Felicia Ellsworth: Greetings and welcome to In the Public Interest, the official podcast of WilmerHale. I’m your host, Felicia Ellsworth.
Michael Dawson: And I’m Michael Dawson. Felicia and I are both partners here at WilmerHale, a globally recognized law practice operating where business meets government. Today, I’m extremely pleased to introduce David Tutor. We will delve into the rapidly changing regulatory framework surrounding crypto assets and their associated technologies. David is a highly regarded Special Counsel based in our New York office. His profound comprehension of securities law empowers him to advise our clients on intricate regulatory matters, especially those pertaining to cryptocurrency, blockchain innovations, and decentralized finance, or DeFi. Prior to joining WilmerHale, David honed his expertise as Senior Counsel within the SEC’s Division of Enforcement, where he served with distinction in both the Cyber Unit and the Asset Management Unit. During his notable seven-year tenure, David played a crucial role in several of the SEC’s most closely watched investigations, notably those involving charges of market fraud and manipulation in connection with various crypto asset offerings. For his outstanding contributions, David was honored with the SEC’s prestigious Stanley Sporkin Award, which acknowledges exceptional performance among enforcement staff. This promises to be an insightful episode, particularly given the timely fresh perspective that the new administration is bringing to regulation and enforcement in the cryptocurrency sphere. I hope you find the discussion beneficial.
Michael Dawson: Welcome, David. Thank you for joining us. It’s great to have you here.
David Tutor: The pleasure is mine. Thanks for the invitation.
Michael Dawson: Let’s set the stage: when we talk about “crypto” today, what exactly are we including? Are we primarily discussing Bitcoin, or does the conversation expand to include things like meme coins, NFTs, blockchain technology, or even the concept of a U.S. Central Bank Digital Currency? Do we encompass the whole spectrum, or are we focusing on particular aspects?
David Tutor: Everything you mentioned is currently under review by the SEC and various government entities. They are actively attempting to establish clear boundaries concerning which aspects will fall under the SEC’s authority, which will fall under the jurisdiction of the CFTC, and which may be assigned to a different regulatory body.
Michael Dawson: Fascinating. You were a recipient of the Stanley Sporkin Award. I recall from my time at the Treasury a case before Judge Sporkin that involved OFAC. Even following his time at the SEC, as a judge, he remained a formidable presence, rigorously ensuring the government consistently met its burden of proof. He was never one to let the government off easily, his prior role notwithstanding. Can you elaborate on your government career and any influential figures you met along the way?
David Tutor: I joined the SEC’s Division of Enforcement in New York in early 2016. I initially worked in “core,” dealing with issues such as conduit municipal bond offerings and broker-dealer due diligence processes. My supervisor, Val Szczepanik, developed a particular interest in crypto. When the Cyber Unit was established in 2017, Val led the unit in New York and recruited me to join. I was part of the original Cyber Unit from 2017 until late 2019.
Michael Dawson: And how did that involvement extend into the crypto arena?
David Tutor: To be honest, my initial knowledge of crypto was limited, but it was an incredibly dynamic time to delve into the space. Initially, we concentrated on digital assets being marketed through ICOs, or initial coin offerings, deliberately echoing “IPOs.” I was on the team that brought the first ICO enforcement action by the Cyber Unit. That was in late 2017. We scrutinized the marketing materials aimed at retail investors, focusing on how they planned to utilize invested funds and develop their platforms. After gaining experience with the ICO cases, I continued within the unit, collaborating with SDNY, DOJ Tax on several noteworthy cases, one of which involved John McAfee.
Michael Dawson: Can you share any details about that case that you’re comfortable discussing?
David Tutor: Certainly. In that instance, we filed a complaint against Mr. McAfee and an associate alleging they promoted several ICOs on Twitter while feigning impartiality, despite receiving millions of dollars in digital assets for those endorsements. The complaint also alleged that they participated in a scalping scheme where they secretly amassed substantial positions in specific digital assets, touted those assets on Twitter with the intention of selling them, and then profited as the price increased.
Michael Dawson: That sounds like a very enriching experience. In addition to your time at the Cyber Unit, you also served within the Asset Management Unit at the SEC. Could you discuss how investment advisors should approach the topic of crypto assets?
David Tutor: With increasing investor interest, particularly among retail investors, in crypto exposure, it’s crucial for advisors to stay current with the regulatory shifts. There are inherent technical considerations, such as compliance with custody rules for digital assets and the permissibility of staking activities. Additional clarification or regulatory exemptions from the Commission would be valuable here. Looking at the bigger picture, investment advisors must remember they are fiduciaries bound by a duty of care and a duty of loyalty when handling client assets. Given the notorious volatility of crypto, it may not suit all clients. Consequently, advisors need to reassess their policies, procedures, and controls concerning digital assets, conducting thorough due diligence, watching for potential warning signs, and keeping up-to-date with all regulatory modifications. It is extraordinarily important.
Michael Dawson: How does that background at the SEC support your work with clients at WilmerHale today?
David Tutor: Generally, a key insight from my time at the SEC is the criticality of compliance and proactive communication with SEC staff. I’ve seen firsthand the impact that enforcement actions can have on a company’s operations and reputation, and how a proactive approach can be beneficial. It can be challenging to navigate a fluid regulatory environment involving cutting-edge technologies. The SEC’s methodology regarding crypto regulation has continued to change through the years. So now in my role, I’m guiding clients through this dynamic landscape, ensuring they are aware of the implications of regulatory developments and helping them to adapt their strategies accordingly.
Michael Dawson: David, I’m interested in the SEC’s recent statement with the somewhat humorous title “There Must Be Some Way Out of Here.” As I understand it, the statement posed various questions to DeFi industry experts to better understand the sector and the way the SEC might approach crypto regulation. What are your thoughts on this statement, and is there indeed a way out of here?
David Tutor: Commissioner Peirce certainly injected some humor with that title. The current Commission recognizes the high level of uncertainty within the industry. Fortunately, Commissioner Peirce, who leads the Task Force, has been immersed in these crypto-related issues for years. The questions highlight that the Task Force is committed to formulating sensible regulatory recommendations.
Michael Dawson: What is the current status? What are the SEC’s policy and enforcement priorities as you see them?
David Tutor: When Chair Gensler took office, he adopted what many would characterize as an enforcement-first approach to crypto. Numerous cases were initiated, not just against ICOs, but also against trading platforms, market makers, and other intermediaries. Notably, many of these cases weren’t rooted in fraud. They were based on the premise that if the digital assets were part of securities offerings, the firms providing the infrastructure were essentially running unregistered exchanges, broker-dealers, or clearing firms. However, following the 2024 election, we have seen some pullback from these previously filed actions. Several cases are either on hold or rumored to be dismissed. The current Commission may feel that the SEC was incorrect in bringing non-fraud cases, particularly if there wasn’t a clear regulatory regime available at the time. This shift is significant, and it’s something we’re monitoring closely.
Michael Dawson: Do you anticipate that the SEC’s enforcement activity regarding crypto will cease, or do you think it will merely shift focus?
David Tutor: I don’t believe it will stop. Rather than disbanding the Crypto Assets and Cyber Unit altogether, the Commission chose to replace it with another unit dedicated to emerging technologies. This suggests that a strong enforcement program will persist, with a specific emphasis on fraud and matters concerning retail investors. The SEC staff has cultivated significant experience and expertise in identifying and pursuing fraudulent conduct in crypto cases within the tech-driven data landscape.
Michael Dawson: So the emphasis will be on fraud, rather than pursuing cases against entities the Commission believes were unregulated exchanges or broker-dealers, especially when there wasn’t a clear regulatory framework in place?
David Tutor: That’s a fair assessment. There will likely be a focus on instances of fraud rather than on registration-related cases where companies failed to register appropriately with the SEC and where there’s no easily identifiable victim. This contrasts with the non-fraud cases initiated under Chair Gensler.
Michael Dawson: Interesting. Projecting three to five years ahead, do you foresee the Howey test still being used to determine whether a crypto asset is a security? Or do you envision an alternative approach?
David Tutor: I anticipate that the Howey test will continue to be a key tool in evaluating investment contracts. However, I also believe that a new regulatory environment for digital assets will emerge, offering at least a baseline level of disclosure for investors while not stifling innovation. The goal is to develop a broader framework for regulating digital assets, including the tokenization of real-world assets, like conventional financial instruments. Decentralized technology has the potential to modernize the conventional financial system, which is exciting. The push will be to establish regulatory clarity.
Michael Dawson: Excellent. Should crypto assets be regulated as commodities? If so, when should this occur?
David Tutor: Commodities are defined in a specific way. There’s a prevailing understanding that assets like Bitcoin and Ether are indeed commodities, not securities. If a digital asset is not a security nor involved in a scheme that constitutes a securities transaction, I’m not sure it necessarily defaults to being a commodity. Jurisdiction remains a question. The SEC and CFTC have a strong working relationship. During my time at the SEC, we often coordinated our crypto enforcement actions with the CFTC.
Michael Dawson: As the SEC and CFTC continue to collaborate on regulating the crypto space, what are some of the key challenges they’ll be tackling? What are some of the crucial factors that the industry should monitor?
David Tutor: I believe that the SEC will not fully relinquish its authority in the crypto space. The foundational question of which agency has jurisdiction over which assets is still a point of discussion between the SEC, the CFTC, and potentially other regulatory entities. Until these issues are addressed, everyone is essentially waiting for a greater degree of certainty and less ambiguity in the space.
Michael Dawson: What guidance would you offer to young lawyers or law school students who aspire to work in this evolving space? How does one become knowledgeable about both crypto itself and its regulation?
David Tutor: It’s essential to gain experience in various facets of legal practice, whether in private firms or government agencies. I’m grateful to be at WilmerHale, where we handle these issues every day, and I consistently advocate for government service. It provides hands-on training, significant responsibility, and the opportunity to work on cutting-edge subjects like crypto.
Michael Dawson: A reminder that the WilmerHale Blockchain and Cryptocurrency Working Group will continue to track the latest developments. Visit the Blockchain and Cryptocurrency section of the WilmerHale website for insights, archived webinars, daily updates via the Crypto Currently News Center, and client alerts. Thank you, David Tutor. This has been very informative.
David Tutor: Thank you, Michael. I appreciate the conversation.
Felicia Ellsworth: Thank you to our listeners for tuning in to In the Public Interest. We invite you to join us for our next episode. If you enjoyed this podcast, please share it with a friend and subscribe, rate, and review us on your podcast platform of choice. If you have questions regarding the topics discussed today, please reach out to us at [email protected].
Michael Dawson: Thank you, our WilmerHale alumni, for listening. We value our connections with alumni in government, nonprofits, academia, law firms, and leadership positions in corporations globally. Please join our Alumni Center at alumni.wilmerhale.com to stay connected. Special thanks to producers Shanelle Doher and Ben Gardiner, sound engineer Bryan Benenati, and the marketing team lead by Emily Freeman, under the leadership of executive producers Kaylene Khosla, Matt O’Malley and Jake Brownell. Thank you for listening.
Felicia Ellsworth: Join us next time on In the Public Interest.