Many industries in the US are highly regulated, often by both the state and federal governments. This can create significant problems when someone tries to do something new in them. When trying to innovate in such environments, one is faced with how to balance charging ahead with the idea and waiting to ensure that no government hammer is about to drop. What one person calls a great innovation can sometimes be dangerously close to what another would call illegal activity. If that other person is a government regulator then the innovator could be in big trouble. However, waiting to determine the legal landscape risks losing valuable time and money to competitors.

A recent example of this tension between pushing ahead and waiting playing out seems to be what the Robinhood investment app has been doing. While I actually couldn’t find a concise statement on why I should invest with them on their website, they seem to position themselves as a new way to operate in finance by offering no trading fees, ease of use on mobile devices, and no account minimums. However, their revenue method has been described as “toeing the line of legality” and there are fears that its main source of revenue will be regulated out of existence. An attempt to offer a new product (a checking account) faced regulatory pushback leading to Robinhood to pull product before its launch. Their website currently has a cash management option labeled as “coming soon” instead. The feasibility of the account, even if not threatened by regulators, is in question anyway,re-raising issues about their business model.  Robinhood appears to be doing more of the pushing and less of the waiting, with results that seem promising and have so far avoided real consequences. However, this risk for serious consequences remains (such as rolling out the checking accounts to customers at the time of announcement).

The Robinhood example brings up the legal issues of not only the company itself, but also of its attorneys. Attorneys are, at some level, responsible for the legal advice that they give to their clients, especially if they are also an employee. Lawyers are already perceived as risk-averse and focusing on what one cannot do, rather than on what one can do, and lawyers, like all other company insiders, face similar risks to others who work in a highly regulated industry like finance such as insider trading. However, lawyers are also subject to the rules of the legal profession, and these rules can give lawyers certain affirmative duties and in some cases the option  doing something that would otherwise violate the duty to the client (such as the Rule 1.6 confidentiality rules). This tension can create difficulties for attorneys seeking to advise clients as the attorney can be conscripted by the regulator to assist with compliance or risk losing the ability to practice. Knowing this, if one wishes to innovate in regulated environments how much distance should one keep from the attorneys? Do such innovators know of such potential problems? Is it just a risk that the attorney assumes when advising clients in such a regulated industry that the attorney could be penalized for bad analysis? In such highly regulated environments, is it better to ask for forgiveness rather than for permission and does that apply to the advice an attorney should give? Are there disincentives for lawyers to work with entrepreneurs in such highly regulated environments for fear of the repercussions? Law itself is a highly regulated industry. Does this dynamic work there as well? More broadly, determine the difference between legal and business risk has come up as one of the key things attorneys have to decide when advising new enterprises. I’m wondering if in some contexts, such as highly regulated industries,  that their is no difference. The Aereo case might be an example from a less regulated context, but does that approach translate well into more highly regulated industries?