To ensure that we have the strongest possible team of legal minds supporting our application to convert Grayscale Bitcoin Trust to an ETF, we retained former Solicitor General of the United States Donald Verrilli Jr. as a senior legal strategist, working alongside our existing internal and external legal counsel.
Over the course of his career, Verrilli has argued more than 50 cases before the United States Supreme Court, including several that dealt directly with Administrative Procedure Act (APA) violations. He is one of the nation’s most experienced attorneys with a deep understanding of legal theory, administrative procedure, and the practical matters of working with the judiciary branch.
At Consensus 2022 in Austin, TX, he sat down with our Chief Legal Officer, Craig Salm, for a discussion about his career, his values, and why he thinks Grayscale’s effort to uplist GBTC to an ETF “distills everything I love about what I do.” You can find a recording of the full conversation below, along with a transcript. The views and opinions expressed are those of the speakers and do not necessarily reflect the views or positions of any entities they represent.
Transcript (lightly edited for clarity)
Craig Salm: Alright, thank you all for being here. I’m Craig Salm, Chief Legal Officer at Grayscale Investments, joined here today with Don Verrilli, former Solicitor General under the Obama Administration. Within legal, political, governmental circles Don certainly needs no introduction but I will nonetheless let him introduce himself briefly and then we’ll get into the fireside chat.
Don Verrilli: Great. Well, thank you, Craig, it’s great to be here. I am Don Verrilli, I’m at Munger, Tolles & Olson, been a lawyer almost 40 years now, and spent eight of those 40 years as a lawyer in the Obama administration, and five of those eight years as Solicitor General and delighted to be a part of the Grayscale team.
Craig Salm: Awesome. So Don, you started in private practice, went into public service working for the U.S. government, and back into private practice. To kick it off, a couple things that you learned during those two different types of experiences that have informed your practice today.
Don Verrilli: Yeah, so I was in private practice for 20 plus years before going into the government. One thing I came to appreciate from that period of time was that one of the things you can do as a lawyer that can make it a really fulfilling experience is to fight for things you believe in, to be part of a cause, and that manifested itself for me in several different ways.
I did a lot of work in the 1990s, for example, right after the Telecommunications Act was enacted by Congress in 1996, trying to fight on behalf of companies that wanted to bring competition to the telecommunication sphere and was doing cases all around the country fighting that fight. And you felt like you were actually trying to make positive change.
And then another thing I did as a – I was a pro bono man starting when I was a very young lawyer – was I actually represented a number of people who were on death row. It was a different kind of challenge obviously, but those stakes are pretty high in those cases and being able to fight for somebody that you were their last hope was a really meaningful thing to me. And that sort of helped me understand that kinda a key thing about being a lawyer is being there to fight for your client. And that’s really what it’s all about.
Craig Salm: Yeah and I think what goes underappreciated about your work in telecommunications is that was in a time period where that was a very early stage type of technology and use case and so the questions you were dealing with were at the time particularly extremely complex and your ability to get smart on them and apply those in a court of law, I think has become a signifier of the way you operate today. And we’ll get it into that when we talk about the issue that we’re facing right now.
But before that, so you have served as Solicitor General for the US government. I think a lot of people are familiar with the Attorney General but not necessarily so much the Solicitor General. So could you talk about what that particular role entails? How it relates to other different parts of the government?
Don Verrilli: Sure. So the Solicitor General’s position in the Justice Department in the federal government when it was first created right after the Civil War, was the number two position. Attorney General was number one, Solicitor General was number two.
And in ensuing decades, they added a Deputy Attorney General and an Associate Attorney General. So Solicitor General is now the number four position in the department. But it’s got a very specialized role, the Solicitor General. It’s an office of about 20 lawyers most of whom are career civil servants and the job of that office led by the Solicitor General is to represent the United States government before the Supreme Court.
So you argue the government’s cases before the Supreme Court and you manage the appellate litigation function for the United States government deciding what kinds of cases you’re gonna bring, what kinds of cases you’re not gonna bring, trying to ensure that the work of the government’s agencies are gonna be done in a way that allows the agency’s decisions to be defended effectively in court. And then when you’re a Solicitor General, you argue… It’s like every lawyer’s dream job. You argue the government’s biggest cases in front of the Supreme Court. And I got to do it for five years, which was truly amazing.
Craig Salm: So the part that I really honed on there is what you talked about in terms of deciding what cases to bring on. A lot of the work that you were doing was not necessarily taking place in the courtroom before a panel of judges, it was more of the strategy going into a potential case and deciding whether we should take this on. “What are the chances of success?” Can you talk more about the thought process there in terms of your overall strategy and tactics?
Don Verrilli: Yeah. So a big part of the job, actually, when you’re the Solicitor General, the federal government, it’s a big behemoth, lots of litigation, lots of important litigation and they actually win a lot of cases, but they lose a lot of cases too.
And a big part of the job is, for example: A federal agency loses a case. They make an administrative decision of consequence and they lose and their immediate reaction is, “We gotta take this to the Supreme Court.” And so they call a Solicitor General. And a big part of the job is to say to those agencies, “Well, here’s the thing. No, we’re not taking your case to the Supreme Court. And a big part of the reason why is precisely because the principle that you wanna advocate for here is a very important principle to the federal government, but this is a terrible scenario in which to try to take that issue before the Supreme Court. So we don’t wanna screw up the law for the federal government across the board so we are not gonna take your case up.”
So you make all those kinds of judgements which really do come down to the question of looking at what the agency’s done and deciding, “Well, can you really defend this effectively in front of the Supreme Court?” And if the answer to that question is “no,” then you don’t take the case up.
Craig Salm: So in that thought process, who are you trying to persuade? Like who is the client in that case and…
Don Verrilli: So that’s sort of the cool thing about being Solicitor General. It’s very different than most roles as a lawyer. Your client is the United States government and you have to think about every case in the broad context of what’s in the interest of the government as a whole and not just what’s in the parochial interest of that particular government actor, or agency at the time.
And then the other thing about it is that no case goes to the Supreme Court unless the Solicitor General approves it. So the cabinet member can’t say, “Well, I don’t care. You have to take my case to the [Supreme] court!” The Solicitor General gets to say to the cabinet member, “No, we’re not doing it.” Now you gotta be able obviously to offer an explanation that makes sense to them, but it’s quite interesting. It’s not the way most lawyer client relationships work when the lawyer could tell the client, “No, we’re not going up. We’re not taking your case up.”
Craig Salm: Let’s focus in on that because I do think it is underappreciated that any litigator spends a fraction of their time really in the courtroom, making those arguments and the vast majority of it instead is thinking about at a high level, what is the overall strategy, how do these decisions affect long term prospects with the overall plan.
When you and I were also getting to know each other, you also mentioned that as a legal professional, you’re more of a generalist in contrast to a specialist. Can you talk more about what that means to you?
Don Verrilli: Yeah, it’s one of the things I love about… I do appellate law mainly. I’m arguing cases in the Supreme Court in the courts of appeals. And so I’m not a securities lawyer or an antitrust lawyer or an anything lawyer. I’m an appellate lawyer, and so I tend to jump from subject matter to subject matter, which for me keeps it endlessly interesting.
What I’ve realized over time is it requires me to develop the ability to get up to speed on what can sometimes be highly technical or arcane subjects quickly, but in a way that allows me to essentially act as a translator to figure out, “Okay, I don’t really know anything about this subject. What do I need to learn to make sure that I can convey this effectively to a court?” Because when I’m in a situation like that, I may not know a lot going in, but one thing you can rest assured is that the judges I’m gonna be talking to are gonna know less. And so figuring out how to go into a situation, absorb what’s really important, figure out how to express it in common sense terms and then convey that to a court. That’s how I sort of think about what I do and why I enjoy it so much.
Craig Salm: Yeah. The space that Grayscale operates in certainly has its levels of complexity […] So I want to pivot to the announcement earlier this week that we’ve formally engaged you to serve as our senior legal strategist as we’re in front of the SEC seeking to convert our flagship product, Grayscale Bitcoin Trust, GBTC, into an ETF. Can you talk about what about that particular issue really was attractive to you and why it was something that you wanted to take on?
Don Verrilli: Yeah, so I feel so lucky to be in this position because it actually…This opportunity distills everything that I love about what I do. I’ve gotta dive into an area that I don’t know anything about. I’ve gotta master it. I’ve gotta figure out how to understand it in a way that allows me to communicate it to other people who don’t understand it. I’ve gotta think about “how does this fit into the bigger picture in terms of advocacy here?”
Basically what we’re trying to do is take public policy and move it in a constructive direction, in a direction that we think is in the public interest and thinking about how you go about accomplishing that. I’ve thought about those kinds of questions on both sides: when I was in the government from the perspective of officials trying to guide the government, and outside the government, trying to figure out how you persuade the government.
And so that at its core is what this is and then sort of connected up with the very first thing I said. Because I really feel like this is a cause worth fighting for. You got millions of people who want to invest in this way and they want to invest in this way in a world in which they can have confidence that they’re participating in a reliable transparent system. And one thing I really love about this project and this cause is I feel like that’s what Grayscale is fighting for. It’s fighting to be brought into the regulatory system so that you can have an assurance, that the public can have an assurance, a higher level of confidence. And I think that’s a really positive public policy and it’s a good cause. It’s a cause really worth fighting for, so it’s just like perfect for me.
Craig Salm: Yeah. Our first conversation and I think we actually sent you an email, Don. “We have something we wanna talk to you about. Can you hop on the phone?” We gave you a couple of preliminary prep… just like introductory materials of what we were doing and the sense of excitement that you were just expressing I really felt come through on our first phone call where you saw the importance of the issue: the fact that you have investors that are being harmed by not allowing this conversion to happen. Yeah, and I totally agree with you that it’s a very important topic.
I wanna get into more of the minutiae around the issues that you see but in terms of just getting smart on crypto initially and Bitcoin, what are some ways that you’ve learned about the industry and the asset class?
Don Verrilli: Well, I’m talking to you. That’s one.
Craig Salm: The answer I wanted. A very big compliment coming from someone like you!
Don Verrilli: What I try to do is actually I listen to a lot of podcasts and just sort of absorb as much as I can that way. And my mind is already kind of in this frame of thinking, okay, I gotta figure out what the essence of this is so that I can talk about it to a generalist audience and start trying to absorb as much as I can. And I will say I’m still in the early stages of that. I got a lot of work to do on that, but that’s what I’m embarked on doing now. And as I said, I read what I can, and then I listen to a lot of podcasts.
Craig Salm: Yeah, I knew you’ve definitely, I think, absorbed years of material in a very short period of time, but would expect nothing less from someone like you.
Don Verrilli: I don’t know if that’s true.
Craig Salm: So can you elaborate more on the particular issues that we’re facing in terms of the Administrative Procedure Act and the Securities Exchange Act of 1934, the state of play in the world of Bitcoin ETFs and the arguments that we’ve laid out so far before the SEC?
Don Verrilli: Right, so I think this is a place where common sense has a really important role to play. That you’ve got a situation now in which you have a certain kind of exchange traded fund, a certain kind of ETF, one that is focused on Bitcoin futures, and the SEC has approved that.
The SEC has given the seal of approval to that and in order to do so, it had to make a determination that giving its approval was consistent with the securities laws in general and in particular that there wasn’t a sufficient underlying risk of fraud and manipulation in the underlying Bitcoin markets so that we could have enough confidence that the SEC could give us approval and it did.
And then having done that, you’ve created a situation where some really fundamental principles of administrative law that are very common sense principles come into play, and as Craig mentioned, under the Administrative Procedure Act. That’s a federal statute that applies and regulates the conduct of all federal agencies including the SEC.
And it sets out, as its name implies, rules about what kind of procedures the agencies have to undertake and what kinds of procedural requirements they have to comply with. And one of the most fundamental, if not the most fundamental, of those requirements is that the agency action not be “arbitrary and capricious” in the language of the statute.
And a perfectly common sense understanding of something that’s arbitrary and capricious is treating like cases in a different manner. And that’s essentially the problem here with not granting an approval to a spot ETF, which is what the SEC is considering now.
And the reason for that is that, once the SEC has concluded that the underlying markets are sufficiently reliable, that the risks of fraud and manipulation are not so great that they can’t give their sealed approval to the futures ETF, then that pretty much, if you’re gonna treat like cases alike, that pretty much dictates the answer to the question of whether you ought to approve the spot ETF.
And the reason for that is because the underlying sources for the pricing information that’s gonna dictate the price movements of the futures ETFs are essentially exactly the same as the underlying information that’s gonna dictate the pricing for spot ETFs. And given that if it’s reliable enough for the futures, then how can it not be reliable enough for the spot? It just seems like that is a very common sense point that has an enormous degree of power to it.
And as I said, I’m new to this but looking at it as I have so far, it’s very hard to see what argument there could be for treating those two things differently given that when you trace it back to the source, you’re looking at the same sources. And so I think that’s the essence of it. Now, we can talk about the specific language of the Exchange Act and the nuances of SEC decision-making in this area, but really it’s that common sense point which I just think has a lot of power to it and I’m assuming that the SEC must understand that that point has a lot of power to it as well.
Craig Salm: Yeah. Now, I think you hit the nail on the head. You have two like situations; two products are being traded based on the same underlying Bitcoin pricing. As a part of this application in front of the SEC, we have an open common letter period and we’ve seen over 11,000 letters submitted. A lot of those are substantive. Some of those are quantitative even about how they compare the futures and the spot markets and you have professors and academics saying that they’re essentially perfect substitutes for one another. So if you need more evidence about how like they are, then just look at the numbers and the pricing data.
Don Verrilli: Right, and I don’t know if this is a record. I’ve never seen this many comments in an administrative action before the SEC. I mean, it’s quite remarkable. And as you said, a lot of them are really very substantive analyses by very highly credible academics and professionals, but it does come down to that very straightforward point.
Craig Salm: Right. And I think the quantity of letters is a reflection of the importance of this issue. We have a lot of investors that really feel like this is the type of product that they both want and deserve and so it’s important to us that we’re showing we’re putting the full resources of the firm behind our efforts to convert GBTC into an ETF.
Bringing you on as our senior legal strategist is just another addition to that really firm commitment. You’ve gone on board very quickly, started working with Davis Polk, getting smart on the arguments that they’ve been laying out in a couple of their letters that have been submitted to the SEC.
Don Verrilli: Yeah. So it has been easy to get smart in that way precisely because you have such a strong team at Davis Polk. The lawyers are amazing and you’re doing an amazing job. I mean, so much of the work was done. It was pretty, pretty straightforward for me to absorb it and figure out what the key is. And as we said, that’s the key.
Craig Salm: I wanna talk more generally about APA actions in general. APA, Administrative Procedure Act. I imagine in many cases you have an issuer who is upset or doesn’t believe that a regulator is doing what they should be doing based on the letter of the law. So what is the thinking there for anyone who would potentially bring this sort of action? And what is the thinking on the regulator’s side? Are they at just a mutually respectful disagreement or what is the thought process there?
Don Verrilli: Yeah. The Administrative Procedure Act was enacted after World War II and it was put in place by Congress based on a recognition that after the New Deal you now had this administrative state, you had very substantial federal bureaucracies which wielded a lot of power.
And the point behind the Administrative Procedure Act is to make sure not to dictate substantive results, the agencies would make their substantive policy decisions, but to make sure that they made those decisions in a way that was transparent and principled and fair to the public and fair to the regulated entities. And so it dictates a number of requirements that the agencies have gotta undertake and then it gives people who are adversely affected by federal agency action a right to go to court.
And usually you go straight to a federal court of appeals so you don’t have a trial or anything. You take the record that was assembled in front of the agency and then you go to court and you bring your challenge. And it’s quite a normal thing for regulated entities, regulated companies, to bring APA challenges when they believe that the agency has acted in a manner that contravenes those basic requirements of fair and justified decision making.
One way to think about it is that it’s really kind of part of the ongoing dialogue between the federal government and the regulated community. Before the regulation comes out obviously there’s a whole lot of back and forth then. Government makes its regulatory decision and then the judicial process acts as a really important check on it. And you can understand why, right? That if you didn’t have that judicial check, then all of that other process… I mean, it would matter some; the agency would get more information than it might otherwise get, et cetera, but it would be free to ignore all of those submissions and all the analysis it gets.
And the point of having that judicial review is to ensure that there’s a check on the agency to make sure it’s… One of the requirements is the agency’s gotta actually grapple with, consider the evidence and arguments that are put before it before it makes a decision. Then it’s gonna make a reasoned decision, as I said, that’s not arbitrary and capricious.
It’s sort of a staple of that dialogue between the regulated community and the government that you have these kinds of actions. It’s normal, that happens all the time. And precisely because of that, when you’re inside the government… I had that chance to see this for many years inside the government. This is something that ensures that the government decision-makers think the issues through. If they anticipate the possibility of litigation, then they’ve gotta think it through.
And I saw many instances and participated in some on some high profile matters when I was in the government where the administrative agency understanding what the risks were if it stayed on a particular course and made a decision and had that decision challenged in court decided now that it was going to go a different way, make different kinds of decisions, make different kinds of arguments in order to not have the decision be overturned in court because it’s a bad thing for the federal government to invest all this energy in making a decision and then have a court say, “Well, now you got that wrong. You gotta do it again.”
So it’s actually something that’s beneficial on both sides, because it gives the government actors a strong incentive to make sure that they’re doing their job right, considering the information before them, and making a reasoned judgment.
Craig Salm: Yeah. And since you’ve come on bringing that insight about the APA to our legal team has been extremely enlightening to hear from somebody who was the top lawyer for the US government and just to know that that’s sort of the thinking that goes into any APA considerations and those checks you mentioned are really important.
And it’s in my mind a really good reflection of the US democratic system at work where you can have an issuer and a regulator, they have a disagreement and you have three checks in place: You can go to Congress and seek to change the law, to have it be drafted in a way where the regulator comes out with a different outcome; You could continue to disagree with your regulator and work through it that way; Or you could take it to the court system and have it be interpreted the way that you think it should.
In a space like this regulators really have a tough job because it’s so new. A lot of use cases don’t fit cleanly within existing laws and regulations and so I think just knowing that the things we’ve been working on with you and Davis Polk are just a part of the process that is mutually respectful and not out of the ordinary at all.
Don Verrilli: Yeah. One way to think about it is this is the way things get figured out in our system. It is through the interaction, as you said, exactly right, through the interaction of all the branches of government, all three. That if enough evidence accumulates that Congress feels like it needs to step in, then Congress will step in. But a lot of the times, the way that evidence accumulates is through not just the regulatory process, but the regulatory process followed by litigation. Highlight some deficiencies in the regulatory process.
And as I said, but then the courts are there as a backstop to ensure this kind of procedural fairness. The job of the court is not to make the substantive policy judgment. The job of the court though is to just make sure that the executive branch is making the substantive policy judgment in a fair and transparent way that responds to the evidence in front of it. And that’s what the litigation’s all about.
Craig Salm: I think that concept, the fact that at the end of the day you have people making these determinations, they have their own opinions. It occurs to me that a lot of people who were working under the Obama administration when you were there are also working today for the Biden administration. Any thoughts on what they’re thinking would be around an issue like this or just the SEC more generally?
Don Verrilli: Yeah. So I don’t know any of the SEC folks in particular but basically enough to know… So one sort of knee jerk reaction to this would be, well, these people were in the Obama administration and now they’re back and they’re gonna be pro-enforcement and they’re gonna wanna show they’re tough and all that. But I actually don’t think that that’s the way serious senior people in the government think. Maybe some do but I don’t think it’s the way most think.
My experience was, and it was sort of heartening, this sounds like…I sound like a high school civics teacher, I suppose, saying this… but it was heartening actually to be in the room and have these discussions with senior officials. For the most part, they wanna get it right. They wanna get it right. And that was my experience working with these folks in the Obama administration and many of them are back in important positions in the Biden administration.
And I feel like, yeah, there are gonna be political constraints sometimes and there are gonna be various pressures on them, but in general, people in these positions, they’re serious people and they’ve made a decision to do public service because they care about advancing the public interest and they wanna try to get it right. And so that’s why I’ve said in prior conversations, and I’m saying here, why I remain hopeful here: that they sit down and think about this and have to come to a final judgment. They’re gonna realize that there’s a right answer here. There’s a right answer for what’s in the public interest. There’s a right answer that satisfies the requirements of reasoned, principled decision-making under the Administrative Procedure Act. There’s a right answer here and I think that they’re gonna wanna try to reach it.
Craig Salm: Yep, I could not agree with you more and looking forward to leading up to July 6th now that you’re on the team and we can continue that really positive engagement we’ve had with the SEC.
So to conclude, we’re sitting in a room full of very interested and talented journalists who are all here to hear you speak. Any final thoughts or lessons learned that you’d like to leave them with?
Don Verrilli: It’s gonna be a broken record to say that from my perspective, coming on board here, it seems to me this pretty clear answer to what’s in the public interest here. And I feel really privileged actually to be able to be in a position to help fight for it.