A couple years ago, Dallas attorney Mark Rasmussen and his co-workers at the global law giant Jones Day started kicking around ways to get in on the ground floor of tech trends they thought could affect North Texas businesses.

Some started researching artificial intelligence. Others were drawn to robotics.

“I picked bitcoin,” Rasmussen said in a recent interview at Jones Day’s tranquil, cream-colored offices in a Harwood District tower. “I didn’t know too much about it, and I wanted to find out more.”

At the time, cryptocurrencies and their underlying blockchain technology were still mostly seen as niche interests for nerds who tended toward visions of a libertarian utopia and computer hobbyists.

Rasmussen’s colleague James Cox already considered himself the latter. He had a computer science degree and first heard about bitcoin all the way back in 2013.

“It never occurred to me that there actually might be legal work that would relate to it,” Cox said.

This was well before swirling hype around bitcoin, the best-known of a growing roster of virtual currencies available to investors, pushed its value to a tantalizing high of almost $20,000 in December.

But where money goes, legal issues follow. And the attorneys’ efforts to get ahead of the game are poised to pay off.

Rasmussen was recently tapped as the first ever receiver in an SEC case involving the sale of access to a new cryptocurrency in what’s known as an initial coin offering, or an ICO. (Think of it sort of like an initial public offering of stock.)

Cox, along with a team from Jones Day, is working as Rasmussen’s counsel.

The role of a receiver is a neutral one, appointed by a judge, meant to help keep assets in one place while a legal battle plays out over what to do with them. That way, if a person or company is found to have obtained the assets through less-than-legitimate means, the court can help get them back to investors.

Receivers are not unusual in complex financial fraud cases, where a group of people may have been bilked out of money, stock holdings or real estate.

This case, however, hinges not on tracking American dollars stored in conventional bank accounts, which can be frozen if they’re involved in a legal dispute, nor real estate, which can’t move, but on cryptocurrency.

So, on Jan. 26, when Rasmussen and Cox went with investigators to a picturesque ranch Airbnb about an hour east of Dallas to find a man named Jared Rice Sr., things could’ve gone very wrong.

Rice — who federal regulators allege was scamming investors with a fraudulent initial offering of something called AriseCoin and lying to them about what he and a partner pitched as the world's first "decentralized" bank — could've caught wind that the court was coming for what he had claimed was $600 million worth of cryptocurrency and other money he'd raised.

And he could’ve made it disappear in an instant.

Mark Rasmussen (left) is the first court-appointed receiver in a case involving an initial cryptocurrency coin offering. He and the team of Jones Day attorneys, James Cox (right), Melissa Saldana and Jay Johnson, are pictured with Rasmussen in Dallas, Friday, April 13, 2018. (Tom Fox / Staff Photographer)

Tracking crypto assets

Federal regulators allege that Rice and his partner, a man named Stanley Ford, started raising money late in 2017 for the initial AriseCoin offering.

They made lofty claims about starting a decentralized bank they dubbed AriseBank, a transparent, consumer-driven entity they said would revolutionize the keeping and trading of cryptocurrencies.

A YouTube video, posted in December, shows Rice — clean-shaven and speaking with a mix of sheepishness and confidence, as if he'd studied the stereotype of a young programmer preoccupied with his work — talking with the commentator "Crypto Connie" Willis.

“Tell us what you’re gonna do with the blockchain that’s different from anybody else,” Connie says.

“Well, we’ve actually already developed a lot of it,” Rice replies. “When you look at crypto projects, a lot of them are really focused on one, like, piece, and Arise is really everything all into one.”

Connie asks if he's ever seen the HBO show Silicon Valley. Rice says he hasn't.

“Oh,” she says, smiling. “Let me tell you, it is totally what you have described.”

AriseBank posted on social media that the boxer Evander Holyfield had endorsed its product. Rice and Ford claimed in January news releases that they'd bought two federally insured institutions to lend legitimacy to their enterprise.

But neither of those banks appeared to exist, let alone have the blessing of the FDIC. Regulators pounced.

The Texas Department of Banking had already issued AriseBank a cease and desist order when, on Jan. 25, the U.S. Securities and Exchange Commission filed its then-sealed complaint and a judge approved making the call to Rasmussen, whose mission would be to find as much of the money as he could and hang onto it.

Jones Day, Rasmussen said, was well-positioned to help him handle whatever obstacles came up.

“The first day was such a wild blitz, and there was a need for people around the globe, really,” he said.

On Jan. 26, Rasmussen and Cox went to Wills Point, where the FBI was executing a search warrant. Rice and three “associates,” as they were described in a court document, were there. They agreed to talk to Rasmussen.

Rice gave up access to the laptop that had the digital keys that allowed him to access various wallets, or places to store cryptocurrency.

Rasmussen was able to transfer most of the cryptocurrency they’ve since recovered immediately into new wallets, carefully set up by cyber-security experts on brand-new laptops that had never been connected to the internet before. It was a good day.

“We did need passwords to get into the accounts, and when we weren’t sure what those passwords were, [Rice] provided them to us,” Rasmussen said. “I was pleased and relieved that we found something and that we could get it.”

The next day, Cox said, he saw how things could’ve gone. He said he came into the office to check on a colleague’s progress accessing another wallet they’d found out about, this one full of a cryptocurrency called Pivx.

“We could see that there were these 75,539 Pivx coins, which were worth several hundred thousand dollars at that time, and they were in this account,” Cox said.

Kroll, the cybersecurity firm that the court had approved to work with Jones Day, was trying to set up a Pivx wallet so the attorneys could transfer it out.

“And then shortly before we’re able to do that, the access to the account disappears,” Cox recalled. “Which means someone has either changed the password or otherwise terminated our access to that account and then shortly after that, the Pivx disappears.”

As it turned out, the Pivx had been sold, and part of the proceeds — about $200,000 — was used to pay Rice’s lawyer’s retainer. The lawyer, to his credit, the Jones Day attorneys said, returned it to be included in the case’s estate.

More recently, the team has been trying to shake the internet's proverbial couch cushions looking for more cryptocurrency assets.

Eventually, the team will have to come up with a plan — to be approved by the judge — about what to do with all the assets. That in itself presents new challenges that agencies from the U.S. Marshal's Office to the ATF are still grappling with.

“We have a fiduciary duty to report to the investors, and our job is to maximize the value of the receivership,” Rasmussen said.

In any receivership, there are questions about the best ways to do that. But with cryptocurrency, many of the complexities are on steroids.

Do they sell the cryptocurrency assets? How do you do that? What if they’re worthless? What if trying to trade a particular cryptocurrency floods the market for it and affects its value?

“All good questions,” Rasmussen said.

Cox said that in other cases where the government has had to liquidate bitcoin, it’s more straightforward, since it’s so often traded. Typically, he said, they’re sold at auction.

At the end of the day, it’ll be a process.

“It’s really not that different than if we had a receivership and we had some condo in Tahiti that we had to sell,” Cox said. “When do you sell it? Has it gone down in value? It’s judgment calls.”

Then, there are the investors.

The team set up a website, arisebankreceiver.com, as a way of reaching out, and Rasmussen said that a slow but steady trickle of people have called or emailed, curious about the case.

Rice could not be reached for comment. His attorneys, John and Ed Garland, wrote in a statement that “prior to the seizure by the SEC, Arise was working on a cutting-edge decentralized cryptocurrency management platform.”

They continued: “We are investigating the allegations in the complaint and will respond to those allegations through our filings in the case.”

They are not representing Ford.

The court gave Rice until May 16 to respond to the allegations. Shamoil T. Shipchandler, director of the SEC's Fort Worth regional office, said he couldn't comment on a pending case.

A ‘monumental step’

Although the first receivership in an SEC action against an ICO may sound more like a mouthful of legalese than a noteworthy milestone, regulators at all levels say Rasmussen’s appointment represents a major step forward in their attempts to protect average consumers as they navigate a rapidly evolving investment space.

“Jones Day is going to be a trailblazer in figuring out how to handle that estate,” said Joe Rotunda, enforcement chief of the Texas State Securities Board. “It’s a monumental step.”

His office recently mounted an aggressive crackdown on what it says is a fast-growing number of cryptocurrency-related schemes.

Cryptocurrencies occupy a singular spot at the intersection of world-transforming technology, finance and debates about government intervention in free markets.

They’re also just plain hard to understand without some knowledge of blockchain technology, which allows cryptocurrencies to be moved and traded outside the heavily regulated realm of traditional money.

And even with some technical background, it can be tricky to grasp what makes a new cryptocurrency a viable investment. There's some debate about whether cryptocurrencies should be regulated as securities or commodities — or if it depends on the situation.

That confusion, coupled with an undeniable mystique, has made cryptocurrency ripe territory for fraudsters who increasingly prey on baby boomers eager to multiply their retirement accounts.

In an alert aimed at helping investors navigate these choppy waters, Rotunda's office said it had opened 32 investigations into cryptocurrency promoters targeting Texans over the course of a month, starting on Dec. 18. Seven of them were offering securities tied to a new cryptocurrency. None of them were registered to sell securities in the state, which, the agency said is a violation of state law.

But so far, Rotunda said, state regulators have really only been able to stop fraudulent businesses from collecting more money (cryptocurrency or otherwise) from unsuspecting investors, often by issuing cease and desist orders or injunctions.

“With the receivership, there’s the potential for victims to at least get something back,” Rotunda said.

U.S. Attorney Erin Nealy Cox, a cybersecurity expert who was named North Texas' top federal prosecutor last year, said in a statement that more and more, all kinds of cases become cyber cases — whether it's because online tools are used to commit crimes or proceeds are converted into cryptocurrency to hide them.

Hilda Galvan, Jones Day’s Dallas partner-in-charge, helped launch the firmwide look into emerging technologies.

“As we considered our clients’ future needs, it became clear to us that the rapid evolution of technology would have a disruptive impact on their businesses,” she said in a statement.

Defending the blockchain future

Cody Marx Bailey remembered first running across Rice by chance. He and a friend tried to read through Arise’s white papers, or its technical justification for the project.

“It was all junk,” Bailey said recently.

As founder of the North Texas Blockchain Alliance, he's tried to encourage self-regulation among cryptocurrency enthusiasts.

“Unfortunately, in any space like this where we have a new piece of technology that gives individuals a lot of power ... you sort of attract two types of people,” he said. “The good actors that are there to fix problems and create value and you also have the sort of fraudsters and snake oil salesmen.”

Bailey runs a cryptocurrency hedge fund. And people like Rice, he said, hurt conditions for what he described as the inevitable widespread adoption of blockchain-based financial systems.

“The overall trend upward [in cryptocurrency value] is based on user adoption,” he said. “If you look at the adoption of the automobile, it slowly took off and then all of a sudden it was like, oh s---, within 20 years everybody had a car.”

So, contrary to what one might think, yes, Bailey is OK with the government getting involved, as long as regulators continue to be cautious. In Texas, especially, he said, regulators have done a good job picking off low-hanging fruit, like AriseBank.

While he said he saw the appointment of a receiver in an ICO case as evidence that the government won’t say no to collecting money where it can, it’s also a positive step.

“You know, it’s a good take,” Bailey said. “But it also gets them to admit that these things are worth something.”