FTX's Bankman-Fried Keeps Talking

FTX’s Collapse Was a Crime, Not an Accident

Banks can be hit by “bank runs” because they are explicitly in the business of lending customer funds out to generate returns. They can experience a short-term cash crunch if everyone withdraws at the same time, without there being any long-term problem.

But FTX and other crypto exchanges are not banks. They do not (or should not) do bank-style lending, so even a very acute surge of withdrawals should not create a liquidity strain. FTX had specifically promised customers it would never lend out or otherwise use the crypto they entrusted to the exchange.

In reality, the funds were sent to the intimately linked trading firm Alameda Research, where they were, it seems, simply gambled away. This is, in the simplest terms, theft at a nearly unprecedented scale. While the total losses have yet to be quantified, up to one million customers could be impacted, according to a bankruptcy document.

As lawmakers debate how to regulate the industry, more are openly trashing it

At a moment when Congress is finally debating whether and how to seriously regulate the cryptocurrency industry, a split appears to have formed in the Democratic Party. Some of its lawmakers are contemplating how to harness blockchain technology into a force for innovation, while scaling back its early excesses.

Then there’s a group you might call the “bullshit caucus.”

$20 million SEC whistleblower award goes to Phillips & Cohen’s client

The Securities and Exchange Commission issued a $20 million whistleblower award to a whistleblower represented by Phillips & Cohen LLP. The SEC does not reveal whistleblowers’ identities with very limited exceptions.

Phillips & Cohen’s client has chosen to remain anonymous. Phillips & Cohen’s client “played a crucial role in the ultimate success of the enforcement proceeding,” said the SEC said in a press release.

“My client played a key role in a successful SEC enforcement action despite the risks it posed to the whistleblower’s livelihood,” said Sean X. McKessy, a partner and attorney at Phillips & Cohen LLP and former head of the SEC’s Office of the Whistleblower. “The whistleblower felt the need to come forward to help stop the improper conduct witnessed.” This is McKessy’s fourth client to receive a whistleblower award since leaving the SEC’s Office of the Whistleblower.

Big Law’s Crypto Bet Is Paying Off—Just Not How Lawyers ExpectedThis is not what Big Law firms had in mind when they started hiring crypto lawyers.

The most obvious tell: bankruptcy practitioners don’t lead the crypto groups.

As Bitcoin boomed and blockchain evangelists spoke of a technological revolution, large law firms poured in, seeking to be the trusted advisors to a fast-growing business. Quinn Emanuel even started accepting Bitcoin as payments.

Yet, as the digital asset industry convulses from huge declines in asset prices and allegations of widespread fraud, it’s restructuring lawyers who are poised to cash in on a surge of legal fees.

Sorry, Nancy Pelosi: Lawmakers Shouldn’t Be Stock Traders

Now, with barely a month left in the current session, members of Congress should put their money where their mouths are. The simplest and most transparent solution is to ban lawmakers and their immediate families from holding stocks at all. Although that’s unlikely to fly, a requirement to put any investment assets in a blind trust for the duration of their time in office should be a no-brainer.

Advancing such a measure in the lame-duck session might offer Pelosi an appealing capstone for her time as speaker. It might also demonstrate that true leadership sometimes requires sacrifice.

What a Securities Lawyer Would Ask FTX’s Bankman-Fried

As a securities litigator for over 30 years, I have cross-examined a host of conmen and fraudsters….

Starting in 2017, I pivoted my firm toward representing foreign and domestic crypto exchanges, as well as a host of startup enterprises using blockchain technology to disrupt traditional financial products and services.

When I heard that Andrew Ross Sorkin was planning to interview FTX founder Sam Bankman-Fried (as part of the New York Times’ DealBook Summit, scheduled before the Bahamian-based crypto exchange once worth $32 billion imploded), I reflexively went to my computer and typed up the first 10 questions that I would ask SBF, if given the chance.

Communicating with the SEC When Your Organization Suffers a Cybersecurity Incident

As it determines the materiality of a cybersecurity incident, an organization must also decide whether to report the incident to the SEC in advance of any public disclosure and whether to cooperate with any ensuing SEC inquiry or investigation. On the one hand, proactive reporting of likely material cybersecurity incidents can build goodwill with the SEC and make clear from the outset that the organization is thoroughly investigating the incident. On the other hand, informing of the SEC of immaterial incidents could expose the organization to expense, business disruption, and unwanted SEC scrutiny, particularly into the organization’s cybersecurity-related internal controls.

Here are four considerations in-house counsel should keep in mind in determining whether to proactively inform the SEC about a cybersecurity incident before making a formal public disclosure.

Lyft investors keep deal on track after judge nixes charity picked for class leftovers

In a motion for preliminary approval of the deal, Block & Leviton told U.S. District Judge Haywood Gilliam of Oakland, California, that any money remaining in the settlement fund after distributions to class members would go to the National Women’s Law Center, which assists sexual harassment victims. Calling attention to issues of sexual violence, the firm said, “could have prevented some of the losses investors suffered in this case.”

That seemingly innocuous provision could have tanked the entire settlement.

On Monday, Gilliam issued an order calling for Lyft and class counsel either to designate a different charity with a more obvious connection to shareholders’ securities fraud allegations or to provide a better justification for why a donation to the women’s law center would satisfy the stringent test the 9th U.S. Circuit Court of Appeals has laid out for cy pres recipients. If the two sides continued to insist on directing leftover money to the women’s law center, Gilliam warned, “the court likely will deny preliminary approval.”