DOJ Charges FTX's Bankman-Fried With $40 Million Bribe of Chinese Official

Sam Bankman-Fried paid over $40 million to bribe at least one Chinese official, DOJ alleges in new indictmentFTX co-founder Sam Bankman-Fried paid out tens of millions of dollars worth of bribes to at least one Chinese government official, federal prosecutors alleged in a new indictment Tuesday.

The federal government alleges that accounts belonging to Bankman-Fried’s hedge fund, Alameda Research, were the target of a freezing order from Chinese police “in or around” Nov. 2021. The indictment also alleges that Bankman-Fried and others “directed and caused the transfer” of at least $40 million in cryptocurrency “intended for the benefit of one or more Chinese government officials in order to influence and induce them” to unfreeze some of these accounts.

Bankman-Fried and his associates considered and tried “numerous methods” to unfreeze the accounts, which contained around $1 billion worth of cryptocurrency, prosecutors allege. Ultimately, after both legal and personal efforts failed, Bankman-Fried agreed and directed a multi-million dollar bribe to unlock the frozen accounts, prosecutors allege.

Brazilian Mining Company to Pay $55.9 Million to Settle Charges Related to Misleading Disclosures Prior to Deadly Dam Collapse

The Securities and Exchange Commission today announced that Vale S.A., a publicly traded Brazilian mining company and one of the largest iron ore producers in the world, agreed to pay $55.9 million to settle charges brought last April stemming from the company’s allegedly false and misleading disclosures about the safety of its dams prior to the January 2019 collapse of the Brumadinho dam that killed 270 people. The SEC’s complaint alleged that, for years, the dam did not meet internationally-recognized safety standards even as Vale’s public sustainability reports assured investors that all of its dams were certified as stable.

Binance Crackdown Threatens US Firms Trading Crypto, Alarming Market

A top US regulator’s case against Binance Holdings Ltd. is mushrooming well beyond Changpeng Zhao’s company and rattling American firms that officials say worked with the exchange to trade crypto.

The Commodity Futures Trading Commission’s scrutiny of arrangements that three trading firms had with the exchange has already sent chills across an industry, which relies on US licenses to make markets for securities. The firms weren’t identified in the CFTC’s lawsuit.

The stakes are particularly high for American trading firms because even as many have dabbled in crypto, equities and other more traditional assets remain their bread and butter. A serious regulatory misstep could have repercussions on their broader ability to conduct business.

“The risks to US firms are far greater than the risk to Binance,” said Urska Velikonja, a professor at Georgetown Law. “The big risk to them is the ‘lights out’ risk that they lose their license to operate as broker-dealers in the US.”

Has the SEC Made 10b5-1 Trading Plans More Hassle Than They’re Worth?

The bigger question may be whether the SEC’s amendments have just made 10b5-1 trading plans more hassle than they are worth.

For example, prior to the amendments the SEC did not require a cooling off period between adopting and trading pursuant to a 10b5-1 plan. Instead, companies and brokerages developed their own policies, typically requiring 30-60 to days. By allowing flexibility, those with a legitimate motive for trading in the near term could still avail themselves of the affirmative defense provided by Rule 10b5-1(c). The SEC’s mandatory 90-day rule eliminates that flexibility, requiring insiders to wait a full three months before trading. An insider with a legitimate motive for trading sooner must now weigh the potential benefit of the affirmative defense against the cost of waiting out the mandatory cooling off period. Likewise, the insider must consider the new limitation that trades made under a 10b5-1 plan adopted at any given time will be the only trades eligible for the affirmative defense for the following year. Finally, the insider must consider whether the value of the affirmative defense outweighs the potential costs of public disclosure.

Another consideration is the cost both monetarily and administratively of complying with the amendments….

Law professors mine ‘Succession’ for legal lessons

“Succession,” the HBO drama chronicling a media mogul and his children’s battles for control of the family company, returned this week for its fourth and final season. Few are watching more intently than a group of U.S. law professors dissecting the show’s juicy legal issues.

A dozen professors and lawyers formed a weekly online discussion group cheekily named the Waystar/Royco School of Law—a reference to the fictional company and family at the center of the show—and are producing an upcoming issue of the DePaul Law Review devoted to “Succession.”

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The Waystar/Royco School of Law—which includes law professors from the University of Tennessee, Case Western, and the University of Chicago—was loosely inspired by the Yada Yada Law School, an online class developed by University of Iowa law professor Gregory Shill in 2020, which explored legal issues in “Seinfeld”.

How U.S. Regulators Are Choking Crypto

A decade ago, in an effort called Operation Choke Point, the Justice Department, the Comptroller of the Currency and the FDIC tried to circumvent Congress using similar tactics—pressuring banks to cease business with specific industries, citing fraud prevention. Today, we are again seeing backroom tactics as a substitute for legislation, process and public regulation. Regardless of one’s position on the underlying issue, these significant policy decisions should be made in an open and transparent way.

This extralegal crackdown initially might not concern observers whose impressions of crypto are rooted in headlines about bad actors and outright criminals. But as four senators pointed out in a recent letter to the Fed, the FDIC and the OCC: “When the Bernie Madoff fraud was uncovered, regulators did not pressure banks to cut off access to other asset managers.”

The Liability of DAOs and Their Founders Has Been Put to the Test in CourtA U.S. Court in California has ruled in favor of plaintiffs who alleged that the bZx protocol, and governance token-holding members of its DAO, were negligent and liable for losses resulting from a hack that drained its treasury.

The putative class action against bZx, its founders, software developers Leveragebox LLC and Hashed Labs LLC was first initiated in July 2022.

While the court dismissed some of the claims, such as claims that founders Tom Bean and Kyle Kistner are personally liable for breaching fiduciary duty, the fact that it allowed the negligence claims to proceed has created a landmark ruling in the relatively murky topic of the liability of governance token holders in DAOs.

Inaugural Peter J. Henning Lecture

I am pleased to share with you that the inaugural Peter J. Henning Lecture at Wayne State University Law School will be held next Monday, April 3rd, at 6:00 pm. The speaker is the Honorable Jed S. Rakoff (United States District Court for the Southern District of New York) who knew Peter and valued his work. See the flyer below. Come if you are able.

As readers may recall, Peter was a mentor and friend. His work and my work in insider trading law and practice intersected. I offered some comments on my relationship with him here on the BLPB shortly after his untimely passing last year. I also shared some thoughts at the 2022 National Business Law Scholars Conference and wrote a short related tribute to Peter forthcoming in the Wayne Law Review. I will be at the lecture on Monday.