Brown Rudnick Partner Robert Stark and Vanderbilt Law School Professor Yesha Yadav Co-Author Op-Ed on Crypto Bankruptcies for Consensus Magazine

Partner Robert Stark and professor Yesha Yadav co-authored an op-ed, entitled “When Bankruptcy Regulates Crypto: The Good, the Bad, and the (Really) Ugly,” published Oct. 17 in CoinDesk’s Consensus Magazine.

The publication was part of CoinDesk’s “State of Crypto Week 2023,” which will culminate in a conference in Washington, D.C., on Oct. 24. Stark and Yadav are scheduled to speak at that event, which will unite key policymakers, regulators, government officials, executives and other leaders in TradFi and DeFi asset management and financial services.

Stark and Yadav’s op-ed focused on a spate of bankruptcies, following the so-called “crypto winter” of 2022, including systemically important companies such as BlockFi, Celsius, Core Scientific, FTX/Alameda, Genesis Global, Prime Trust, and Voyager Digital. They contend that these bankruptcies were partially caused by lax regulatory oversight, which has, in turn, compelled bankruptcy courts to step in as quasi-regulators for the cryptocurrency industry. “With bankruptcy courts taking control of some of crypto’s biggest firms and examining the market’s workings, it is worth asking whether this substitute regulatory regime is working, or whether its intervention is adding to the uncertainty facing the market,” they wrote.

The op-ed observed that, in some respects, Chapter 11’s “objectives are often aligned with those of traditional regulation,” as traditionally advanced by the Securities and Exchange Commission, Commodity Futures Trading Commission, the Federal Reserve, and other supervisors. Such overlap includes the desire for broad public disclosure, identifying points of acute public vulnerability, and advancing the remedial policies of regulatory agencies.

Yet, “[d]espite the regulatory overlap, bankruptcy courts are a very poor substitute for thoughtful administrative regulation.” Stark and Yadav note that, respecting forward-looking market protection, “bankruptcy courts are simply not equipped for the job. Traditional oversight comes with a slate of public policy aims: reducing systemic risk; protecting customers; and creating usable knowledge for the consuming public. Bankruptcy law may have some similar intentions, but it cannot fully deliver on any of these goals.”

One day after their op-ed was published, Stark and Yadav participated in a CoinDesk panel discussion, hosted on X/Twitter Spaces, entitled “What’s Next for Crypto Policy?” During that discussion, Yadav noted that “bankruptcy courts have had to work super hard and super expensively just to build a picture of information about the different companies at play.” Stark further added that, now, “you're getting a pretty open picture of what was happening.” He added, “I think, among other things, that's going to direct regulatory attention to where the public vulnerabilities have been.”

Stark and Yadav’s analysis on the intersection of crypto and bankruptcy is also the subject of a research paper entitled, “The Bankruptcy Court as Crypto Market Regulator,” scheduled for publication in the upcoming edition of the Southern California Law Review.