Bitcoin

Benjamin Lawsky, Wall Street's Latest "Sheriff," Trades in His Badge To Take Money From the Companies He Used To Regulate

New York's top financial regulator prepares to turn his Rolodex into gold.

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The Village Voice |||

Benjamin Lawsky, the superintendent of New York State's Department of Financial Services, announced on Wednesday that he's leaving to start his own consulting firm—a move that will likely make him a very wealthy man. Lawsky has spent his entire career up until this point working in government—he started his career as an aide to Sen. Charles Schumer (D-N.Y)—so he won't have many business insights to share with his clients. But his Rolodex should come in handy.

Lawsky was appointed by Gov. Andrew Cuomo (D-N.Y.) in 2011 and he quickly earned a reputation for elbowing his way into regulatory issues typically handled at the federal level. When a financial firm got in trouble with federal regulators, Lawsky would step in and threaten to revoke its banking license. That would force the company to pay New York State an enormous settlment on top of whatever punishment was meeted out by the feds.

Benjamin Lawsky speaking at a public hearing on the BitLicense on January 29, 2014. |||

Lawsky will also be remembered as the father of the so-called BitLicense, a regulatory regime he created specifically for digital currency firms that do business in New York State. (The final version of the BitLicense is expected later this month.)

The BitLicense should help with business development at his new firm. The most recent draft gives state regulators discretion over whether to grant on-ramp exemptions to startups. As Coin Center's Jerry Brito and Peter Van Valkenberg wrote in a recent critique of the BitLicense:

Discretion…generates regulatory uncertainty: a citizen never knows whether conduct she has freely engaged in before will suddenly become punishable simply because a government official changed his mind, or was replaced, or—in the worst case—was influenced by a competitor or someone who wished our hypothetical citizen harm.

When regulators can make or break your business, who better to make a phone call on your behalf than their old boss?

Check out my recent Reason TV video, which looks at how the BitLicense further complicates an already maddeningly complex regualtory process for cryptocurrency firms: