The U.S. Securities and Exchange Commission ramped up a series of enforcement actions against initial coin offering (ICO) frauds toward the end of last year and beginning of 2018.

As the regulator and its new leader, former Sullivan & Cromwell partner Walter “Jay” Clayton III, vow to be “on high alert” for companies breaking securities laws, the SEC has also created new opportunities for the lawyers advising the cryptocurrency industry on certain investments.

In a suit filed a month ago by the SEC against Texas-based AriseBank for alleged securities violations related to an ICO, U.S. District Chief Judge Barbara Lynn appointed Jones Day partner Mark Rasmussen in Dallas as the first-ever neutral receiver in an ICO enforcement action. In his new role, Rasmussen will oversee all the assets of AriseBank and its affiliates. AriseBank, which calls itself a “decentralized bank,” claims to have raised more than $600 million from an ICO that the SEC considers to be a fraud by AriseBank and its founders, Stanley Ford and Jared Rice Sr.

Rasmussen, who is being advised as receiver by a team of lawyers from Jones Day, focuses his practice on complex commercial and securities litigation, as well as SEC enforcement matters. He told The Recorder that his knowledge of securities law and blockchain and cryptocurrency technologies helped him secure the first-of-its-kind receivership for AriseBank as a result of a recommendation by the SEC.

According to an initial status report filed Monday by Rasmussen in federal court in Dallas, the receiver has identified and secured $200,000 from a bank account at Bank of America, $200,000 in other funds, 27.96 Bitcoins, 218.73 Ethereum coins, 271.33 Litecoins, 196,131.04 in Doge coins, as well as other cryptocoins. Seeking to make sense of the Bitcoin boom and the various challenges in managing digital assets as a newly appointed receiver, The Recorder caught up with Rasmussen for a quick chat.

How did you come to be receiver in this matter?

The Fort Worth regional office of the SEC asked whether Jones Day would have interest in submitting a proposal for being appointed in the ICO enforcement action. I think they were somewhat familiar with work our firm has been doing in the blockchain space from conferences we have spoken at, articles we have written and some of the client matters we have been taken on. We submitted a proposal and the SEC made a recommendation to the court.

Ultimately, the court decided to appoint me as the receiver and allowed me to engage Jones Day as my counsel. I think our knowledge of blockchain issues and familiarity with cryptocurrency wallets and how transactions involving cryptocurrency occur were some of the reasons why our proposal was appealing. I also think our international capabilities were another reason why we had a strong proposal because in this case there were some assets and individuals located overseas. Jones Day has many international offices so we could deploy lawyers quickly and coordinate together seamlessly.

This is the first time a court has appointed a receiver in an ICO action. Why was it needed in this case? 

Courts will appoint receivers in some cases to protect the property of a defendant who has been sued where there is concern that assets will be dissipated or wasted. Here, we are dealing with cryptocurrency. Through its ICO, AriseBank was raising money in the form of cryptocurrency, and the nature of cryptocurrency makes it possible that those assets could be concealed or quickly transferred to people who control wallets around the globe. I think the SEC and the court believed having a receiver from day one to identify, take control of and manage those assets would be very advisable.

What will your new role entail?

The receiver acts as an independent agent of the court. The receiver does not have an interest in the underlying dispute between the SEC and the defendants. Really, the receiver's job is to do the work of the court to identify, collect, preserve and manage assets during the pendency of the litigation. The principal task is to find assets, take possession of them, hold them and come up with a plan to distribute them, which ultimately will have to be approved by the court at the appropriate time.

How is being a receiver in an ICO action different from a traditional financial fraud case?

The biggest difference here is that the assets of AriseBank are largely in the form of cryptocurrencies. In a normal financial fraud that is typically not the case. So one challenge is that there is no central administrator or bank that can freeze the cryptocurrency assets. Sometimes these cryptocurrencies are stored in centralized exchanges, and the exchanges can cooperate with the asset freeze order and help in that regards, but that's not always the case. I think that is the key differentiator between this and financial fraud cases that don't involve cryptocurrency. You have to move quickly and know what you are doing to identify cryptocurrency wallets and carefully move any cryptocurrency out of those wallets to wallets the receiver controls. You can't rely as much on a third-party intermediary to do an asset freeze.

The value of cryptocurrencies fluctuates with the market. Their value can be very different from now to when you distribute the assets back to investors. As receiver, how do you deal with that?

Great question. It is an important issue that we'll have to work through. Ultimately, the receiver has to submit to the court a plan to distribute the company's assets, and whether that includes liquidating the cryptocurrencies before distribution or doing something else, it'll ultimately have to be something we work through and get court approval. But we are only a month in, and we are still trying to identify the AriseBank assets, so it is a little premature to predict exactly what the plan of distribution will be.

Moving forward, are we going to see more law firms getting involved in ICO suits? 

Yes. I think it is a pretty safe bet that the SEC will continue to bring enforcement actions against promoters of ICOs. The SEC views a lot of the coins that are being issued in ICOs as securities, and in some cases, the SEC believes that statements being made in connection with the ICOs are fraudulent. I think the SEC will continue to bring cases and law firms will be engaged to defend those cases. Also, there may be more cases where it would make sense for there to be a receiver. I think it's been helpful in the AriseBank case. Working with Jones Day and [risk management firm] Kroll, I have been able to quickly secure a lot of the assets that otherwise might not be secure. Perhaps it is a model that can be used again. Also, there are private suits against the promoters of ICOs. I think it is a safe bet that law firms who have experience in blockchain and cryptocurrencies will be needed in those cases, whether it's on the plaintiff's side, defense side or as a receiver.

How does the receiver get compensated?  

Subject to the court's approval, the receiver and the advisers have the right to obtain reasonable compensation for services. Generally, the payment is made out of the assets that the receiver is able to secure for the estate, and the receiver will submit invoices and reports to the court.

How much do you and Jones Day anticipate to receive in this case?

The receiver's order included a fee cap for the receiver and any advisers for the first month. The fee cap for the first month is $125,000, and so that would cover both the receiver's work, Jones Day's work and also the work of Kroll. After the first month, fees are subject to court approval. Our goal is to be as efficient as we can to secure assets and to not have them wasted. The less the receiver has to spend to identify and take control of the assets, the more there will be available to distribute to the people who are entitled to the money.

All interviews are condensed and edited for style, length and clarity.