Crypto startups are hiring Wall Street enforcers

Veteran Wall Street enforcers are landing new roles on a wild frontier: virtual currencies.

A growing number of crypto startups are adding former regulators and other government authorities to their payrolls, a practice that could help them head off or prepare for stricter rules. Ventures have snapped up ex-prosecutors, national security officials and at least one former senior diplomat — all of whom may prove handy as nations decide whether to embrace or outlaw digital money.

The drumbeat of hires crescendoed in November when Ripple, a venture looking to rewire global banking with its own cryptocurrency, added Ben Lawsky to its board. He earned a tough reputation as New York’s top financial watchdog by pushing banks to scrutinize client transactions for illicit dealings. In January, crypto brokerage Omega One enlisted a new adviser, Bart Chilton, a former member of the Commodity Futures Trading Commission. The agency oversees digital currencies.

“The fact that he’s willing to take an advisory role with us is a sign that we pass a certain level of due diligence,” Omega One’s chief executive officer, Alex Gordon-Brander, said of Chilton.

‘Air Cover’

The hiring spree breaks with the crypto world’s dominance by millennials — many with no background in traditional banking. Yet it follows a well-worn path for financial innovators, such as online lenders, that set out to disrupt the industry and then ended up recruiting experts to guide them through its many regulatory pitfalls.

Crypto firms are likely to keep hiring regulatory experts to legitimize themselves, said Dave Weisberger, CEO of CoinRoutes, a cryptocurrency data and order routing company. Still, potential investors shouldn’t assume it makes firms a safe bet, he said.

“If putting someone on the advisory board convinces investors that it decreases the regulatory risk of a product they’d be sorely mistaken,” Weisberger said. “There are a lot of people who could be fooled into thinking it gives them more air cover.”

Enlisting former government regulators is a natural progression, according to Arthur Levitt, the former Securities and Exchange Commission chairman. “All new companies try to do that,” said Levitt, who advises cryptocurrency ventures including BitPay and Mirror and is a director at Bloomberg LP, the parent of Bloomberg News. “There’s nothing unique about cryptocurrencies,” he said.

Already, they’re tapping a wide range of government expertise.

Board members at Coinbase, one of the largest cryptocurrency exchanges, include former federal prosecutor Kathryn Haun, once nicknamed the “Constable of Cryptocurrency” for helping to break up the Silk Road dark net marketplace used for drugs and other illicit goods. AirSwap, another exchange, gets advice from Clifford Hart, once a senior U.S. diplomat who served as consul general to Hong Kong and Macau until 2016.

Lawsky’s jump to Ripple was particularly notable because he helped pioneer regulation of cryptocurrencies. He introduced the BitLicense, a requirement for digital currency companies that wanted to operate in New York.

Public Reassurances

Some hires have even helped proselytize for cryptocurrencies, reassuring the public about popular coins or asserting their underlying technology, known as blockchain, will be a force for good.

Days before Omega One announced his hire, Chilton said he wished he had invested in Bitcoin and its major rivals years earlier — back when he was warning people as a CFTC commissioner to be careful while calling for more regulation. Generally, the wild price fluctuations are “mellowing out,” he told CNBC on Jan. 11.

In December, a pair of former Homeland Security and Justice Department attorneys, Kiran Raj and John Roth, wrote an op-ed in the Wall Street Journal, making the case that blockchain will keep Americans safe by helping law enforcers and national-security officials track terrorists, hackers and fraudsters.

They too had new jobs in crypto.

One of the headlines on the piece: “Why we left government to join the Bittrex exchange.”

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Crypto startups are hiring Wall Street enforcers