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A Texas bankruptcy judge declined to bring monetary sanctions against lawyers for Sorrento Therapeutics, ruling that a bank account and mailbox established to justify the company’s chapter 11 filing in Houston didn’t rise to the level of bankruptcy fraud, WSJ Pro Bankruptcy reported. Timothy Culberson, a Sorrento shareholder, earlier revealed that Sorrento’s lawyers at the firms Latham & Watkins and Jackson Walker had prepared a bankruptcy petition for the company’s subsidiary Scintilla Pharmaceuticals that relied on a bank account Sorrento wired $60,000 to three days before the filing and a mailbox established at a UPS store in a Houston suburb the day before the filing. Sorrento had used Scintilla’s Feb. 13, 2023, petition as a basis to make its own chapter 11 filing in Houston immediately after. The U.S. trustee for the Southern District of Texas, which serves as a bankruptcy watchdog on behalf of the U.S. Justice Department, presented evidence earlier this month showing that Scintilla had made representations to the California Secretary of State both before and after its bankruptcy filing that its principal address was in San Diego. Both the trustee and Culberson filed court papers this month demanding that the Sorrento and Scintilla cases be either dismissed or transferred out of state, alleging that the Scintilla petition falsely stated the company’s principal assets and place of business were in Texas. Culberson had separately alleged that the actions Latham and Jackson Walker had taken in preparing the filing amounted to bankruptcy fraud, seeking both firms to pay monetary damages.

Sam Bankman-Fried’s lawyer said Tuesday that a suggested 100-year prison sentence for the FTX founder by an arm of the court is “grotesque” and “barbaric” and at most a term of a few years behind bars is appropriate for cryptocurrency crimes that the California man still disputes, the Associated Press reported. In presentence arguments filed just minutes before a late Tuesday deadline in Manhattan federal court, attorney Marc Mukasey said a report by Probation officers improperly calculated federal sentencing guidelines to recommend a sentence just 10 years short of the maximum potential 110-year sentence. A spokesperson for prosecutors, who will respond in court papers in mid-March, declined comment. Mukasey noted, however, that prosecutors have agreed with the 100-year recommendation and say it was supported by trial evidence. On March 28, Judge Lewis A. Kaplan will sentence the man prosecutors say cheated investors and customers of at least $10 billion in businesses he controlled from 2017 through 2022.

The former chief executive of Firestar Diamond, a jewelry wholesaler accused of taking part in bank fraud allegedly orchestrated by Nirav Modi, transferred his interest in a multimillion-dollar New York residence to his wife days after his company filed for bankruptcy in 2018, the trustee responsible for liquidating Firestar said in a lawsuit seeking to undo the transfer, WSJ Pro Bankruptcy reported. Mihir Bhansali made the transfer to place his interest in the residence, which had been purchased for $7.1 million, “outside the reach of his present and future creditors,” Richard Levin, the trustee working to distribute Firestar’s remaining assets, said in a lawsuit filed Monday in the U.S. Bankruptcy Court in the Southern District of New York. It is the third lawsuit lodged by the Firestar trustee against Bhansali, whom Levin said participated in the Indian bank fraud allegedly orchestrated by jewelry magnate Modi. Levin said in his new lawsuit that the residence in New York was bought partly with cash from the alleged Modi scheme. Levin said that Modi was found living in London in 2019 and arrested. In 2021, after a trial, the U.K. granted India’s request to extradite him, but Modi appealed the extradition ruling, and he remains in prison in London, Levin said.

Crypto lender Genesis Global on Monday kicked off a multi-day court hearing on its proposal to repay customers in bankruptcy, asking a U.S. bankruptcy judge to overrule its parent company Digital Currency Group's objections to its chapter 11 plan, Reuters reported. Equity owners are last in line to be repaid in bankruptcy, and DCG is trying to cut in line ahead of customers who loaned their cryptocurrency to Genesis, Genesis attorney Sean O'Neal said at a court hearing in White Plains, N.Y. "Our clients lent us these assets, and we're trying to give them back," O'Neal told U.S. Bankruptcy Judge Sean Lane. "DCG should not be able to come in and take a cut." DCG is trying to stop Genesis' bankruptcy plan from being confirmed, arguing that it cuts off any chance of recovery to equity holders. The heart of their dispute centers on a fundamental question: When is a bankruptcy creditor paid "in full?" Genesis is seeking approval of a bankruptcy plan that would repay customers in bitcoin, Ether, or U.S. dollars, depending on the type of assets they had on deposit with Genesis when it filed for chapter 11 in January 2023. Genesis has estimated that its customers will receive up to 77% of the value of their deposits under its plan. Genesis said that its customers are not being fully repaid because the prices of bitcoin and other cryptocurrencies have risen since it filed for bankruptcy, and it cannot repay the full current value of customers' crypto deposits.

Lawyers for biopharmaceutical company Sorrento Therapeutics disputed allegations that they committed bankruptcy fraud, saying that a bank account and mailbox created in Texas justified a chapter 11 filing in the state days later, WSJ Pro Bankruptcy reported. The U.S. Justice Department’s bankruptcy watchdog alleged last week that the bankruptcy filed in Houston by Sorrento subsidiary Scintilla Pharmaceuticals in February 2023 falsely represented that its principal assets and business are in Texas when it is actually based in San Diego. A Sorrento shareholder had separately made allegations in court that the company’s lawyers committed fraud by filing the case in Texas. San Diego-based Sorrento had used Scintilla’s chapter 11 petition in the U.S. Bankruptcy Court in Houston as the basis to file its own petition in that court. The U.S. trustee for the Southern District of Texas said that the Sorrento and Scintilla cases should either be dismissed or transferred out of state, noting that Scintilla is a Delaware-incorporated company that made repeated representations to the California secretary of state in June 2023 that its principal address was in San Diego.

Rudolph Giuliani must pay the $148 million debt he owes two Georgia election workers — despite his bankruptcy, the pair said in a new complaint, Bloomberg Law reported. The judge overseeing the former New York City mayor’s chapter 11 case shouldn’t allow Giuliani to use bankruptcy to avoid the debt because bankruptcy law blocks the discharge of debt incurred through “willful and malicious injury,” the election workers, Ruby Freeman and Shaye Moss, said in a filing Friday. Freeman and Moss were awarded $148 million in December after a court found Giuliani liable for defaming the pair by accusing them of rigging 2020 election results for Joe Biden. He filed for bankruptcy shortly after. A ruling in favor of Freeman and Moss in the bankruptcy case would prevent Giuliani from clearing what is by far his biggest debt. Giuliani has reported having $10.6 million in assets against almost $153 million in liabilities.

Bankrupt cryptocurrency exchange FTX received court approval to sell its stake in Anthropic, an artificial-intelligence startup in which Amazon.com and Google late last year agreed to invest billions of dollars, WSJ Pro Bankruptcy reported. Judge John Dorsey in the U.S. Bankruptcy Court of Wilmington, Del. approved the sale on Thursday after FTX reached a compromise with a group of customers who had objected to the sale. FTX invested $500 million in Anthropic in 2021 and holds a stake of about 7.8% in the company. In a court filing earlier this month, FTX said that “given the increased interest in AI and large language models, there has been significant appreciation in the value of the Anthropic shares.” In September, Amazon said it would be investing up to $4 billion in Anthropic. And in October, Google agreed to invest up to $2 billion in Anthropic, building on its earlier investment in the AI company. By getting approval for the sale procedures, FTX said it can unload the shares at “the most optimal and appropriate time.” Read more. (Subscription required.)

In related news, the FTX estate has agreed to drop a lawsuit that sought to claw back at least $323.5 million from the original owners of the bankrupt cryptocurrency exchange’s European unit, WSJ Pro Bankruptcy reported. Under a proposed settlement, the two main targets of the lawsuit—FTX Europe co-founders Patrick Gruhn and Robin Matzke—agreed to buy back the unit’s assets for $32.7 million. Details of the proposed settlement emerged in a Thursday court filing from the FTX estate. The deal still needs to be approved by a judge. The proposed settlement marks a retreat by the FTX bankruptcy estate, led by Chief Executive John J. Ray III. The suit against the former owners of the European unit was one of around a dozen lawsuits filed by FTX seeking to claw back billions of dollars from former FTX insiders and companies that did business with FTX under the leadership of its former CEO and founder, Sam Bankman-Fried. In recent months, the rising value of cryptocurrencies and FTX’s stake in artificial-intelligence startup Anthropic have made it less imperative for the estate to claw back funds. A lawyer for FTX said in court in January that the estate expected to repay customers in full. Filed in July, FTX’s lawsuit alleged that Bankman-Fried massively overpaid for Digital Assets DA AG, the Swiss firm that became FTX Europe, when FTX bought it for more than $376 million in a series of transactions in 2020 and 2021. At the time, Bankman-Fried was eager for his crypto exchange to become licensed in the European Union. Read more. (Subscription required.)

The U.S. Justice Department’s bankruptcy watchdog accused Sorrento Therapeutics lawyers of submitting false paperwork to justify the company’s chapter 11 filing in Houston, saying the mailbox location it cited as a principal place of business was created only hours ahead of its bankruptcy, WSJ Pro Bankruptcy reported. Kevin Epstein, the U.S. trustee for the Southern District of Texas, said that on Feb. 12, 2023, a lawyer for Sorrento rented a mailbox at a UPS in the Woodlands, a Houston suburb, on behalf of Scintilla Pharmaceuticals, a Sorrento subsidiary. Both Sorrento and Scintilla are based in San Diego. Scintilla wasn’t registered or licensed to do business in Texas, Epstein said. It had been dormant since about 2019, with no employees or business operations, and its only asset was a $60,000 bank balance that Sorrento had wired to it days before the bankruptcy filing, he said. Ten hours after establishing the mailbox, Scintilla filed its chapter 11 petition in the U.S. Bankruptcy Court in Houston stating that the mailbox was its principal place of business, while still listing its San Diego office as its mailing address, court records show. Sorrento, Scintilla’s parent company, then filed its own chapter 11 petition in Houston.