Yesterday's newsletter covered a speech delivered by U.S. Attorney General Merrick Garland in which he suggested that private lawyers should act as "force multipliers" for governmental enforcement actions. In a story that is at least thematically related, SEC Commissioner Lee criticizes "can do" lawyering that is "born from a desire to give management the answer it wants."
In her speech, Commissioner Lee acknowledges that "Most lawyers generally err on the side of caution." The implication of this observation is that failing to err on the side of caution is to commit malpractice, if not outright fraud. That implication is worrisome and clarity here is important. It is not the job of the lawyer to err on the side of caution, nor is it to err on the side of the governmental enforcement staff, or to err at all. It is the job of the lawyer to be as correct as he or she is capable of being, including in those situations where the law is not clear.
If the government concludes that a lawyer has assisted in the conduct of a fraud or other crime, then the government should pursue that lawyer, just as it would a business person. Individual acts in furtherance of gross misconduct may justify individual punishments; they do not justify telling lawyers to err on the side of caution lest the government be offended.
Commissioner Lee notes that digital assets have developed into a multi-trillion dollar industry by "def[ying] existing laws and regulations." A more accurate interpretation of the current reality is that the digital assets industry "defied" existing laws not because of legal advice, but because entrepreneurs determined that existing laws provided them no way forward and they chose to start up their businesses anyway. Some of those have been deemed fraudulent and some have created real value. Commissioner Peirce proposed a means by which the SEC might adapt existing regulations to provide an outlet for entrepreneurial vision. Yet the majority at the SEC has so far failed to engage on her proposal or with this new industry. (See also, Securities Law Treatment of Utility Tokens.) Rather than chastising securities lawyers for standing silent while entrepreneurs created a trillion dollar industry, the SEC might ask itself if it can not find a way to regulate the industry short of killing it.