FTX Founder Gamed Markets, Crypto Rivals Say​​​

In Sam Bankman-Fried’s quest to keep his cryptocurrency empire looking profitable, the disgraced founder of FTX often promoted newfangled digital currencies that crypto aficionados came to call “Samcoins,” the New York Times reported. Bankman-Fried wooed the developers of these new coins with names like Serum and Maps, insisting that they make their trading debuts on the FTX exchange. Then his hedge fund, Alameda Research, would buy some of these newly listed Samcoins to prop up their value, while Bankman-Fried used FTX’s influence in the crypto industry to drum up interest in those coins and persuade other investors to also buy significant amounts. Bankman-Fried was thus able to inflate the coins’ value artificially, making Alameda look healthier than it was and papering over problems at his companies until they imploded in November. The collapse of FTX and Alameda triggered criminal charges against Bankman-Fried over his mismanagement of the two firms, and has spotlighted his broader crypto dealings, including the aggressive trading practices he orchestrated for Alameda’s benefit. His promotion of so-called Samcoins was a big part of those practices. Graham Friedman, director at Republic Crypto, a digital asset strategy company, said it was easy to identify which coins were Samcoins. “It was any project whose value proposition was reliant on FTX and their success.” Sometimes, Bankman-Fried appeared to be pushing up the prices of coins — including FTT, a coin that he had created — that FTX and Alameda would later use as collateral for loans, according to court records and interviews with crypto executives. Many of those executives also accused Bankman-Fried of trying to turn a quick profit by betting that a new coin would fail, or pumping up a coin’s value and then suddenly selling it, with the apparent goal of bolstering Alameda’s balance sheet. Such operations are often compared to a “pump and dump” scheme in the stock market, in which a group of insiders inflate a stock’s value by buying it aggressively. The Justice Department has investigated whether Bankman-Fried and Alameda manipulated markets in a way that led to the collapse of two cryptocurrencies, Luna and TerraUSD, in May. Although they were not Samcoins, they were popular in the crypto world, and their collapse destabilized the entire industry. Read more. 

Fight to Regulate Crypto at Crossroads as Ripple Ruling Looms​​​

In the wake of the implosion of cryptocurrency exchange FTX, one urgent question keeps resurfacing: Who should regulate the industry? An upcoming ruling in New York federal court could help determine the answer, along with the fates of numerous crypto investors and companies, Bloomberg News reported. The case hinges on whether a prominent digital token should be treated as a security, which would fall under the Securities & Exchange Commission’s jurisdiction. The dispute dates back to 2020, when the SEC accused San Francisco-based Ripple Labs Inc. of selling unregistered digital tokens without adequate disclosure. SEC chairman Gary Gensler has been working to position his agency as the force that would rein in the crypto industry, and should the regulator prevail it would strengthen its grip at a crucial moment. A decision could come in the first half of 2023. Among a handful of closely watched fintech lawsuits, the Ripple decision is the most high-profile: Its digital token, XRP, is the sixth-largest crypto token, with a market value of almost $20 billion, according to CoinMarketCap. Read more. 

Rising Interest Rates Hit Landlords Who Can’t Afford Hedging Costs​​​

The cost of insuring commercial real estate loans against a rise in interest rates has exploded over the past year, raising the prospect of a market selloff, since many property owners will no longer be able to afford these hedges, the Wall Street Journal reported. About one-third of all commercial property debt is floating rate, according to a 2019 report by the Mortgage Bankers Association. Lenders usually require that these borrowers hedge against an increase in borrowing costs through a derivatives contract known as an interest-rate cap, which limits a borrower’s exposure to rising interest rates. When rates were very low, the cost of this insurance was minimal. The cap on a multimillion-dollar mortgage could be had for as little as $10,000. These hedges saved real estate owners millions of dollars by limiting their exposure to rising interest rates in 2022. Now, many of those contracts are expiring when mortgage rates are significantly higher, and the cost of this protection has skyrocketed. In some cases, renewing this protection at the old interest rate now costs 10 times as much as it did 12 months ago, analysts and brokers say. When it comes time to pay up, these additional costs can wipe out a year’s worth of rental income. Many real estate owners might not have the cash for it. Michael Gigliotti, co-head of JLL Capital Markets’ New York office, said he expects an increase in property sales this year from owners who decide they would rather get rid of their buildings than spend millions on a new rate cap. That, he said, could turn into a “first trigger” pushing down real estate values. “This is the margin call on the real estate industry,” Mr. Gigliotti said. The sting of higher rates comes at a time of increasing weakness for much of the commercial real estate market, which has been battered by fears of slower economic growth and by investors looking for more attractive yields from safer investments, like corporate bonds. (Subscription required.) Read more. 

U.S. Jobless Claims Drop to 190,000, Lowest Level Since September​​​

Applications for U.S. unemployment benefits unexpectedly fell last week, sliding to the lowest level since September and underscoring a strong jobs market where many businesses are reluctant to let go of workers, Bloomberg News reported. Initial unemployment claims decreased by 15,000 to 190,000 in the week ended Jan. 14, Labor Department data showed Thursday. The median forecast was for 214,000 applications, but the data can be particularly volatile and difficult to seasonally adjust in the winter months and around holidays. Continuing claims, or the number of people who have already filed an initial application and are now claiming unemployment benefits, rose to 1.65 million in the week ended Jan. 7. That followed back-to-back declines in the previous two weeks. The four-week moving average in initial claims, which smooths out some of the week-to-week volatility, edged down to 206,000, the lowest since mid-May. Read more. 

FTC Plan to Ban Noncompete Clauses Shifts Companies’ Focus​​​

Businesses and lawyers are beginning to assess what the Federal Trade Commission’s proposed ban of noncompete clauses in employment contracts could mean for worker mobility, wages and the ways in which future compensation agreements are structured, the Wall Street Journal reported. While a full or partial ban could expand the pool of potential hires, it also would weaken a tool that employers have come to rely on to retain talent and protect trade secrets and other proprietary information, lawyers say. More companies likely would turn to a patchwork of alternative mechanisms to keep people from leaving and taking valuable information with them, including nondisclosure agreements and employment contracts that reward longevity, they say. “Employers have operated with an understanding that they can protect their interests through noncompetes,” said Matthew Durham, a Salt Lake City-based attorney with Dorsey & Whitney LLP who advises companies on employment matters. “What you’re seeing, reflected in the FTC proposal and elsewhere, is a growing hostility to the idea that there should be those kinds of restrictions, and it’s changing the environment that employers have been comfortable with in the last number of years.” The FTC proposed a ban this month on nearly all noncompetes, saying that the clauses — which typically prohibit workers from moving to a new employer or starting new ventures of their own — hamper competition in the labor market, suppress wages, and hold back innovation and entrepreneurship. The proposal came in response to an executive order from President Biden in 2021. Businesses say they impose noncompete clauses on employees to protect trade secrets and other confidential information, including customer lists and financial data. (Subscription required.) Read more. 

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U.S. Treasury Buys Time for Biden and GOP on Debt-Limit Deal​​​

The countdown toward a possible U.S. government default began today, with Treasury implementing accounting measures to buy time as frictions between President Joe Biden and House Republicans raise alarms about whether the U.S. can sidestep a potential economic crisis. The Treasury Department said in a letter to congressional leaders that it has started taking “extraordinary measures,” as the government has run up against its legal borrowing capacity of $38.381 trillion. An artificially imposed cap, the debt ceiling has been increased roughly 80 times since the 1960s. “I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Treasury Secretary Janet Yellen wrote in the letter. Markets so far remain relatively calm, given that the government can temporarily rely on accounting tweaks to stay open and any threats to the economy would be several months away. Even many worried analysts assume there will be a deal. Read more. 

ABI's "Look Ahead for 2023" Discussions Continue on Wednesday with a Focus on Health Care and Financial Advising!

ABI's "Look Ahead for 2023" half-hour online programs continue on Wednesday at 5 p.m. ET with experts providing perspectives on distress in the health care industry and tips on financial advising. Register for free! 

Volunteer Today to Become a Preliminary-Round Judge or Brief-Grader for the Duberstein National Bankruptcy Moot Court Competition!

The Duberstein National Bankruptcy Moot Court Competition, now in its 31st year and widely recognized as one of the nation’s preeminent moot court competitions, will be held in New York on March 4-6, 2023. Fifty-three teams from law schools across the country will compete through written briefing and oral argument. Volunteers are needed for brief-graders and judges for the preliminary rounds of the Competition on Saturday, March 4th, and Sunday, March 5th. To find out more and to volunteer, please click here.

Applications for Judgeship Vacancy in W.D. Texas (Austin) Being Accepted Until Feb. 6

The U.S. Court of Appeals for the Fifth Circuit is seeking applications from all highly qualified candidates for a 14-year appointment as a U.S. Bankruptcy Judge for the Western District of Texas at Austin. The selection process will be confidential and competitive. The current annual salary is $213,992. Only those persons with a law degree whose character, experience, ability and impartiality qualify them to serve in the Judicial Branch should apply. Persons shall be considered without regard to race, color, sex, religion, disability or national origin. The qualification standards and the application form (Parts I and II) are available at www.ca5.uscourts.gov. Six completed applications (Parts I and II) should be mailed to Lorie A. Robinson, Circuit Executive, U.S. Court of Appeals, Fifth Circuit, 600 Camp Street, Room 100, New Orleans, Louisiana 70130. A PDF version of the completed application form (Parts I and II) must be emailed to wtxbankruptcy@ca5.uscourts.gov (link sends e-mail). The deadline for filing a completed application (Parts I and II) is Monday, February 6, 2023. Click here for the full notice.

USTP to Resume Debtor Audits in March 2023

Effective March 13, 2023, the USTP will resume its designation of individual chapter 7 and chapter 13 cases for audit. These audits had been suspended in March 2020 due to public health concerns associated with the COVID-19 pandemic. As authorized in section 603(a) of Public Law 109-8, the USTP established procedures for independent audit firms to audit petitions, schedules and other information in consumer bankruptcy cases. Pursuant to 28 U.S.C. § 586(f), the USTP contracts with independent accounting firms to perform audits in cases designated by the USTP. Click here for more information.

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