Second Circuit Again Uses ‘Hypothetical Jurisdiction’ to Dodge a Tough Question
Legal malpractice claims can be either tort or contract claims, the Second Circuit explains.
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FTX, Sam Bankman-Fried Sit in the Crosshairs of U.S. Prosecutors
FTX’s offshore status and its willingness to keep American traders off its Bahamas-based exchange in large part shielded the company from strict U.S. laws that govern trading and how investments can be sold to the public. But FTX’s implosion last week and reports that it used customer funds to back an affiliate’s risky venture investments have exposed the company and its founder to potential criminal liability, according to attorneys who specialize in white-collar criminal law, WSJ Pro Bankruptcy reported. The Manhattan U.S. attorney’s office is investigating FTX’s collapse, according to people familiar with the matter. One focus for prosecutors, at least initially, is likely to be examining reports that FTX lent customer funds to Alameda Research, a crypto-trading firm that traded on FTX and other exchanges. FTX founder Sam Bankman-Fried, who resigned as chief executive on Friday, also founded and owns Alameda Research. Mr. Bankman-Fried has acknowledged in tweets that he made mistakes before his company’s downfall and bankruptcy. FTX’s terms of service told its users that they own the cryptocurrencies in their accounts. “None of the digital assets in your account are the property of, or shall or may be loaned to, FTX Trading,” the document says. The terms of service with FTX Trading Ltd. — the entity that filed for bankruptcy last week in Delaware federal court — are still online.
Insurers in Buffalo Diocese Bankruptcy Put on Notice by Rochester Abuse Settlement Plan
The Rochester, N.Y., Diocese’s novel strategy to exit chapter 11 bankruptcy by paying childhood sex abuse survivors $55 million and allowing them to sue the diocese's insurers for additional damages may provide a template for other bankrupt dioceses in New York, including Buffalo, according to legal experts, Buffalo News reported. Across the U.S., insurance contributions have been a backbone of most diocese bankruptcy settlement plans over the past decade, with insurance companies paying hundreds of millions of dollars to avoid litigation in sex abuse cases. But in Rochester, the diocese earlier this month worked out a settlement plan with sex abuse claimants that does not involve a contribution from insurance companies. Instead, the diocese will convey its coverage rights to a settlement trust on behalf of 475 sex abuse claimants, along with $55 million in diocese and parish funds. In exchange, the diocese and its parishes and schools will no longer have to defend against Child Victims Act lawsuits claiming sex abuse involving priests and other employees. The trust, using the diocese’s assigned insurance policies, will be able to sue the insurance companies to collect on those policies in abuse cases where it was clear there was coverage, legal experts said. The plan comes three years after the Rochester Diocese filed for bankruptcy protection, and must still be approved by U.S. Bankruptcy Judge Paul R. Warren. If Judge Warren confirms the plan, legal experts said it could become the path to future settlements between sex abuse claimants and other New York dioceses seeking to emerge from bankruptcy proceedings.
Fast Radius Establishes Timeline for Chapter 11 Sale Process
Fast Radius, Inc. received approval yesterday from the U.S. Bankruptcy Court for the District of Delaware for its proposed sale and marketing procedures, including a bid deadline of December 5, 2022, according to a press release. The company is in active discussions with one or more potential partners and continues to explore and evaluate strategic alternatives, including from newly interested parties. “We are pleased to have received approval of the bid procedures. This allows us to finish marketing our business and our first-of-its-kind Cloud Manufacturing Platform on an expedited timeline while continuing to serve our customers without interruption,” said Co-Founder and CEO Lou Rassey. “We are excited to continue existing discussions and initiate new ones with potential strategic investors, partners and acquirers as we move through this process.” The bid procedures specifically allow for a stalking-horse bidder, if any, to be named by Nov. 23 and establish a bid deadline of Dec. 5, 2022. The bid deadline will be followed by an auction on Dec. 7 and a target close on Dec. 12, 2022. DLA Piper LLP (US) is serving as legal advisor to the Company, Lincoln International is serving as its investment banker, and Alvarez & Marsal is serving as its financial advisor.
Judge Gargotta Splits with the Fourth Circuit on Nondischargeability in Subchapter V
The Fourth Circuit had recently held that both individuals and corporations in subchapter V of chapter 11 are barred from discharging debts that are nondischargeable under Section 523(a).
FTX in Touch with Regulators, May Have More Than 1 Million Creditors
Collapsed-crypto exchange FTX outlined a "severe liquidity crisis" in U.S. bankruptcy filings, which said the group could have more than 1 million creditors, as regulators opened investigations and lawmakers called for clearer rules on how the industry operates, Reuters reported. FTX's filing to a U.S. bankruptcy court, published late on Monday in the U.S., said that it was in contact with financial regulators and had appointed five new independent directors at each of its main companies, including its sibling trading firm Alameda Research. The exchange, which had been among the world's largest, filed for bankruptcy protection on Friday in one of the highest-profile crypto blowups after panicked traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a rescue deal. "FTX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday," the court filing stated. "Questions arose about Mr. Bankman-Fried's leadership and the handling of FTX's complex array of assets and businesses under his direction."
FTX's New CEO Helped Bolster Enron Victims' Recovery
FTX Trading's new CEO John J. Ray III, a lawyer tapped to lead the collapsed crypto exchange's restructuring, previously oversaw the $23 billion bankruptcy of energy firm Enron Corp and has a reputation for boosting creditor recoveries, Reuters reported. Ray took over from founder Sam Bankman-Fried as FTX's chief executive after a disastrous week for the company that started with a quickly abandoned buyout effort from rival exchange Binance Inc. and culminated in a chapter 11 filing in Delaware on Friday. In Ray's first few days as boss, the company has been hit by regulatory probes in various jurisdictions and reports of a hack of FTX apps and $1 billion of missing customer funds. Ray said on Saturday the company was working with law enforcement and regulators to mitigate the problems and making "every effort" to secure assets. Ray is no stranger to high-profile restructurings and is perhaps best known for his work on Enron, which filed for bankruptcy in 2001 amid revelations of widespread accounting fraud and corruption. Serving as Enron's CEO throughout its years-long bankruptcy, Ray's work resulted in major settlements with banks accused of helping Enron deceive investors, including a $1.66 billion settlement with Citigroup in 2008.
Analysis: How Sam Bankman-Fried’s Crypto Empire Collapsed
In less than a week, the cryptocurrency billionaire Sam Bankman-Fried went from industry leader to industry villain, lost most of his fortune, saw his $32 billion company plunge into bankruptcy and became the target of investigations by the Securities and Exchange Commission and the Justice Department, the New York Times reported. But in a wide-ranging interview on Sunday that stretched past midnight, he sounded surprisingly calm. “You would’ve thought that I’d be getting no sleep right now, and instead I’m getting some,” he said. “It could be worse.” The empire built by Mr. Bankman-Fried, who was once compared to titans of finance like John Pierpont Morgan and Warren Buffett, collapsed last week after a run on deposits left his crypto exchange, FTX, with an $8 billion shortfall, forcing the firm to file for bankruptcy. The damage has rippled across the industry, destabilizing other crypto companies and sowing widespread distrust of the technology. Besides some Twitter posts, messages to employees and occasional texts to reporters, Mr. Bankman-Fried, 30, has said little publicly over the last week. In the interview on Sunday, he voiced numerous regrets over the collapse of FTX. But he would offer only limited details about the central questions swirling around him: whether FTX improperly used billions of dollars of customer funds to prop up a trading firm that he also founded, Alameda Research. The Justice Department and the S.E.C. are examining that relationship.
Crypto Lender BlockFi Says It Has Significant Exposure to FTX
Cryptocurrency lender BlockFi said on Monday it has significant exposure to Sam Bankman-Fried's crypto exchange FTX, and associated entities, that last week filed for bankruptcy, Reuters reported. FTX founder Bankman-Fried also resigned as chief executive, after the biggest blowup in the crypto industry drew calls for tighter regulation. "We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US," BlockFi said. It added that withdrawals from its platform continue to be paused and clients have been asked to not to submit any deposits to BlockFi wallet or interest accounts. The crypto industry has been bracing for a fallout of the FTX collapse with several firms counting their exposure in millions to the beleaguered firm. In July, FTX had signed a deal with BlockFi to provide it with a $400 million revolving credit facility with an option to buy it for up to $240 million.
