Derek Zaba

When Overreach Meets Accountability: 🗽SEC's Dealer Rule Vacated on the Day Gensler Announces Resignation🫡 🔄In a poetic twist of fate, Gary Gensler's SEC tenure ends as the courts deliver a decisive critique of his regulatory overreach. On November 21, 2024, Judge Reed O'Connor of the Northern District of Texas vacated the SEC's controversial Dealer Rule, a decision that reverberates across crypto and financial industries. On the same day, Gensler announced he would step down as SEC Chair effective January 2025. 🛡The Dealer Rule: A Step Too Far The SEC’s Dealer Rule attempted to redefine “dealer” under the Exchange Act, targeting digital asset markets and traders who provided liquidity. The rule’s broad language threatened to sweep DeFi participants—those using liquidity pools, decentralized exchanges, and smart contracts—into the same category as traditional market dealers. But Judge O'Connor’s ruling was a stark rebuke. The Court noted: 🧐The rule erased a century-old distinction between “traders” and “dealers,” violating the Exchange Act’s intent. The SEC overstepped its statutory authority, with Judge O’Connor emphasizing, “The Rule as it currently stands de facto removes the distinction between ‘trader’ and ‘dealer’ as they have commonly been defined for nearly 100 years.” The Impact on DeFi and Innovation DeFi protocols operate without traditional intermediaries, enabling peer-to-peer liquidity through open-source software and smart contracts. The SEC’s attempt to regulate such automated systems as “dealers” was seen as a direct assault on innovation. 😴A Reflection on Gensler’s Leadership Gary Gensler’s tenure at the SEC has been marked by aggressive enforcement, particularly targeting crypto markets. While his policies aimed to increase investor protections, many argue they stifled innovation and lacked clarity. 🫥👮The SEC’s repeated losses in courts—Ripple, Grayscale, and now the Dealer Rule—underscore the growing judicial pushback against regulatory overreach. Gensler’s resignation opens the door for a leadership shift, with potential candidates like Dan Gallagher and Paul Atkins signaling a more industry-friendly regulatory approach. 🧭What’s Next? This ruling is not just a legal victory; it’s a pivotal moment for how regulation adapts to innovation. With Gensler’s departure, the SEC faces a choice: continue on a path of contentious enforcement or work towards a balanced framework that supports both investor protections and technological growth. 🤞🗿For the blockchain industry, this is a reminder that vigilance and advocacy are essential. The Court’s decision reinforces the importance of adhering to legislative intent, especially as regulators grapple with the challenges of emerging technologies. 📢As one of the plaintiffs stated: "This is just the first domino. Innovation must prevail over overreach." #CryptoRegulation #DeFi #SEC #GaryGensler #Blockchain #Innovation

8

It might seem odd to bestow the title of “titan” upon someone once described in the New York Times as standing five-foot-two and weighing 100 pounds wet. But if you know anything about banking M&A and regulatory work, you know that H. Rodgin Cohen, senior chair of Sullivan & Cromwell LLP, is a true giant of the field. For more than 50 years, Rodge Cohen has practiced at the pinnacle of financial-services law. He’s played a role in many historical events over the decades, including New York City’s fiscal crisis, where he helped rescue the city from the brink of bankruptcy in 1975; the Iran hostage crisis, where he counseled American banks that released frozen Iranian funds, part of the deal that led to the 1981 release of the hostages; the 2008 financial crisis, where he represented the buyer or the seller in seemingly every major bank deal; and efforts last year to save Silicon Valley Bank and First Republic Bank. In my latest podcast episode, I interview Rodge about his remarkable career, including his involvement in the aforementioned, headline-making events. But we also cover his childhood in West Virginia, his advice for how to succeed as a deal lawyer, and even his theater and reading recommendations—because despite his demanding practice, Rodge somehow finds the time to see numerous shows and read tons of books. (One recent work we both recommend is Paula Vogel’s Mother Play, which yesterday snagged four Tony Award nominations, including Best New Play.) For my first-ever interview of a corporate or transactional attorney (as opposed to a litigator), I wanted to get a big name—and Rodge Cohen is one of the biggest and best in the business. I guessed that he would be “too big to fail”—and if you listen to our enjoyable and wide-ranging conversation, I hope you’ll agree that I was right. Thanks to Rodge for joining me, and thanks to NexFirm for sponsoring! https://bit.ly/3wg7Nmu #law #lawyer #lawyers #legalcareer #legalcareers #attorney #attorneys #inspiration #inspirational #podcasting #podcast #podcasts #success #advice #careeradvice #Biglaw #lawfirm #lawfirms #lawfirmlife Second Stage Theater

448

23 Comments

What can you do with your #DigitalAssets? Check out our recent conversation with Gary Cardone below.

6

The Hogan Lovells Silicon Valley Tech M&A team led by @Richard Climan, @Keith Flaum, @Jane Ross and @Jalpit Amin were recognized by Legal 500 US 2024 in the category M&A: Large Deals ($1bn+). “‘The team is a tech-M&A force of nature. There is no better team for this type of work than … the Silicon Valley M&A group. They work on the biggest, most groundbreaking (and complex) deals in the market and are an absolute powerhouse. The fact that they are such a pleasant team sometimes makes the targets of our acquisitions not realize that we are winning all of the points during the negotiation. Combine their incredible M&A prowess with the strength of their IP and regulatory practices, and they can’t be beat. This is the firm you want a deep relationship with.’” - Legal 500 US 2024 (client quote) @Richard Climan and @Keith Flaum were named as Leading Lawyers and @Jalpit Amin was named as a Rising Star in this category. #mergersandaquistions #legal500 #leaders #risingstar

33

When I worked at the SEC, people frequently asked me: "What amount of profit made/loss avoided is too small for the SEC to investigate for insider trading? Asking for a friend." This topic came up again during our recent panel discussion titled "Insider Trading 360º—Enforcement Trends, Sweeps, Key Cases and Prosecutions,” at the Securities Enforcement Forum Central 2024. https://lnkd.in/gb-4Ea79. (Co-panelits #RebeccaFike, #SteveMalina, #PatrickOtlewski, and #JasonYonan) My answer to that question has never changed: "Tell your friend, no amount is too small.” But now, if he doesn't listen to you, please give him my contact information. On October 15, 2024, the SEC filed an insider trading complaint against individual who allegedly avoided $12,936.86 in losses by dumping his stock in Spero Therapeutics, Inc. shortly before the company announced that it would be cutting its workforce by approximately 75%. To settle the charges, the individual will pay approximately $28,000 to the SEC (more than double the losses avoided). https://lnkd.in/gfPPHFNk

62

2 Comments

Happy Monday! Everything I know about Securities for $0.99 (and I'm happy to email you a free word version (just DM me), $0.99 was as low as Amazon would let me go). https://a.co/d/bAj3hrR This book captures the high points and overarching framework from my Securities Regulation class that I taught at CU, DU and LSU. Since I'm not teaching this semester, I had to do something related to the class! For those who are interested in the area but not very familiar, I hope this is a good step. For those who know way more about the area than I do, I hope you enjoy it anyway:) Feel free to share with anyone who might find this useful or interesting! #SecuritiesRegulation #FinanceEducation #AmazonBooks #LegalInsights #ContinuousLearning #ProfessionalDevelopment #Finance #Education #KnowledgeSharing #BookRelease #LegalProfession

26

6 Comments

The Ninth Circuit has held that the mass-arbitration protocol in Ticketmaster's consumer agreement is unconscionable and unenforceable under California law. Perkins Coie's lawyers review the decision and the broader implications for mass-arbitration terms in this Update. #Arbitration #Litigation #ClassActions #ClassActionLitigation

1

The California DFPI today posted its long-awaited "final" regulations on earned wage access and income share agreements. (Look at the docs dated March 14th under PRO 01-21.) I use quotes, because late last month the CA Office of Administrative Law rejected these rules for various technical reasons (also in the link below). While the DFPI will have to fix these issues and resubmit the rule for approval, we don't expect the substance to change. For EWA programs under this new rule, DFPI deems EWA programs (income-based advance in their terminology) to be loans. However, if providers register with the DFPI, those providers are exempt from the fee restrictions / rate caps that apply to traditional lenders in California. DFPI also provided its statement of reasons, in which it addresses the many comments it received during the process. With respect to its initial proposal to impose rate caps, DFPI acknowledges its failure to conduct a proper economic impact analysis. As a result, DFPI decided to withdraw the rate cap portion of the proposal.

34

3 Comments

Interesting insights from my partner, Jason Waite, on the potential impacts of the U.S. Department of the Treasury's new outbound investment rule. The rule, which takes effect on January 2, 2025, will restrict outbound investment in Chinese companies in certain sensitive sectors and impose a variety of requirements on U.S. persons and entities.

6

Two nights ago, NACD Northern California Chapter and Foley & Lardner LLP welcomed a group of globally-focused board directors to a private dinner. My partners Christopher Swift, who runs our firm’s national security team, and freshly joined Brian Wheeler, led a discussion around geopolitical threats, enforcement trends, and practical consequences to the phenomena relating to “securitization” of international trade and investment. Dr. Swift set the stage with three key paradigm shifts: 🔸 Economic: globalization to regionalization 🔻 Political: integration to fragmentation 🔺 Sociological: comprehension (fact-based decision making) to apprehension (emotion-based decision making) The practical consequences, as we see them, are that: 🔷 There are increasing restraints on cross-border trade and investment 🔵 More decisions are based on perceptions and posturing rather than facts (subjective vs. objective decision making) ☑ There is a growing tendency to turn commercial issues into security issues (that do not actually implicate national security) Our discussion highlighted the necessity for directors to prompt management to evaluate the potential risks and vulnerabilities stemming from geopolitical threats and regulatory enforcement actions. This process includes actively identifying areas of exposure, assessing the likelihood and impact of different scenarios, and creating strategies to mitigate risks and strengthen resilience. Here are several questions to consider asking at your next board meeting: ❓ How does the company gather and analyze intelligence on geopolitical developments?   ❔ What crisis planning has been done to manage various worst-case scenarios and how often is management reviewing this?   ⁉ How is management staying apprised of regulatory changes or compliance requirements related to geopolitical risks and international trade?    ⭕ How are we ensuring that our operations remain compliant in volatile markets? ❌ How resilient is our supply chain when it comes to geopolitical disruptions? Do we know who our suppliers' suppliers are? Do we have alternate suppliers on standby in the case of a geopolitical crisis?   ✖ How can the board support management in addressing these geopolitical challenges?   ✴ How may geopolitical issues affect the culture of the business and the employees/offices worldwide? Thank you 🙏 to Brian Wheeler for co-hosting the event with me, and Christopher Swift for leading the night's discussions. Special thanks 🙏 to our NACD directors Lisa Spivey 史白薇 and Kate Azima for bringing us all together. They do such an incredible job for us! 🙌 #techlaw #boardofdirectors #corporategovernance #venturecapital #foleyforward #garage2global #internationaltrade, #internationalsecurity, #doingbusiness, #china, #russia, #europeanunion, #unitedstates

59

13 Comments

Interesting. New term of art--"AI washing." "The U.S. Securities and Exchange Commission’s crusade against “AI washing” has led to charges against the founder and former CEO of a now-defunct recruiting firm that claimed to use artificial intelligence to match businesses with diverse job candidates. The agency says Ilit Raz pitched Joonko as “the only automated sourcing platform focused solely on underrepresented candidates,” a tactic the agency says helped draw in millions of dollars from customers and financial backers. The eight-year-old firm—which wound down last year and recently filed for bankruptcy—claimed it could help companies meet their diversity, equity and inclusion hiring goals by using AI to automatically match them with a pool of “silver medalist” candidates from underrepresented groups who previously had reached the final stages of the hiring process but not received an offer. The SEC claims Raz defrauded at least 27 investors—a group that includes individuals, private equity firms and venture capital firms—out of $21 million by making false claims about Joonko’s technological capabilities, the size of its customer base and the amount of its revenue. ... “Joonko did not actually use these processes. Raz oversaw the buildout of the Joonko platform and therefore knew, or recklessly disregarded, that the platform did not work as she described it to investors. For example, Joonko did not have the aforementioned capabilities to connect customers with diverse candidates, and its technology was not as advanced as Raz claimed.” In a statement Tuesday, SEC enforcement division director Gurbir Grewal said the SEC believes Raz “engaged in an old school fraud using new school buzzwords like ‘artificial intelligence’ and ‘automation,’” and that investors should be wary of such bold claims. “As more and more people seek out AI-related investment opportunities, we will continue to police the markets against AI washing and the type of misconduct alleged in today’s complaint,” Grewal said. “But at the same time, it is critical for investors to beware of companies exploiting the fanfare around artificial intelligence to raise funds.” According to the SEC, her scheme came to light in June 2023 when Raz’s refusal to provide investors with company documents spurred an investigation by Joonko’s board of directors. She resigned as CEO, and the company wound down its operations. Joonko filed for bankruptcy in May amid demands for repayment from investors. ... Legal observers expect AI washing scams to mushroom as awareness of the technology grows, tempting businesspeople to make unsubstantiated marketing claims." ...

2

I am really happy to see an uptick in discussions around Lateral Integration. Lateral hiring is a significant investment that is plagued with unacceptably low success rates—industry wide. I have been working on this problem a lot over the past few months. While each firm has a unique set of challenges, there are a few things that I find help universally: - Prioritizing industry, client and product teams over practice groups in the integration process. This enables your lateral share their experience in a focused way, to address specific issues they can help with and to identify the roles/titles of the people who would hire them. Practice groups play an important role, but let’s face it, they offer a very broad audience that includes, and I’ll say the unspeakable, a lot of internal competitors. - Supporting actionable, hyper-targeted messaging and presentations for each significant audience, internal and external. So, instead of, “I joined the firm because they are investing in their energy practice,” try, “my move is going to benefit you, client, because they have deep ties with key players in the Houston energy market where you are expanding. We’d love for you to join us and a few of our clients at the xx conference this year.”  This requires some business development acumen and resource, but it will pay dividends and your lateral will greatly appreciate the assist. - Creating and tracking a short-term business plan that converts strategy into actionable tactics. This is obvious, but even as we all know that “get 2-3 new deals by Q4” is not a good goal, too many business plans are still not specific enough to be actionable or trackable. And, tracking and follow-up items often fall to the back burner. Here again, some business development resource is required, especially if you want to conserve the non-billable time of your new lateral. Fortunately, there are some technology solutions that can help, and if you pair a coordinator with the more senior BD resource who helps with the plan, that professional could shoulder the lion’s share of the tracking and reminding/nagging. Does your firm’s integration plan have elements that your lateral’s find particularly helpful? If you are working through your firm’s lateral integration process and want to talk about elements that work, I’d love to have a conversation. #lawfirms #businessdevelopment #laterals #recruiting

20

2 Comments

Silvergate Capital was recently charged by the SEC (see press release), the Federal Reserve Board, and California state regulators, in connection with, among other things, purported misrepresentations and failures in connection with its compliance program related to digital assets. These actions show that as more mainstream institutions enter this space, federal and state regulators will be vigilant to determine that AML, KYC and other appropriate regulations are followed. Moreover, in this case various individuals were also charged (with the majority of them settling). Firms must be very careful to ensure their regulatory infrastructures are up to the challenges of handling digital assets. #crypto #cryptocurrency #SEC #securitiesandechangecommission #federalreserve #AML #kyc #silvergate #digitalassets

9

The Hogan Lovells Silicon Valley Tech M&A team led by @Richard Climan, @Keith Flaum, @Jane Ross and @Jalpit Amin were recognized by Legal 500 US 2024 in the category M&A: Large Deals ($1bn+). “‘The team is a tech-M&A force of nature. There is no better team for this type of work than … the Silicon Valley M&A group. They work on the biggest, most groundbreaking (and complex) deals in the market and are an absolute powerhouse. The fact that they are such a pleasant team sometimes makes the targets of our acquisitions not realize that we are winning all of the points during the negotiation. Combine their incredible M&A prowess with the strength of their IP and regulatory practices, and they can’t be beat. This is the firm you want a deep relationship with.’” - Legal 500 US 2024 (client quote) @Richard Climan and @Keith Flaum were named as Leading Lawyers and @Jalpit Amin was named as a Rising Star in this category. #mergersandaquistions #legal500 #leaders #risingstar

2

The California Attorney General has reached a significant settlement with the developer and publisher of a mobile game over children's privacy violations. Perkins Coie LLP partner Janis Kestenbaum discusses how the case underscores the importance of complying with COPPA and CCPA, and what businesses can do to enhance their privacy practices. #PrivacyLaw #ChildrensPrivacy #CCPA #COPPA

2

In Politico, White & Case White Collar partner Ladan Stewart comments on the SEC’s recent legal victories, the impact on the crypto industry, and the future of SEC enforcement action in this space. Read more here. https://ow.ly/J4pX50RUWQJ #crypto #SEC #DOJ

1

The SEC today lost its initial battle to adopt its wide-ranging and extra-territorial Private Fund Adviser rule. The biggest surprise is that the Fifth Circuit vacated the entire rule-- certain parts of the rule (e.g., preferential treatment) were on shakier ground because the SEC relied on statutory authority that appeared directed towards retail investors. But no matter-- the rule as a whole is overturned. What comes next? The SEC will make noises about exploring its legal options, but I wouldn't be shocked to see portions of the rule re-proposed in a much more limited form and based on more sturdy statutory authority. But for now... it's safe to start planning autumn vacations again with the rule's deadlines no longer looming.

50

2 Comments

Probably 70% of my recruiting practice is for BigLaw. That may be lower than many of my MLA colleagues. Why do I do so much work with mid-sized and smaller firms? A few reasons. In California we are spoiled for choice when it comes to boutiques -- both subject matter focused firms, and full-service boutiques are local institutions here. So, there are a lot of options! A lot of people don't want to work in BigLaw anymore/again/ever. My job is candidate-focused, so it's my job to find a role that matches what people want. It's definitely not my job to wedge them back into BigLaw because I don't have other options to offer them. In the last week MLA has begun a relationship with 3 new boutiques in Northern California, and the list grows all the time. Smaller firms allow associates to broaden out their practices -- their litigation teams do ALL kinds of work, because they don't have critical mass to have specialist strike teams. This model exists across corproate too - smaller firms' corporate teams may include M&A, ECVC, funds, tech trans... Being a generalist is appealing on its face but is also a great path to an in house role. Many, but not all, smaller firms offer better work/life balance. They may also be a more comfortable format for lawyers who want to know their colleagues more closely. So, don't rule out a smaller firm -- you may be surprised if you speak to them at just how much it sounds like the right fit.

38

2 Comments