.
That is an amazing question, and I would find it virtually impossible to limit myself to three, so I'm going to cheat a little bit. I would probably take the Well Tempered Clavier by Bach, a complete works of the Piano Sonatas by Beethoven, and then probably something much more modern, probably an album I don't know, be The Food Fighters My Chemical Romance. There's some pretty terrific rock albums in the last twenty years. It's hard to pick.
I like that combination Bach, Beethoven, and Foo Fighters together at last.
Is more in common than you might think that that's a nerdy conversation for another podcast.
Well, we'll pick you up on that.
Well, I think with that we're going to have to wrap up this episode of Votes and Verdicts. We're extremely grateful to you, Jason, Jason Gottlieb for appearing on this episode. I think it was really illuminating and educational and fun at times, and so we thank Jason, and we thank you the listener for taking the time for joining us. As well as a reminder, you can read all of our Bloomberg intelligence research on the Bloomberg terminal at Big And with that, thank you and have a great day,