From Bitcoin to Russia Investigation, a Look Ahead at 2018

Posted January 3, 2018 6:12 p.m. EST

From the surging value of cryptocurrencies to the continuing investigation of Russian interference in the 2016 presidential election, developments in 2017 were hard to forecast. Who could have predicted that an article in The New York Times in October describing sexual misconduct by movie mogul Harvey Weinstein would unleash a torrent of claims about media stars, members of Congress and the judiciary and even an NFL owner?

With a little trepidation, here are my thoughts on a few topics that should continue to be of interest in 2018:

Initial Coin Offerings

For those of us who remember the boom, there is a sense of déjà vu with the frenzy over cryptocurrencies like bitcoin, which shot up to well over $10,000 in 2017 from about $1,000, according to Coindesk. Cryptocurrencies may be all the rage, but the Securities and Exchange Commission is focusing on initial coin offerings as a potential avenue for fraud. These ICOs allow companies to raise money by creating their own private digital currency through a form of online crowdfunding, with some offerings raising millions of dollars in just a few days.

A company raising money from the public by selling something whose value depends on the success of its venture sounds like a security. That is why the SEC has ramped up its scrutiny of ICOs to determine whether issuers are skirting the detailed — and expensive — disclosure requirements for dealing with investors.

If anyone is going to rain on the ICO parade, it will be the SEC. On Dec. 1, the agency filed an emergency action in U.S. District Court in Brooklyn to stop an offering of PlexCoin, which the complaint said had raised more than $15 million by promoting a return of more than 1,000 percent in a month. The SEC has also filed actions for fraud involving other ICOs. We should expect it to continue to crack down on companies using digital currencies to raise money without following the requirements for selling securities.

On Dec. 11, the SEC chairman, Jay Clayton, issued a statement warning investors and investment professionals about the potential problems posed by ICOs if they operate as unregistered securities. He pointed out that “there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.”

The Mueller Investigation

How the investigation led by the special counsel, Robert Mueller, into Russian meddling in the presidential election will be resolved is anyone’s guess. In many white-collar criminal investigations, where prosecutors start is not always where they end.

The investigation has transfixed Washington like nothing since the sprawling investigation of President Bill Clinton. Mueller’s team has already obtained two guilty pleas, including one from the former national security adviser, Michael Flynn, and indictments of President Donald Trump’s former campaign manager, Paul Manafort Jr., and a top aide.

Additionally, The New York Times reported that an investigation by the U.S. attorney’s office in Brooklyn into the financial dealings of the family company of Jared Kushner, Trump’s son-in-law and senior adviser, involves a subpoena for financial records sent to Deutsche Bank. There is no direct link between that investigation and Mueller’s, but when prosecutors follow the money, they can find themselves in unforeseen places. Kushner has already been interviewed by the special counsel’s investigators, and what the parameters of the inquiry are remain unknown.

Defense lawyers are usually hesitant to let a client speak with prosecutors without the protection of immunity, but Washington investigations are different because even the hint of asserting the Fifth Amendment could have significant political repercussions, so all of the parties are proclaiming their cooperation with Mueller’s office. At the same time, Trump’s political allies have been increasingly questioning the propriety and objectivity of the Mueller investigation. We should expect the veneer of cooperation to fray over the next few months, especially if the investigation moves closer to the president’s inner circle.

A Friendlier Justice Department for Corporations

A persistent criticism of the Justice Department in the wake of the financial crisis was the lack of prosecutions. Few individuals were charged, and the large banks and Wall Street firms paid fines and penalties that amounted to a fraction of their current profits. One response was a new policy, announced in 2015, that required federal prosecutors investigating corporate misconduct to prioritize the prosecution of individual employees and to put pressure on corporations to turn over evidence if they wanted credit for cooperating.

There are signs this policy might be changed to give corporations a wider berth to avoid charges. In September, Rod Rosenstein, the deputy attorney general, said the policy was “under review, and I anticipate that there may be some change to the policy on corporate prosecutions.”

No changes have been announced, but one indication of where federal prosecutors may be headed is a new approach to corporate cooperation in overseas bribery investigations. The Foreign Corrupt Practices Act imposes liability on companies and individuals who pay bribes to foreign officials to “obtain or retain business.” It has been used against a wide range of companies with overseas operations, resulting in multimillion-dollar fines. For instance, Walmart recently disclosed it had reserved $283 million for a possible settlement of fines for bribes it had paid that were first revealed by The New York Times in 2012.

A revised policy for treating companies involved in bribery investigations issued in November presumes they will avoid liability for violations if they have “voluntarily self-disclosed misconduct in an FCPA matter, fully cooperated, and timely and appropriately remediated” the misconduct. In a speech announcing the changed approach, Rosenstein said: “It makes sense to treat corporations differently than individuals because corporate liability is vicarious; it is only derivative of individual liability.”

An interesting question is whether this more lenient approach will spread to other areas, such as securities, health care and environmental violations. If companies should be treated differently, then perhaps that portends a kinder, gentler Justice Department when a corporation reports its violations.