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Securities Attys Challenged By New Role As ICO Gatekeepers

May 24, 2018, Law360

Keir Gumbs is quoted in a Law360 article regarding the role of lawyers in initial coin offerings as regulators, lawmakers, and the courts struggle for a uniform set of regulations. When the SEC refers to gatekeepers, the agency is typically referring to either outside counsel who advise companies on financial matters or accountants who do the same, says Gumbs. “As a lawyer, it’s challenging. We all have the desire to give clients what they want. And, as you can imagine, in many cases the client does not want to characterize their product as a security because there can be significant implications for doing that."

What Clayton was suggesting, according to Gumbs, is that attorneys resist the temptation to please their clients and instead cast a skeptical eye on ICO deals because the SEC is also going to be skeptical. “I think it was a bit of a warning shot,” Gumbs adds. “What Jay Clayton was saying was, ‘We’re going to hold lawyers accountable for things that happen involving potential violations of securities laws by companies conducting ICOs.’” Gumbs says that the SEC’s enforcement staff has a long history of pursuing lawyers in cases in which the staff thinks a lawyer knowingly or recklessly advised a client to engage in activity that would violate the registration provisions of the Securities Act.

According to Gumbs, it’s not a “new thing” for the SEC to hold outside counsel responsible for the opinions they give to clients. “What does it actually mean to be a gatekeeper?” he asks. “It means that you’re the person standing at the gate that lets people in or out. And in the context of a security offering, you’re the person that’s offering an opinion that’s basically the gate for the people conducting the offering. If you don’t give that opinion, people may not invest.”

Essentially, what the SEC is saying to lawyers is that if they are the ones giving the opinions that provide investors with access to capital via cryptocurrencies and ICOs, then the SEC is going to hold them accountable, and that’s fair, Gumbs says. However, he adds, “It’s unfair if you throw the book at somebody who exercised good faith and was thoughtful and careful and yet just came out in a place that was different from where the SEC staff came out."

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