Bitcoin Crime Search Engine Paves Way For A New Kind Of Law Firm

Last month, acting director of the United States Financial Crime Enforcement Network Jamal El-Hindi filed a $110 million civil case against Russian national Alexander Vinnick and BTCe, a cryptocurrency exchange he ran that allegedly served 700,000 customers around the world without taking necessary steps to prevent money laundering. Just days before, New Jersey attorney general Gurbir Grewal filed paperwork in his state’s superior court alleging that ethereum startup Pocketinns violated the state’s uniform securities laws when it raised $410,000 to build decentralized marketplaces to compete with Uber, Airbnb and Amazon.

In spite of being in wildly different jurisdictions, the cases are among more than 250 that can now be found on the newly launched Blockchain Litigation Database (BLD), created by the New York-based financial law firm Murphy & McGonigle to bring cryptocurrency cases from different jurisdictions into a single, searchable location. To capitalize on the precedent these early cases could set for its current clients and others, the law firm, which represents banks including Capital One and Morgan Stanley and cryptocurrency exchanges Coinbase and Bittrex, charges $5,000 to access the technology and $2,500 a month on an ongoing basis.

Law firms are increasingly becoming involved in the development of technology, each racing to attract and hold onto highly technical, highly lucrative blockchain and cryptocurrency clients. What results is a new kind of law firm that looks as much like a fintech startup as a legal outlet, according to Daniel Payne, a partner at Murphy & McGonigle and the founder of its 12-person blockchain practice. “It’s been extremely helpful in giving us added credibility when we market to blockchain-related clients,” says Payne. “We’ve probably used the database on at least a dozen pitches.”

The court cases tracked in the database go back to the very first case on record, filed in November 2011, involving the United States versus Theresa Tetley, known as the “bitcoin maven,” who was eventually sentenced to a year in prison for money laundering. In addition to such early, little-known court cases, the search engine includes court documents on higher-profile convictions like that of Ross Ulbricht, the mastermind behind the Silk Road black market, and ongoing cases like one involving the disappearance of $850 million from Bitfinex, a cryptocurrency exchange that allegedly hid its losses using another cryptocurrency it had the power to create. 

Data tracked by the BLD includes total cases, annual trends, whether a case is criminal or civil, whether the case involves oversight by the SEC or the CFTC, and the ability to search for terms that might relate to other pending or potential cases. A review of the BLD’s first full year in action that Murphy & McGonigle sent to its clients showed that about 150 cases, representing more than half of all cases related to cryptocurrency and blockchain, were filed in 2018, following the market-wide collapse of the price of cryptocurrency and a clampdown by the SEC on companies that raised capital by selling digital tokens issued on ethereum and other blockchains. Of the cases filed last year, nearly half involved alleged violations of federal securities laws, according to the search engine, with 23 being filed by the U.S. Securities and Exchange Commission. 

Payne says other notable trends discoverable by the search engine include that the Southern District of New York is, not surprisingly, the most active jurisdiction in the country, followed, surprisingly, by the Middle District of Florida, where a single law firm is filing a disproportionate number of cases. Following a peak in 2018, the number of cases filed this year has decreased, but are still on pace to be higher than 2017. “We are seeing an uptick over time,” Payne says.

The history of the BLD goes back to 2008, when rotten mortgage-backed securities triggered the global financial crisis. At the time, Murphy & McGonigle compiled a database of 700 securities to help clients whose mortgages were included in those assets track their exposure, in case anything went wrong. By January 2018, weeks after bitcoin hit its all-time high of $19,800, the law firm realized the lessons it had learned from mortgage-backed securities could be applied to cryptocurrencies. “We felt like there was going to be another wave of litigation not all that dissimilar from the wave of mortgage-backed securities litigation,” says Payne.

The database is part of a larger trend of even bigger law firms seeking to serve clients in the fast-changing world of cryptocurrency by assuming the guise of tech startups. Linklaters, the 12th-largest law firm in the world, with over $2 billion revenue last year, according to data from research firm ALM, founded Nakhoda, which operates like a stand-alone tech startup within the firm, to explore how blockchain could be used to automate legal procedures, and invested in capital markets startup Nivaura, using blockchain as a settlement method. Washington D.C.-based Steptoe & Johnson, which generated $382 million revenue last year, has a 30-person blockchain practice and helped found the nonprofit Blockchain Alliance. Law firm BlankRome, also in D.C., with $443 million revenue last year, helps clients write blockchain code that complies with regulations.

In total, 694 lawyers working at the 200 largest law firms in the United States based on revenue include either “blockchain” or “cryptocurrency” in their bio, according to data provided to Forbes from ALM, the research firm behind the AmLaw 200 list. While the average revenue per lawyer on the list is $906,000, the vice president of ALM legal intelligence, Patrick Fuller says lawyers practicing in blockchain and cryptocurrency can charge a premium and may surpass $1.5 million revenue per year. That means lawyers who practice blockchain in the 200 largest law firms in the U.S. may bring in between $628 million and $1.04 billion annually.

While blockchain lawyers represent only about 0.53% of the lawyers tracked on the AmLaw 200 list, the growth is remarkable in that it only started in 2016, according to Fuller, who oversees research for the list. Fuller says the rapid growth is largely due to the entirely new fields of legal study the technology generates, from new ways to raise capital and to exit, to entirely new regulations. Washington, D.C.-based blockchain advocacy group Value Technology Foundation has identified at least 20 bills related to blockchain and cryptocurrency currently passing through various U.S. Congressional offices.

“Blockchain is not a gimmick,” says Fuller, who is also a fellow at the College of Law Practice Management in Wisconsin. “In fact, it’s one of the things that keeps creating demand.”

Perhaps no one exemplifies this demand more than Lewis Cohen, who last year left his job as a partner at Hogan Lovells, the ninth-largest firm on American Lawyer’s list of the largest firms in the world, which generated $2.1 billion revenue in 2018. Cohen is now the cofounder of DLx Law, a crypto-first firm in New York that accepts cryptocurrency as payment and eschews more traditional law firm titles that he believes go against the spirit of blockchain. “I am not sure how many other law firms are comfortable doing this,” says Cohen. “It is a relatively modest accommodation, though.  The other guys should jump in—the water is warm.”