Judge Rules Bankman-Fried Can't Blame Lawyers (Yet) as Trial Starts Tomorrow

FTX Founder Sam Bankman-Fried Cannot Blame Lawyers in Opening Statement, but Can Raise Defense Later: Judge

Sam Bankman-Fried cannot blame FTX’s lawyers for its collapse or operations in his opening statements, though he can still try and make a so-called “advice-of-counsel” defense later, the federal judge overseeing his case ruled Sunday.

Bankman-Fried’s defense team told the Department of Justice and the court earlier this year that he intended to argue that FTX counsel “were involved” in certain decisions that the company made. But this argument, without specifics, may confuse or prejudice a jury, Judge Lewis Kaplan wrote in an order dated Sunday. While he blocked the defense team referring to external counsel in his opening statement, Bankman-Fried’s attorneys can try to raise the issue later if they notify the judge and DOJ first, without jurors in the room.

Sam Bankman-Fried, FTX at center of new Michael Lewis book “Going Infinite”

Michael Lewis has made a literary career finding jump-off-the-page characters, and using them to help tell complicated stories. And what could be more complicated than explaining cryptocurrency? Lewis gained all-hours access to Sam Bankman-Fried, known for a time, as the J.P. Morgan of crypto. His sector as ungoverned as his hair, Bankman-Fried was worth more than $20 billion before he turned 30…an unlikely celebrity, his life braided finance, politics, sports and pop culture. Then the empire crumbled and today, Bankman-Fried sits in jail on various federal charges and faces potential sentences of more than 100 years. Lewis, though, didn’t panic-sell. He simply went where the story took him. His latest book, “Going Infinite” comes out Tuesday…. which is also the opening day in the trial of Sam Bankman-Fried.

The Rise and Fall of SBF

All in, Mr. Lewis spent more than 70 days in the Bahamas on a dozen different trips. That’s commitment. Plus journeys with SBF to Washington to wave cash at political celebrities. Along the way, FTX and its sister company Alameda—to which many investors unknowingly sent wire transfers thinking it was FTX—allegedly invested customer funds as their own, often taking out loans backed by hot-air-inflated crypto coins.

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“In a previous life,” Mr. Lewis says, FTX employees “would have been socially awkward high-school math and physics teachers.” Visits to the penthouse at 2 a.m. would reveal chess matches rather than raging parties.

SEC Charges Former Financial Industry Analyst and Three Others with Insider Trading

The Securities and Exchange Commission today announced charges against Anthony Viggiano, a former analyst at a major investment firm and later at an international investment bank, and Christopher Salamone, Stephen A. Forlano, and Nathan Bleckley, for insider trading in advance of numerous merger and acquisition transactions.

According to the SEC’s complaint, in connection with his work at two financial institutions, Viggiano learned about impending merger and acquisition transactions and strategic partnerships before they were publicly announced. Viggiano, a resident of Baldwin, New York, allegedly obtained material nonpublic information about eight such transactions and tipped his friend Salamone, who grew up on the same block and whom he has known for approximately 20 years, about at least six of them. Salamone, a resident of Long Beach, New York, allegedly traded in advance of the six transactions, resulting in proceeds of approximately $322,000. Salamone allegedly agreed to share his trading proceeds with Viggiano because Viggiano’s own employer prohibited him from engaging in such trades. The complaint further alleges that Viggiano tipped his close college friend Forlano about at least four transactions and that Forlano made approximately $113,000 in illegal profits trading in advance of three of those transactions. Forlano, a resident of Tampa, Florida, also allegedly tipped other individuals, including his close, college friend Bleckley, a resident of Altus, Oklahoma, who traded in advance of two transactions, resulting in illegal gains of almost $25,000.

SEC Charges 10 Firms with Widespread Recordkeeping Failures

The Securities and Exchange Commission today announced charges against five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers for widespread and longstanding failures to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders and acknowledged that their conduct violated recordkeeping provisions of the federal securities laws. The firms agreed to pay combined penalties of $79 million as outlined below and have begun implementing improvements to their compliance policies and procedures to address these violations.

–Interactive Brokers Corp. and affiliate Interactive Brokers LLC (together, Interactive Brokers) agreed to pay a $35 million penalty;

–Robert W. Baird & Co. Inc. agreed to pay a $15 million penalty;

–William Blair & Company LLC and affiliate William Blair Investment Management LLC (WBIM) agreed to pay a $10 million penalty;

–Nuveen Securities LLC agreed to pay an $8.5 million penalty;

–Fifth Third Securities Inc. agreed to pay an $8 million penalty; and

–Perella Weinberg Partners LP (Perella Weinberg), together with Tudor, Pickering, Holt & Co. Securities LLC (TPH) and Perella Weinberg Partners Capital Management LP (Perella Weinberg Capital), which self-reported, agreed to pay a $2.5 million penalty.

Prosecutors Charge German in €24 Million Insider Trading Probe

German prosecutors charged a 48-year-old man accused of making €24 million ($25.3 million) as part of a wider insider trading scheme.

The German citizen has been detained since January, the Frankfurt prosecutor’s office said in a statement. He was engaged in 20 insider transactions and revealed insider information on 10 occasions between 2017 and 2021, authorities allege.

U.S. Supreme Court to decide if SEC disclosure violations are valid basis for shareholder fraud claims

Securities class action defendants and their lawyers are very good at attracting the attention of the U.S. Supreme Court by predicting that terrible things will happen if the justices don’t intervene.

The latest case in point: On Friday, the Supreme Court granted a petition by Macquarie Infrastructure Corp to review a 2022 ruling in which the 2nd U.S. Circuit Court of Appeals allowed a class of shareholders to proceed with securities fraud claims based on, among other things, the company’s alleged violation of the U.S. Securities and Exchange Commission’s administrative disclosure rules. (The company is now renamed Atlantic Aviation Infrastructure Corp, but I’ll call it MIC, as both sides did in Supreme Court briefing.)

SEC Charges Electric Vehicle Co. for Misleading Revenue Projections Ahead of SPAC Merger

The Securities and Exchange Commission today charged Denver-based Spruce Power Holding Corporation, the successor to XL Fleet Corp., for misleading investors about revenue projections that topped $1 billion within three years of going public. XL Fleet, which provided hybrid electric vehicle systems for commercial fleet vehicles, went public through a 2020 merger with a special purpose acquisition company (SPAC).

According to the SEC’s order, XL Fleet publicly claimed to have a more than $220 million 12-month sales pipeline, which purportedly backed its near-term revenue projections of up to $75 million and longer-term projections of up to $1.4 billion. The order finds that the company’s projections, which were featured in public filings ahead of the SPAC merger, were misleading because the sales pipeline consisted almost entirely of speculative opportunities, including sales to potential customers with whom XL Fleet had little or no contact; customers to whom XL Fleet could not legally sell its products; and stale sales opportunities that had not been updated within the company’s systems. The order also finds that XL Fleet claimed to have applied a historical conversion rate to its sales pipeline as part of its revenue projections, when, in reality, the conversion rate did not support the company’s projections.