Adapting Existing Law in Crypto with Jordan Goldstein and Oscar Shine of Selendy Gay Elsberg

Jordan Goldstein and Oscar Shine

Rapid advancements in financial technologies, like crypto-assets, have at times appeared to outpace the law governing those innovations. Those shifts are driving huge fluctuations in the markets and, increasingly, headline-producing bankruptcies. For crypto, in particular, billions of dollars and the industry’s legitimacy and future are at stake.

That’s where Selendy Gay Elsberg comes in. The firm has gained recognition as a driver of the legal challenges against allegedly improper practices of crypto exchanges and digital token issuers, and is poised to spur greater regulation and stability in the cryptocurrency market. The firm operates as a “complementary” force to the SEC examiners and other regulators applying broader scrutiny.

The New York-based firm was founded in 2018 as an alternative to Big Law. Partner Jordan Goldstein says the goal was to develop “a cutting-edge legal practice where the lawyers take on both plaintiff-side and defense-side cases.” Because the firm is prepared to bring cases to trial, when in the client’s or public’s best interest, they are often selected by clients to bring cases in emerging areas of the law.

Goldstein, a graduate of both Harvard Business School and Harvard Law, held former roles as both a federal prosecutor and a corporate M&A lawyer. His deep financial background combined with experience across sectors has led him to be one of the top lawyers in the crypto space.

Partner Oscar Shine is similarly involved in the firm’s crypto practice, but brings a different background. Shine worked in Silicon Valley before law school and brought that to bear in securities class action defense cases, product liability MDLs and government enforcement matters opposite the SEC, DOJ and CFTC before arriving at Selendy Gay Elsberg soon after the firm’s formation.

Now, the firm is at the forefront of crypto litigation, with headline-grabbing cases defining this new area of law – uniquely, on both sides of the V.

On the plaintiffs’ side, the firm has filed class actions against major crypto-asset exchanges and token issuers on behalf of crypto-asset purchasers – often retail investors and small-dollar traders taken advantage of by “unscrupulous actors,” as Shine says.

“We think there’s a real public service in trying to hold people accountable. That is a virtuous use of the class action mechanism,” says Shine. It’s an area so new that even the earliest cases are still being litigated. Currently, the firm is helping spearhead a class action against crypto exchange Bitfinex and Tether, creators of the stablecoin Tether – a case that is garnering national attention.

On the defense side, the firm represents crypto-issuers in high-profile contract, securities and RICO claims. While the media may focus on the cases the firm is bringing to trial, their defense practice is just as robust. “Sometimes, because of the profile of our plaintiffs’ cases, we are unfairly pegged as anti-crypto. We’re not anti-crypto. We are anti-fraud,” says Shine. “We view blockchain technology as something promising and innovative, but any technology can be abused.”

Shine and Goldstein discuss the intricacies of navigating an emerging area of law – and what may come next.

Lawdragon: When did crypto first start appearing on your radar as a new area of litigation?

Having lawyers who understand the industry and are comfortable working on either side can be very helpful.

Oscar Shine: I have always had an interest in technology and had been monitoring blockchain and Bitcoin at a distance. It was a natural evolution for our practice since so much of what we do involves the financial services sector, including financial technology and payment systems. So, it was clear that this was both an exciting and interesting new technology and also a fertile ground for disputes.

LD: Mr. Goldstein, what drew you to this work?

Jordan Goldstein: The idea of applying legal principles – some of which were developed 50 or more years ago – to new technologies. Part of the appeal is trying to make analogies to courts, and eventually to juries, in terms of how to understand these technologies and how to apply legal frameworks to subject areas that no one had conceived of back in the 1940s. The premise is that a lot of those principles apply fully – ­you just have to adapt those brick-and-mortar concepts to the digital world.

LD: What do people most often misunderstand about crypto?

OS: People tend to think of cryptocurrency in an undifferentiated way. When the label “crypto” gets slapped onto something, that actually conceals tremendous variation in the underlying technology, in the way that various actors in the cryptocurrency space are structured legally and whether they're incorporated in the United States or offshore or some combination of the two. There is enormous variation between the different cryptocurrency actors.

Because we know the space intimately, we see those differences. Whereas when we see people who are less involved talk about crypto it tends to be in very general terms. They reach conclusions like, "It's all a scam," or, "It's the future of money," or these kinds of very sweeping pronouncements when, really, it's much more nuanced than that.

JG: That’s an excellent point. It really depends on the facts and what the allegations are. We’re seeing more disputes within the industry as it matures that aren’t simply investor versus issuer, which may be how it started. And even there, it's not necessarily black and white. Not every investor is right and not every crypto company is a scam. Having lawyers who understand the industry and are comfortable working on either side can be very helpful.

LD: That’s a great advantage of working both on the plaintiffs’ and defense side, as your firm does. What are some of the challenges of your practice?

JG: One place crypto issues can be more novel is on just basic issues of service of process, like how you start a lawsuit with a defendant that may be located in Singapore without any real basic operations. Folks can be difficult to reach, even if their actions are within the U.S. and even if there's a basis for personal jurisdiction over them in the U.S. Just affecting service to start the lawsuit, which is obviously crucial, can be a challenge.

So, we’ve had to file, win, and, in some cases, contest motions before the court by seeking alternative service abilities, such as serving someone through Twitter or email or another non-traditional method. The courts have shown that they're willing to adapt to that. We have to be creative, because it can certainly be difficult to figure out which country's laws apply at times.

My sense is that judges are very cognizant of the fact that they are adapting existing law to this emerging area.

OS: Another challenge is that because crypto assets are so novel, there have been and continue to be classification challenges that both private actors and the government are wrestling with as to whether a particular asset is a security or a commodity or something else. Then, depending on that classification, we can ask what cause of action is available to the plaintiff and what defense is available to the defendants. Those are almost all questions of basically first impression that are still very much being litigated right now. There's a lot of uncertainty in the bedrock legal questions surrounding cryptocurrency.

LD: What gives the firm an edge in this space?

OS: On the plaintiffs’ side, we are not a volume shop. We are very selective and targeted about the matters that we bring on the plaintiffs’ side, and we litigate those with the same level of diligence and sophistication that we bring to our defense-side representations.

JG: And not only are we selective in terms of what cases we bring, but we're selective within those cases in terms of what claims we bring. For example, you'll see cases where someone sues an exchange and says everything the exchange sells is a security without real regard to the particular tokens at issue. They sort of lump it all in together. In our view, that's not persuasive. It doesn't keep your credibility with the court to say everything's a security, when it's not.

So, within a case, we will ensure that the claims we're bringing are defensible at each level. We're not simply throwing a lot of claims out and hoping something sticks. We think that's exactly the wrong approach when you litigate a case. Your credibility to the court is of paramount importance.

LD: Obviously credibility is important when working in any space, but why particularly in crypto litigation?

OS: Crypto cases get a very high degree of scrutiny from the courts. My sense is that judges are very cognizant of the fact that they are adapting existing law to this emerging area. The basic doctrinal questions are not fully settled in some cases and courts want to get it right. So, they're very careful and scrupulous in their review of the party's submissions, which means that we have to rise to that challenge and make sure that everything that we file is also getting it right.

LD: What is it like having so much media attention on these cases?

OS: It's very vindicating. It suggests to me that we are onto something and that we are litigating a case that is worth paying attention to.

LD: Tell me about some of the cases keeping you busy now.

JG: One is a case against Jump Trading, an algorithmic trading company. The allegation is that Jump aided the Terra Foundation in manipulating a different stablecoin known as Terra, which de-pegged from the dollar. The allegation in the class-action complaint is that Jump aided Terra's manipulation of the price. That case is at an early stage.

LD: You're working on these cases while the SEC is concurrently trying to navigate this new space. Tell me a bit about that dynamic.

Part of the appeal is trying to make analogies to courts, and eventually to juries, in terms of how to understand these technologies and how to apply legal frameworks to subject areas that no one had conceived of back in the 1940s.

JG: The SEC cannot be everywhere at once. Congress has passed laws that permit private litigants to bring claims that vindicate many of the principles that the SEC might also pursue. So, we do see our role as complementary to the SEC.

That said, the SEC is not always correct. Our firm has a vigorous white-collar practice that has shown that at times. So, the goal is to be textured and nuanced. We can be a complementary force to the SEC, but it really does depend on the case.

LD: Are you seeing developments in that area in the few years that you've been working in the space?

OS: There has certainly been an explosion of enforcement activity. In the earliest days, particularly around the so-called ICO boom around 2019 and some of the early Bitcoin bubbles, I think regulators were not sure what to make of what was going on, and they were perhaps a bit slow in taking on some of these cases. That has changed a lot. We have seen a very aggressive enforcement posture not just from the SEC, but also from the CFTC and from the Department of Justice.

LD: With the market volatility and so many changes over the last few years, how do you keep abreast of all the new developments?

JG: We all follow the industry closely. Our firm has analysts, many of whom are previously from banks, who can be extremely helpful. But ultimately, we just spend a lot of time trying to immerse ourselves in the industry.

LD: What’s coming next?

OS: As we were discussing earlier, we’re going to be sorting out these disputes about what these terms mean, as applied to digital assets – what's a security and what's not a security and what constitutes an offer and what constitutes a sale. Over time we will get answers, but it is not going to be immediate.