More Lessons in Chaos

Trump's Master Class in Legal Incompetence

The Trump administration is running a master class in legal incompetence. That is in keeping with their general modus operandi of ignoring the law and waiting for someone to come after them. Perhaps there is an evil genius at work, but I doubt it. In the meantime, anyone running a business can learn a lot from their mistakes. So here is a rundown.

Litigating Badly

Trump tried to abruptly end foreign aid by simply refusing to pay it. Recipients of the aid quickly filed a lawsuit under the Administrative Procedure Act, which is designed to prevent agencies from acting arbitrarily and capriciously. The foreign aid pause certainly appears to be, if not arbitrary, then capricious.

As part of the litigation, a federal judge in Washington directed the Trump administration to pay $2 billion in foreign-aid reimbursements to organizations that had already performed the services (yes, Trump tried to stiff them) by February 25. The judge’s order was a “temporary restraining order,” which, for technical reasons, is not appealable to a higher court, although the court that issued the order could “dissolve it,” and the refusal to dissolve the order would be appealable. That's one of those hard and fast rules. But that did not stop the Trump administration from appealing the unappealable order to the Supreme Court. Oops. Trump lost.

The dissent (and presumably Trump) makes some good technical arguments about why the order should have been vacated, but the bigger issue is why Trump tried to pause payments for work already completed. Certainly, there is an argument about whether Trump has the right to pause payments going forward, and that would at least accomplish the goal of ending U.S. foreign aid. But that decision is yet to come. By forcing the Supreme Court to curtail his power to pause payments for work already completed—essentially by litigating badly—Trump took an unnecessary loss. And that is just bad lawyering.

At the end of the day, as I’ve written before, it’s going to come down to whether or not people charged with executing the law put their fidelity to Trump over their fidelity to judicial decrees. If the Trump administration refuses to make those payments, then we have a genuine constitutional crisis. So far, however, it seems they are sleeping in the messy bed they made for themselves.

Negotiating Badly

While most of the world, including Trump himself, saw “good television” in the appalling confrontation between the Ukrainian president and Trump in the Oval Office, lawyers saw something else: a lesson in how not to negotiate. A good lawyer knows that you never put your client in the same room as their adversary unless they are on the cusp of a deal or, ideally, the deal is done and you’re at the closing table. Or you’re working with a professional mediator. Otherwise, your clients are just going to yell at each other, the lawyers will need to posture, and you’ll end up further from a deal than when you started. It all goes by another name: a waste of time.

And that is what happened. Of course, that is in keeping with the rampant incompetence of Trump and the people he surrounds himself with. When you need to be the smartest person in the room, and you’re not very smart, you can expect things to go very badly.

And while some might say that the point of the meeting was to browbeat Zelensky and announce the U.S.'s new alliance with Russia, it’s not clear why that needed to be such a spectacle—you only get to do that once, since future leaders would never agree to anything other than a super-scripted press conference. It’s also not clear what the U.S. got out of the incident. Biden already sent enough money for Ukraine to finance the war for a period until the Europeans, who are supposed to be spending more on defense anyhow, step up. And their aid will come with far fewer strings. The only thing the meeting appears to have accomplished is delaying the signing of a mineral rights deal that was very favorable to the U.S.

Let’s keep “winning.”

Shutting Down Independent Legal Judgment

As a lawyer, I know how to follow the party line. It’s part of the job: when your client or employer wants you to row in one direction, but you’d rather go in another direction, you have two choices—row or get off the boat. But that does not mean you have to row in silence.

Dissent is important. Not a “this feels wrong” dissent, which is unhelpful. And not a “throw your oar in the water” dissent, which is even less helpful. But rather a well-thought-out dissent that uses facts, data, and provides options. That is what I try to provide to my clients.

But Trump wants all “his” lawyers to row in silence or, alternatively, get off the boat. The methods Trump and his people are using—demoting people and dropping high-profile prosecutors for clearly political reasons (and in the process losing their best people) —is just bad management and a total misunderstanding of how to manage lawyers.

It’s forcing more and more people not only to stop rowing but also to throw their oars in the water—a double whammy, since a public resignation actually harms the effort (as opposed to just stopping). For example, Trump’s people could have urged the Southern District to offer a generous plea deal in the case against New York City Mayor Eric Adams case —as I’ve written before, the case against Adams was not strong, and it was not clear the DOJ would have won. Weighing legal options might have led to the case being resolved anyhow.

But instead, they tried to strong-arm some of their best prosecutors, forced them to resign publicly, and are now going to have a written decision documenting it all—plus appeals, etc. Most lawyers would consider this a colossal mistake. If this were a law firm rather than the Trump DOJ, you can bet a partner would be forced out for screwing this up so badly. I’d certainly expect my client to fire me.

But even beyond this huge screw-up, having lawyers present different opinions—showing you risks, offering alternative paths, ideally less risky ones—makes you better able to accomplish your goals. Remember, lawyers don’t say “no.” They say, “This is risky. Here is a less risky way to accomplish this.”

It’s also important to keep in mind that, other than a very limited number of political appointees, the vast majority of government lawyers serve whoever the voters decide is in charge. They understand that priorities change—one administration might want to crack down on crypto, another might want to crack down on immigration or abortion—but generally speaking, the lawyers do their jobs.

It’s not about compromising or being complicit. Sometimes, doing the wrong thing the right way is just part of the job. And government lawyers tend to do it both effectively and ethically.

As the administration continues to stamp out dissenting opinions, they are going to find themselves weaker. They are also going to find that no one competent is willing to actually work hard toward a goal they feel alienated from, even if they appear to be “rowing” in the right direction.

Issuing Confusing Guidance

If you operate in the U.S., I’m sure you’ve gotten a dozen or so emails about the Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Information Report (BOIR) requirement. The requirement was on, then off, and then on again. Eventually, the courts declined to block it, so it's coming into effect.

But wait! The Trump people have one more trick up their sleeves: non-enforcement. You may recognize the non-enforcement ruse from the TikTok ban, which the Trump administration has said they would “not enforce.”

That’s a really dumb way to make policy. True, enforcement priorities change. But there is a principle that the government can’t be “estopped.” That’s important because it means that if the government told you to do something and you did it—and it broke the law—you can’t use the excuse that “the government said it was OK.”

The correct approach would be to tell the 200 million U.S. businesses to follow the requirement until such time as the requirement is revoked or to allow them to register without providing the sensitive information until a new regulation is promulgated. Simply saying, “The regulation is in place, but we won’t punish you for not following it,” creates unnecessary risk for companies.

Losing Crypto Credibility

I don’t think it’s controversial to say that under the guise of “downsizing” the federal government, Trump and Musk are trying to make regulators less effective and free up businesses to make more money. That has actually been a long-standing goal of traditional conservatives.

Traditional conservatives don’t want people hurt. They just see market-based solutions as an effective deterrent to wrongdoing. Besides, where the government fails, private lawyers take over. Class actions, mass tort claims, and securities fraud claims are just a few examples of private law stepping in when the government fails to effectively regulate. It’s how lots of lawyers make lots of money.

One of the pet peeves of the crypto industry—where I briefly worked and still have clients—was what they considered “regulation by enforcement.” Because we never bothered to actually pass any laws or create regulations governing crypto, regulators (namely the Securities and Exchange Commission) determined what was acceptable and what was “illegal” by coming up with novel enforcement theories and prosecuting the case.

That was frustrating because you never knew if you were doing the right thing until after the fact. And many people who thought they were doing the right thing got ensnared in enforcement actions they felt were unfair. But there were also many scams. As I’ve written before, on balance, without strong enforcement, crypto would not be experiencing the second/third/fourth boom it appears to be having. The crypto industry is probably better off because of Biden-era enforcement.

Of course, the crypto industry thinks otherwise. Like all industries, they want “self-regulation.”

When the Trump administration came in and essentially gutted the SEC’s enforcement of crypto they were signaling that they trust the industry and the market to police itself. There would be nothing wrong with that—except that some people in the Trump administration (like the Trump family) have been marketing “meme coins” with no actual value, and real people are losing real money while Trump earns his fees.

Also, far smarter people have pointed out that Trump and his family own a lot of those coins. And even if they can’t sell them because they are “locked up,” purchasers can keep the price high by buying the worthless asset—essentially giving Trump what amounts to a very public bribe eventually.

Then there’s the issue of the “rug pull,” where insiders pump up the price and then sell their coins at the peak, leaving everyone else with losses. The president of Argentina—a huge crypto booster and Trump fan—just did that.

The reality is that the people losing money are some of the MAGA faithful—those who buy these meme coins (and the Trump Media & Technology Group meme stock) and then lose money. These are the very people whose support Trump needs.

Perhaps there is no amount of craven greed that will turn these people off because they are really dumb marks. But I doubt that. If you keep ripping off your own customers, you’re going to find yourself with very few customers.

The issue is actually broader: If you want to show the world that enforcement is less effective than the market, and that a massive decentralized financial system is something retail investors should be excited about, it’s best not to engage in fraud yourself. But these people can’t help but get in their own way.

Keep thinking, keep building,

Jesse

Hi, and welcome to my newsletter! I’m Jesse Strauss, Your Fractional General Counsel. I’m a lawyer with a private practice based in New York City, helping clients in the United States and globally with their U.S. legal needs. My expertise spans various areas, including raising funding rounds, employment issues, negotiating master service agreements, intellectual property, compliance, legal process management, and dispute resolution. My focus is on founding and nurturing great companies from seed to exit. Discover more at Your Fractional GC and book a complimentary 30-minute consultation. You can also follow me on Threads @lawyerjesse1977, on BlueSky @lawyerjesse.bsky.social, subscribe to my Substack here (follow me on notes), and follow me on LinkedIn here