OpSec: A Trial Lawyer's Tips for Navigating Disputes | Mack Wilding - Rodman Law

Okay, so we've heard from founders today. We've heard from marketers, VCs, and next up we're going to hire hear from a trial lawyer whose first slide is while I am a lawyer, I'm not your lawyer. So this is not legal advice, but this is definitely a lesson on how to deal with disputes. Okay, off to you, Mac. Thanks very much.

Hello friends. It's good to see you all. Thanks for coming. Uh I wanted to come today because I find I'm often talking to people uh when it's too late and things have already kind of gone sideways. So I thought I would try to give some of the advice that I'm usually giving to folks.

Uh you know said if you would have asked me two months ago what you should have done, I would have told you this. But since you didn't take that advice and since you've already made decisions, here's the new advice for you, which is usually not ideal. So, I'm here to help you all plan for disputes because they happen. It's it's pretty much inevitable for projects to have some sort of a dispute arise. So especially in the world that we're working in in web 3 with anonymous accounts and telegram and uh lots of deals being done in the sort of uh cloud space and not in contract space uh it creates a lot of liability and risk.

So I think it's worth everyone sort of considering these things and just trying to plan for it as opposed to being surprised by it. So the biggest thing that I talk about when people hire about when people come to hire me is is about the costbenefit analysis with uh litigation. And this is why 97% of cases that are filed in courts settle before they go to trial, right? Everything settles and it's just a matter of when. And so that's because there's too much risk and uncertainty associated with litigation, right?

It's it's not worth even if you've got a good case, it's not worth fighting all the way to the end. It's often much more off worth it to settle things early. And so litigation is a really expensive way to solve disputes. It's one of the reason everyone hates lawyers. Uh and so I think ideally we're just trying to avoid that entirely.

One thing that I kind of run into a lot is that the facts actually matter. What you do matters. What you tell people you're going to do matters. Like just hiring a lawyer to say fix problems that you've already created. Well, I told this person I was going to do this, but now I'm not going to do this.

It's like that actually does impact your uh the prospects that how much liability you might have and how much I'm probably going to tell you to settle versus fight a claim if you get one. So, the last piece here is just about attorney client privilege. It's another This is a shameless plug about hiring lawyers, but one of the benefits of getting a lawyer early in the process is that you get attorney client privilege. So you can ask me questions about what the law is, whether something's illegal, you know, whether something you've done could result in liability without any risk of that being exposed to the public. Whereas anyone else that you have that kind of communication with, even if it's a Google search, is totally discoverable, right?

So that can be absolutely used against you. So hire a lawyer early. uh and don't talk to them too much because I know we are expensive but do talk to a lawyer early because if you establish that relationship then you have the benefit of that privilege throughout your entire project's formation and as you grow last thing I'll say there is people never say the bad things early they always wait tell your lawyer the bad things the worst messages show them all the dirty laundry in your first meeting I promise you you will have a better outcome it's the slow rolling having me learn about bad things that happened 6 months after they've happened is always a bad idea. So the first thing I wanted to talk about with you all is um criminal law and uh that sort of uh source of disputes, right? So this could be investigations by generally regulators in the United States.

Those are the biggest ones we worry about, the Department of Justice and the Securities and Exchange Commission. And but this could also be um law enforcement uh agencies in other countries. And I thought the best thing that I could do for you all would be to give you the advice I would give if you suspect you might be under investigation because it's very possible and it's better to act as if uh you currently could be under investigation as opposed to trying to backtrack and um figure out what to do once you learn later. So one of the reasons for this is that wire fraud is an incredibly broad statute. That's the That's the criminal code in the United States that's almost always used to um uh indict crypto projects.

They're always wire fraud charges, right? So fraud is using a false statement that's that you know somebody's going to rely on to gain some advantage, right? That causes someone damage. So that's so broad. The government can do many many things to uh cast what many would consider in the web 3 space to be totally legitimate trades in a fraudulent light.

Right? And the thing that gets people in trouble always is their conduct around the trades and what they do afterwards. It's very rarely the trades themselves that are generating the liability for folks. So a few things I wanted to talk about were some case studies uh of crypto projects that have been indicted and the sort of reasons that they got indicted so that I could just share with you all sort of what you can expect. So if you are under investigation by the US government that means they have power to subpoena institutions like Google like banks like exchanges without your knowledge.

So you would never have any idea that this is happening. They could conduct investigations in secret for months and months for years and collect information about you. And the intention there is that then when you learn about the investigation to watch what you do because deleting things and uh acting as if you've done something wrong is of course the best evidence that you've actually done something wrong. This is like running away from the cops if they stop you, right? That's evidence of guilt.

Even if you haven't done anything wrong, if you take off when the cops say, "Hey, stop." Then they're probably going to chase you. So this is the same quality of deleting messages trying to hide something that you've already done. It's it will never help you. It will only be evidence of your guilt.

Um one thing to note is that the US and Binance still have some cooperative agreement um relationship. So you know to the extent to the extent that you are counting on you know anonymous uh exchange transactions sort of shielding any conduct there's big questions there as to the value of that anonymity and there's also potential personal criminal liability for founders in these cases. So it's this is why should take all these things very seriously and just act as if essentially act as if you could be being under investigation by the government. And this leads to the first case study which I think is a good example uh because it happened here at East Denver a couple years ago. Uh the DOJ and FBI formed a project called Nextf Fund AI and they launched a token and they came to conferences like ETH Denver and they engaged projects, right?

They engaged money uh market makers and they engaged um business developers to basically uh to admit to to get them to admit to what they were doing was fraudulent and intended to basically dump on retail and the wash trading. So got bit was one of the big companies that got uh indicted in this round of indictments by the DOJ and they were doing trades you know market making and wash trading these are things that in the normal securities world are 100% illegal in the crypto space it's much more gray these are not clearly criminal um activities and I think when you're talking about market making are probably totally necessary for the industry it means something entirely different And then we mean in the security space. So um the undercover agents at ETH Denver in 2022 got these market makers and various um other service providers to basically admit on um Zoom calls and in Telegram messages that the goal here was to find people to lose you can win, right? And so it was those messages that actually got these people indicted. It wasn't the fact that they were doing the, you know, the trades themselves may have been in may have been um the problematic behavior, may have been the criminal behavior, but what really got the government's attention was what they did afterwards and their efforts to hide their conduct.

One of the things that they did was they um searched search searched the internet for things like uh how to exploit um how to launder money uh what are the extradition policies of various countries right and they did this logged into their normal Google account so the government then gains all this information about you trying to avoid prosecution these are the things that got these people in trouble right otherwise they're working in a gray space and so I think it's an interesting kind of case study uh in terms of what to look out for. The other one I wanted to mention was um the two brothers from MIT that were recently indicted last year. They got $25 million in 12 seconds from uh some trades on uh Ethereum chains. They basically spoofed the validators um and did an MEV exploit which according to Ethereum's rules was not illegal but the government charged them with wire fraud and questionable about whether you know whether I I think these people genuinely rip people off and I think we probably want you know in this space for people to not get ripped off in this way. There's a question about whether you want the Department of Justice to be the folks that are actually doing that enforcement and stopping that that activity.

But again, the way that these guys got busted is that they had internet sources searches for how to exploit Ethereum validators, how to launder money. Like everyone does this. And so it just seems to me like very obvious. Don't log in. Don't be logged into your Google account or your chat account or any kind of cloud-based service.

and perform any searches that you might not want to be in the government's uh file on you. Right? So, that just seems it just strikes me as insane that that's how these people keep getting busted. So, going to go back to don't delete anything ever metadata. Now, there are multiple copies of everything everywhere.

Uh there's almost always you should basically always assume that a lawyer will know if you delete something. In my experience, people get in a lot more trouble for deleting things than for just dealing with whatever the bad or ugly messages that they may have in their Telegram account. Uh the other thing is that if you engage a lawyer to conduct investigations, if you're worried about criminal conduct, then any professionals that they engage can um get the benefit of that attorney client privilege. So, if you're worried something bad has happened at your company, engage a lawyer right away. get them to engage the auditing firm because then the results of that audit aren't necessarily public information.

So just another little this is like another good reason to engage lawyers early. So the other thing I wanted to talk about was civil disputes. Uh this is you know disputes under contract and uh the biggest place that these comes up are where there isn't a contract and all we have are Telegram exchanges. I can't tell you how many people come into my office, you know, with basically having a message where they've promised somebody in the first two months of their project 1% of their token and now they can't give it to them because they've grown too much and what do I do? Right?

And it's like what do you do is you don't make engagements like that on Telegram. And if you do, you follow it up with a written agreement because that written agreement will say all prior communications about this are meaningless. All that matters is this contract. So, one of the biggest things that gets people in trouble is they say, "Well, I didn't have a contract. I just sent telegram messages."

Like, you know what? I they can't hold me to that. And it's like, no, they absolutely can. There's you can form contracts orally. You can form contracts in Telegram messages, but there's also other causes of action that you can be charged with if you break promises.

So, don't assume that because you don't have a written contract or because something's on Telegram that it couldn't lead to liability. In fact, I would say that if somebody's trying to engage you in that kind of negotiation on Telegram, you should avoid that person. They're probably trying to set you up. Um, so the case the case study that I thought I would mention from because this is this just happens all the time, um, is this example of somebody an adviser agreeing to, you know, some token compensation via uh, text messages only with no follow-up. there's there's some promise to give an a written agreement later.

Um, if that adviser comes back at you with a demand letter, my advice 90% of the time is going to be to settle because to defend the lawsuit to prove that you didn't say these things is going to cost more than it than actually just uh giving the person the token or giving them some cash equivalent. So, don't put yourself in that position if you can avoid it. And I think that's the biggest takeaway for today. And uh the other one is the big brother quality of of uh cloud-based data, right? You really need to be careful about what accounts you're logged into and what internet searches you're doing.

Uh all of that is discoverable in civil litigation and the government can certainly be getting it through subpoenas. So that's all I have for you all. I'd love to answer questions or talk to anybody if they have anything after this presentation. I'll stand back there for a little while. I'm also at a booth for the Rodman Law Group uh in the back there by the green grass.

So love to talk to anybody. If you have any questions, please come say hi. Thank you.