So there’s this situation where former clients are taking international law firm Faegre Baker Daniels to court over alleged legal malpractice. Digital Capital Management is claiming they got some pretty sketchy advice from the firm while trying to set up a cryptocurrency investment fund.
According to a Bloomberg Law report, Digital Capital Management filed the lawsuit on December 31, accusing Faegre Baker Daniels of providing "incorrect" legal guidance during the launch of their digital asset-focused fund.
Now, the SEC sees most cryptocurrencies as securities.
But we've got countries that say cryptocurrencies are actually legal tender and not securities. There's definitely a debate brewing over this classification.
But here’s my question for all of you: do you think they should be sued for saying cryptocurrencies aren’t securities? Or is this whole thing unnecessary? What are your thoughts?
The devil is in the details. I seriously doubt licensed US attorneys at a prestigious firm like Baker & Daniels made a blanket statement like that. We have no idea what the scope of their advice really was. Maybe they advised them on a specific set of digital assets -- like POW cryptocurrencies or legitimate non-security utility tokens -- and Digital Capital Management took that as a blanket license to invest in anything without SEC registration.
All we know is that Digital Capital Management got hit with an enforcement action and a $200,000 civil penalty, and they're looking for blood.
It depends on the specific coin that you're talking about.
There are STOs out there that are obviously offering up security tokens as a reward for your investment. That should be classified as a security, no doubt. However, with things like BTC which do not represent a stake in any company, debt or equity, it should not be considered a security.
Obviously the issue here though is not really with the legality of bitcoin, but rather the legality of the advice given by this law firm.
This shouldn't be surprising. For a long time the SEC was unclear about what constitutes a security, and it's possible the law firm misinterpreted the vagueness of the SEC and other government agencies. By the time the SEC starting hammering ICOs, the craze had been going on for many months, with planning most likely months if not years before then.
I won't rush to judgment on this, simply because regulators have not been very clear on cryptocurrencies. I know, others will say they have been clear, but so many major projects would not have gotten themselves into so much trouble if there weren't uncertainty.
If I will be judging on who's right based on the article then I think Digital Capital Management was right on blaming Faegre Baker Daniels on the charge being filed against them. This kind of misconception from their legal advice would be avoided if they know what they have said because they are operating in good faith here and they don't know any kind of obligation related to cryptocurrencies being securities. However in court cases like this I know this will all boil down to how the judges sees things and see who is really wrong. One thing to point out again is that these kinds of situation is why in the present we need courses or subjects related to the crypto industry so that the professionals will have a much better understanding when it comes to their jobs related to the industry.
Most cases settle long before the judge has made any significant decisions in the case. If there is a risk that a legal firm can lose and be humiliated, it will likely settle the case long before then.
Well in civil cases such as this one an agreement to settle also requires the admission of a fault since they won't be settling in the first place if they are either losing or they know for a fact that they are at fault here. So really if they opt out to settle the same result will still happen and that is their name being dragged down for giving a wrong advice and malpractice on such a professional level. In my own opinion there is really no escape from this but to win this in court for Faegre Baker Daniels.
Settlements absolutely can be made where there is no official acknowledgement of fault. Most settlements occur precisely to avoid a bad public light. The vast majority of cases don't go to trial. Also, the public memory is very short, and large companies are expected to make mistakes on occasion. A few hundred thousand dollars is not a whole lot to a major law firm. If they will lose, or there is a chance for them to lose, they will settle. The other party has no interest in humiliating its opponent: most likely it just wants compensation for perceived injury.
"Securities are fungible and tradable financial instruments used to raise capital in public and private markets." - the definition of securities. So it depends on token/coin we are taking about.
As a general rule, it's best to assume a cryptocurrency is a security. New projects in particular must make this assumption. Those that are not considered a security exhibit a certain degree of decentralization or simply have the money to advocate for their interests with government agencies, essentially placating them. It seems the very top coins are generally safe.
This is one of the many risks associated with law business. Maybe the law firm do not have the best professional capacity to advise the client and that they are just taking advantage of the demand for the service. We also have to remember that the final decision on how to categorize these digital assets rest on the government and that things are still fluid up to these days. Anyway, I hope that something positive for the aggrieved party can come out of this suit.
Its normal for people to get sued. Getting sued does not mean being guilty. The law firm that makes its own suggestion to the client must have a basis as to why they made such statement would be made in court then the court would decide if they acted in good faith or not. But really I don't see any difficulty there. If someone advises you, you are at liberty to either accept or reject. If they didn't give you the advise you wanted, then you sack them and request for a new one or a better lawyer.