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The traditional brokerage/agent head-count model is in a death spiral

Veteran Wall Street enforcers are landing new roles on a wild frontier: virtual currencies.

A growing number of crypto startups are adding former regulators and other government authorities to their payrolls, a practice that could help them head off or prepare for stricter rules. Ventures have snapped up ex-prosecutors, national security officials and at least one former senior diplomat — all of whom may prove handy as nations decide whether to embrace or outlaw digital money.

The drumbeat of hires crescendoed in November when Ripple, a venture looking to rewire global banking with its own cryptocurrency, added Ben Lawsky to its board. He earned a tough reputation as New York’s top financial watchdog by pushing banks to scrutinize client transactions for illicit dealings. In January, crypto brokerage Omega One enlisted a new adviser, Bart Chilton, a former member of the Commodity Futures Trading Commission. The agency oversees digital currencies.

“The fact that he’s willing to take an advisory role with us is a sign that we pass a certain level of due diligence,” Omega One’s chief executive officer, Alex Gordon-Brander, said of Chilton.

‘Air Cover’

The hiring spree breaks with the crypto world’s dominance by millennials — many with no background in traditional banking. Yet it follows a well-worn path for financial innovators, such as online lenders, that set out to disrupt the industry and then ended up recruiting experts to guide them through its many regulatory pitfalls.

Crypto firms are likely to keep hiring regulatory experts to legitimize themselves, said Dave Weisberger, CEO of CoinRoutes, a cryptocurrency data and order routing company. Still, potential investors shouldn’t assume it makes firms a safe bet, he said.

“If putting someone on the advisory board convinces investors that it decreases the regulatory risk of a product they’d be sorely mistaken,” Weisberger said. “There are a lot of people who could be fooled into thinking it gives them more air cover.”

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Harold Ware

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