The collapse of crypto company FTX and related entities offers an example for evaluating coverage of cryptocurrency under standard insurance policies in a four-part series: "Silent Crypto for D&O and Corporate Liability Insurance" (Part I), "Silent Crypto Exposure for Accountants" (Part II), "Silent Crypto Exposure for Lawyers" (Part III), and "Crime and Custody Coverage for Crypto Assets" (Part IV).
Understanding the Legal Challenges for Lawyers in the Cryptocurrency Industry
Lawyers, like other professional service providers, may face potential liability risks in connection with their work with cryptocurrency firms as regulations in this field continue to change. As more companies and players in the blockchain and digital assets industry seek legal counsel to protect themselves from potential liability, law firms must consider their risk exposure. Many law firms purchase Lawyer's Professional Liability (LPL) insurance policies, which generally cover claims made against attorneys for negligence or errors in providing legal services. However, these policies may not always fully protect lawyers working with cryptocurrency or digital assets. Additionally, there is specialized insurance coverage for in-house corporate counsel known as Employed Lawyers coverage, which is often added to corporate D&O or Management Liability Insurance policies. The recent troubles faced by crypto exchange FTX serve as a reminder of the legal challenges that can arise for attorneys working in this field.
Potential Liabilities for Lawyers Working with Cryptocurrency Firms
Cryptocurrency firms and their lawyers may face unexpected legal challenges, such as:
- Determining the appropriate legal structure for the company
- Choosing the appropriate jurisdiction for the company to be based in
- Navigating the constantly changing regulations for crypto firms and digital assets globally
- Registering or obtaining licenses to operate in different jurisdictions
- Ensuring compliance with oversight by the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC)
- Ensuring compliance with laws related to money services businesses and anti-money laundering
- Reviewing and following customer terms of service
- Understanding tax implications for cryptocurrencies and digital assets
- Managing potential conflicts of interest for attorneys who may also be investors or shareholders in the firm
- Advising individual directors and officers on personal liability risks.
Lawyers need to be aware of these potential issues, keep updated on regulatory developments, and adjust their advice accordingly for clients in this uncertain legal environment for cryptocurrency firms.
REFERENCE:
Insurers Beware of “Silent Crypto” Exposure: PART III, Silent Crypto Exposure for Lawyers
https://www.natlawreview.com/article/insurers-beware-silent-crypto-exposure-part-iii-silent-crypto-exposure-lawyers