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Crypto ‘Keeper Dings DOL on Crypto Compliance Assistance


Recordkeeper ForUsAll has filed suit against the Labor Department for its recent “arbitrary and capricious attempt to restrict the use of cryptocurrency in defined contribution retirement plans…”

Not surprisingly, ForUsAll has made its hay touting its retirement investment platform for small businesses as not only allowing employers to provide alternative investment options within 401(k) plans, nearly a year ago it announced a linkup with cryptocurrency platform Coinbase Institutional to offer cryptocurrency as the plan’s first alternative investment. 

But in the wake of the Labor Department’s “compliance assistance release” this past March on cryptocurrency investments in defined contribution plans, the suit claims that “approximately one-third of the plans ForUsAll has discussed the matter with have indicated that, despite their interest in including cryptocurrency, they do not intend to proceed at this time in light of Defendants’ enforcement threats.”    

APA Purpose

The suit states that the Administrative Procedure Act (APA)[i] was intended to create safeguards against “arbitrary official encroachment on private rights,” safeguards that include “requiring that agencies go through a public notice and comment process before issuing rules.” The suit, brought under the APA, “challenges DOL’s arbitrary and capricious attempt to restrict the use of cryptocurrency in defined contribution retirement plans, in excess of its authority under the Employee Retirement Income Security Act (ERISA) and without following the notice and comment process required under the APA.”

The plaintiff here—represented by Groom Law Group—argues that:

  • cryptocurrency is a “widely accepted asset class”—indeed the suit points to positive comments from President Biden the day before the DOL’s communication (though that would seem to have been about the prospects for a U.S. government designed/issued version);
  • no asset class is presumptively imprudent under ERISA; and
  • ERISA does not mandate paternalism with respect to participant investments.

In issuing the Release, the suit argues that the DOL:

  • “invented a standard of care, ‘extreme care’—heretofore unseen in the nearly 50-year history of ERISA and contradicted by the text of the statute—applicable only to cryptocurrency”;
  • announced a “new obligation” to monitor investments in brokerage windows (only to deny that the obligation existed for any investments other than cryptocurrency);
  • focused exclusively on the risks, without mention of the potential benefits (notably diversification);
  • “Raised the specter that other regulators might shut down trading…”; and
  • “Threatened to open investigations of plan fiduciaries that offer cryptocurrency.”

The suit states that “a senior DOL official has now publicly admitted that DOL considered going through notice and comment rulemaking” but decided it would be “politically inexpedient” to do so. “Political expediency is not a valid justification for deciding not to comply with the APA.”

Background Review

The suit spends some time going back over the history of the DOL’s position on things like directed investments and self-directed brokerage accounts, the development and current reach of investment in cryptocurrency, and particularly President Biden’s Executive Order directing government agencies to submit a report on the “implications of developments and adoption of digital assets”—an order the suit claims was “widely understood to supplant any hostility individual government officials may have previously expressed with respect to the existence of cryptocurrency…”

It also cites the “Letter to DOL on 401(k) Plan Investments in Cryptocurrencies” where a number of leading trade groups expressed concern over what seemed to be “a trend at EBSA away from rulemaking based on a robust notice and comment process,” and asked that the “cryptocurrency guidance be withdrawn” pending that type of process, most specifically critical to be withdrawn was the “announcement of a new fiduciary standard with respect to brokerage windows.”

Echoing those concerns, the suit notes that “neither the Release nor statements by DOL officials offer any coherent rationale for how there could be a duty to select and monitor investments in a brokerage window if those investments [are] cryptocurrency, but not if they are any other type of investment.”

Thumb ‘Drive’

And, speaking of other investments, the plaintiffs take a swipe at what they (apparently) see as hypocrisy between the Administration’s approach on this asset class versus ESG. Specifically, “While it is inappropriate for DOL to put its thumb on the scale for or against particular types of investments, including cryptocurrency, it is notable that the short-lived rule which DOL now says improperly put a thumb on the scale against ESG investing was done through notice and comment rulemaking.”

Aside from the general arguments on behalf of cryptocurrency, the ForUsAll plaintiffs speak to their specific product offering,[ii] noting limits they place on new contributions and new allocations to cryptocurrency (5%), as well as “numerous other protections for participants,” including education, secure storage methods, and requiring participants to take an interactive quiz that covers the risks before letting them invest. They claim to have shared this information with DOL, which they say has to date not identified any “additional concrete step ForUsAll could take that would address DOL’s purported concerns.”

Ultimately, the plaintiffs here claim that the release was “the product of rushed decision-making, relied on inaccurate and outdated information and irrational assumptions, and failed to incorporate relevant information and the views of relevant stakeholders, including but not limited to information and views provided by the President of the United States.” They claim that the release is, at least in part, based on a “bias against cryptocurrency,” that it is “inconsistent with existing DOL pronouncements” and “singles out cryptocurrency for disparate treatment.” And finally, that the release “improperly threatens to open investigations and impose costs on plans and fiduciaries who take lawful action.”

The suit asks for relief in the form of “vacating and setting aside the Release,” enjoining the DOL (and its officers/agents) from “implementing, applying or taking and action” based on or in furtherance of the Release, and—of course—awarding reasonable costs and attorneys’ fees incurred in bringing the suit.

What’s Next

Will this suit have “legs?” Arguably whatever the impact (and implications) of the Release, it’s hard to see it as actually rising to the level of the rules/regs that generally warrant application of the APA. That said, it certainly seems to have had an impact in a way that the usual list of DOL/SEC audit priorities never really seem to merit.

Stay tuned.


[i] Concerns about the DOL circumventing the requirements of the Administrative Procedures Act was also cited in a recent lawsuit involving the fiduciary rule.

[ii] Of course, Fidelity has also made a splash in the space, announcing its intention to make crypto available to its recordkeeping clients.