The new presidential administration brings with it a fresh approach to cryptocurrency regulation and enforcement, with regulatory experts predicting greater collaboration between the SEC and industry leaders and a more tailored enforcement agenda focused on fraud and retail issues. This episode of In the Public Interest features a timely conversation with co-host Michael Dawson and WilmerHale Special Counsel David Tutor about the current state of the cryptocurrency landscape. Before joining the firm, Tutor spent seven years as senior counsel in the Division of Enforcement at the SEC, where he was a member of both the Cyber Unit and Asset Management Unit. Throughout the episode, Tutor comments on the latest developments coming from the SEC and key areas he expects the Commission to focus on under the Trump administration. He also discusses his time in government service and how it impacts the counsel he gives to clients today.
Transcript
Felicia Ellsworth: Welcome to In the Public Interest, a podcast from WilmerHale. I'm Felicia Ellsworth.
Michael Dawson: And I'm Michael Dawson. Felicia and I are partners at WilmerHale, an international law firm that works at the intersection of government and business. This week, I'm thrilled to be joined by David Tutor to discuss the evolving regulatory landscape of crypto assets and related technologies. David is special counsel in WilmerHale's New York office. He leverages his deep expertise of securities law to advise clients on complex regulatory issues. Those include issues involving cryptocurrency assets, blockchain technologies and decentralized financial institutions, also known as DeFi. Before joining Wilmer, David served as senior counsel in the Division of Enforcement at the SEC. David was a member of two specialized units, the Cyber Unit and the Asset Management Unit. During his seven-year tenure with the agency, he handled some of the SEC's highest-profile investigations, including fraud and market manipulation charges in connection with multiple crypto offerings. David went on to receive the SEC's highly prestigious Stanley Sporkin Award, which recognizes enforcement officials who have made insightful contributions. This episode promises to be extremely interesting, focusing on the unique challenges facing the crypto industry at a very interesting time, as the new administration takes a fresh approach to the regulation and enforcement of cryptocurrency. I hope you enjoy.
Michael Dawson: Hi David. Thanks a lot for joining us and it's good to see you.
David Tutor: Thanks for having me.
Michael Dawson: I wanted to just sort of level-set here: when we're talking about crypto on this conversation, what are we talking about? Are we talking about Bitcoin? Are we talking about meme coins? Are we talking about NFTs? Blockchain ledger technology? A US Central Bank Digital Currency? What are we talking about specifically? All of it or some of it?
David Tutor: All of it is currently being assessed by the SEC, by other folks in the government, and trying to draw some lines about what's going to fall under the SEC's jurisdiction, what's going to fall into the CFTC's jurisdiction, what's going to fall under potentially another regulator's jurisdiction.
Michael Dawson: Excellent. I see from your background that you won the Stanley Sporkin Award. When I was at Treasury, we had a case involving OFAC that was actually before Judge Sporkin. After his SEC career, he became a judge, and he was quite a forceful presence on the bench and really made sure that the government met its burden. He wasn't—despite his government service—going to let the government get off easy, ever. Tell us about your own government career and the characters you encountered. Did anyone stand out for you as a mentor along the way?
David Tutor: Sure. I joined the Division of Enforcement at the SEC in New York in early 2016. I started off in "core", so working on cases involving things like conduit municipal bond offerings, broker-dealer due diligence. My supervisor was Val Szczepanik, who had taken an interest in crypto. And when the Cyber Unit was first formed in 2017, Val was going to be the leader of that unit in New York, and she recruited me to join it. So I was a member of the original Cyber Unit from 2017 to late 2019.
Michael Dawson: And what about crypto?
David Tutor: I have to say I didn't know a ton about crypto, but it was a really exciting time to dive into the crypto space. When I first got involved, primary focus was digital assets that were being sold in those ICOs, so initial coin offerings, really a play on "IPOs". I was on the team that charged the first Cyber Unit ICO enforcement action. This was in late 2017. We were really looking at the marketing materials that were being targeted to retail investors that were talking about what the team's going to do with the invested money, how they were going to build the platform. And after starting with some of the ICO cases, I stayed in the unit, was able to work in parallel with SDNY, DOJ Tax on some really interesting cases, including one that involved John McAfee.
Michael Dawson: What can you tell us about that case that you're comfortable sharing?
David Tutor: Of course. So in that case, we filed a complaint against Mr. McAfee and one of his associates that alleged they promoted multiple ICOs on Twitter while pretending to be impartial and independent, even though they were paid millions of dollars in digital assets for those promotions. The complaint also alleged that they engaged in a separate scalping scheme where they secretly accumulated a large position in the digital asset, touted it on Twitter while intending to sell it, and then basically selling those holdings as the price rose.
Michael Dawson: Sounds like it was a very interesting experience. In addition to serving in the Cyber Unit, you were also a member of the Asset Management Unit at the SEC. Can you tell us a little bit about how investment advisors should be thinking about crypto issues?
David Tutor: Obviously, investors, including retail investors, are interested in exposure to crypto, and I think it's important for advisors to stay informed about the evolving regulatory landscape. There are some technical concerns, like compliance with the custody rule for digital assets, whether staking is permissible, and I think that's a place where additional guidance or exemptive relief from the Commission would be helpful. But stepping back, investment advisors are fiduciaries; they are subject to the duty of care, the duty of loyalty when managing client assets. Crypto is known for its volatility; it may not be appropriate for all clients. So advisors need to consider their policies and procedures and controls around digital assets and really take a closer look at how you're conducting due diligence, how you're on the lookout for potential red flags and generally staying updated on the latest regulatory changes. It's all incredibly important.
Michael Dawson: And how does that experience at the SEC help you with your clients now at WilmerHale?
David Tutor: I would say more generally, one of my key takeaways from working at the SEC is the importance of compliance and proactive engagement with the staff. I've really witnessed firsthand how enforcement actions can significantly impact companies operationally, reputationally, and how proactive engagement can really make a big difference. So it can be tough to navigate a changing regulatory environment, cases involving new technologies. The SEC's approach to crypto regulation is something that's really been evolving over the years. And I think staying abreast of those changes is really crucial. So now in my role, I'm involved in guiding clients through this dynamic landscape and really helping them understand the implications of regulatory developments and how to adapt their strategies accordingly.
Michael Dawson: David, let me ask you about the SEC's recent statement entitled "There Must Be Some Way Out of Here." Kind of a remarkable title for a government publication in and of itself. But as I understand, it posed a number of questions to DeFi industry experts to better understand the sector and how the SEC might approach crypto regulation. What are your thoughts about this statement and is there a way out of here?
David Tutor: Commissioner Peirce certainly has a sense of humor by the title of that statement. I would say that the current Commission is aware that there has been a lot of uncertainty in the industry and fortunately, Commissioner Peirce, who is leading the Task Force, has been engaged with these crypto issues for years. And I think the questions show that the Task Force is serious about pushing forward with some commonsense regulatory proposals.
Michael Dawson: And what's the state of play now? When you look at the SEC today, how do you think about their policy priorities and their enforcement priorities?
David Tutor: Chair Gensler came in, then he took, I think it's fair to say, an enforcement-first approach to crypto. He brought numerous cases, not only against ICOs, but also against trading platforms, market makers, other intermediaries in the crypto space. And many of these cases were not fraud-based. They're premised on the idea that if the digital assets were sold as part of a securities offering, then the folks providing the infrastructure were operating as unregistered exchanges, broker-dealers, or clearing firms. Then of course, the 2024 election happened and recently we've seen something of a paring back of those prior-filed actions. A number of cases have been either paused or there's been reporting that they'll be dismissed. And I think this reflects a belief by the current Commission that the SEC had it wrong in bringing those non-fraud cases, that if there was no realistic regulatory regime that was available, in some sense it was unfair to bring those. And so that's really a significant shift, and I think it's something that we're all looking at very closely.
Michael Dawson: Do you think the enforcement activity of the SEC with regard to crypto is going to stop or is it going to shift in focus?
David Tutor: I don't think it's going to stop. I think the fact that instead of just closing the Crypto Assets and Cyber Unit, the Commission decided to replace it with another unit that was focused on emerging technologies. I think that indicates that there's going to continue to be a strong enforcement program with a focus on fraud and retail-related issues. The SEC staff has really developed a substantial amount of experience, expertise in the detection and the pursuit of fraudulent conduct in crypto cases and in the technological data-driven landscape.
Michael Dawson: So a focus on fraud as opposed to bringing cases against companies that the Commission feels were an unregulated exchange or an unregulated broker-dealer in the absence of a clear regulatory framework?
David Tutor: I think that's fair to say. I think there's going to be a focus on fraud rather than registration-related cases where companies failed to appropriately register with the SEC, where there isn't a clear victim. This is of course in contrast to the non-fraud cases that were brought under Chair Gensler.
Michael Dawson: Very interesting. I want to ask you to project three years, five years down the road. Will we still be invoking the Howey test to try to figure out whether a crypto asset is a security or not? Or will we have something that's a different way of going about answering the question?
David Tutor: I don't think the Howey test is going away for the analysis investment contracts. I do think that there is going to be a new regulatory regime for digital assets that will provide for at least some level of disclosure to get the information they need while also not prohibiting the development of an emerging industry in the United States. They're looking to create a broader framework for the regulation of digital assets, and this includes the tokenization of real-world assets like actual financial instruments. There's certainly the potential that this decentralized technology can be used to modernize the traditional financial system, and it's an exciting time. And so I think they're going to move quickly to try to get some regulatory clarity in place.
Michael Dawson: Excellent. Should crypto assets be regulated as commodities? And if so, at what point?
David Tutor: Commodities, of course, have their own definition. I do you think there's a general understanding that Bitcoin and Ether are not securities, that those are commodities. If a digital asset is not a security, part of a scheme that constitutes a securities transaction, I don't think it's necessarily a commodity. Who has jurisdiction? I think it remains unclear. I would say that the SEC and the CFTC have a good working relationship. When I was on staff at the SEC, we brought parallel enforcement actions in the crypto space with the CFTC.
Michael Dawson: As the SEC and the CFTC continue in their good working relationship to figure out how to go about regulating this space, what are some of the key issues that they're going to be wrestling with? What are some of the key things that industry should keep their eye on?
David Tutor: I would say that I don't think the SEC is going to relinquish all of their authority in the crypto space. I think at this time, the foundational question of who has jurisdiction over which asset is still being worked out between the SEC, the CFTC, potentially some other regulator. Until those issues are addressed, I think everyone's sort of waiting for there to be certainty, reduced ambiguity, in the space.
Michael Dawson: What advice would you have for young lawyers or law school students who want to get into this space? How do you go about learning not just about crypto, but the regulation of crypto?
David Tutor: I think it is invaluable to experience as many different slices of legal life as you can in private practice and in government. I feel very fortunate to be here at Wilmer where we get to do this stuff every day, and I'll always be a proponent of working in government. You get immediate hands-on training, an incredible amount of responsibility, and also the opportunity to work on cutting-edge issues like crypto.
Michael Dawson: As a reminder, the WilmerHale Blockchain and Cryptocurrency Working Group will continue to monitor the latest developments in this space. To access their insights, visit the Blockchain and Cryptocurrency page on the WilmerHale website. You can view past webinars, see daily updates in the Crypto Currently News Center, and subscribe to our weekly digest to receive client alerts and invitations to our upcoming events. Thank you, David Tutor. Very interesting. Pleasure to speak with you.
David Tutor: Thanks, Michael. I appreciate it.
Felicia Ellsworth: And thank you, everyone listening, for tuning in to this episode of In the Public Interest. We hope you'll join us for our next episode. If you enjoy this podcast, please take a minute to share with a friend and subscribe, rate, and review us wherever you listen to your podcasts. If you have any questions regarding this episode, please email them to us at InthePublicInterest@WilmerHale.com.
Michael Dawson: For our WilmerHale alumni in the audience, thank you for listening. We are really proud of our extended community, including alumni in government, the nonprofit space, academia, other firms and leadership positions and corporations around the world. If you haven't already, please join our Alumni Center at alumni.wilmerhale.com so we can stay better connected. Special thank you to the producers of this episode, Shanelle Doher and Ben Gardiner, sound engineering and editing by Bryan Benenati, marketing by Emily Freeman and her team, all under the leadership of executive producers Kaylene Khosla, Matt O'Malley and Jake Brownell. Thank you for listening.
Felicia Ellsworth: See you next time on In the Public Interest.
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