In Academic Journal, Partner Robert Stark and Vanderbilt Law School Professor Yesha Yadav Examine Role of Bankruptcy Courts in Crypto Market

Partner Robert Stark and Vanderbilt Law School professor Yesha Yadav co-authored an analysis of the intersection between crypto and bankruptcy for a research paper published in the April 18 issue of the Southern California Law Review.

In their article, the authors examined how bankruptcy courts have filled an administrative void and acted as quasi-regulators for the crypto market.

As crypto has evolved, it has lacked a systematic regulatory framework to constrain excessive risk-taking, interconnection and propensities for predation against customers, they noted. This means there has been a lack of vetted, mandatory public disclosure about the business dealings of some of its most significant enterprises, as well as their corporate governance and risk management practices.

“This relatively threadbare regulatory environment has afforded considerable space for firms to take excessive financial risks or institutionalize problematic practices (e.g., opaque governance), with predictably costly consequences,” they wrote. “This has left bankruptcy courts to become, oddly, the frontline responders – tasked with cleaning up the fallout by imposing their jurisprudence onto an otherwise lightly governed crypto marketplace.”

In applying its expertise and authority, the bankruptcy courts have shown themselves to be deft and creative, bringing clarity to important questions impacting customer entitlements and the risk management practices adopted by crypto firms, they wrote.

“But the courts’ role remains an imperfect and incomplete one,” they concluded. “[U]ltimately, the bankruptcy court’s emergence as an accidental financial regulator raises deeper questions about how best to push administrative mobilization to rise to the challenge of complex innovation. As financial regulators endeavor to create new standards for crypto oversight, they face an even more complex task ahead, forced to maneuver in the shadow of the bankruptcy’s authority as a first mover in this arena.”

Read the full article here.