%1

Sam Bankman-Fried, the founder of collapsed cryptocurrency exchange FTX, has issued his first detailed legal defense since prosecutors accused him of fraud, seeking to dismiss several of the charges and claiming that the high-powered law firm representing FTX in its bankruptcy has been doing the government’s bidding, the New York Times reported. In court filings yesterday, lawyers for Bankman-Fried said FTX and its lawyers at Sullivan & Cromwell had become de facto agents of federal prosecutors building the criminal case against him and might be withholding crucial evidence. “FTX’s legal advisors went to the government to accuse Mr. Bankman-Fried behind his back without knowing the full facts, and ultimately forced him to step down as C.E.O.,” the lawyers wrote. For months, Sullivan & Cromwell has funneled documents and other evidence to the prosecution, the filings say. Mr. Bankman-Fried’s lawyers claimed that prosecutors had been seeking only the most incriminating documents, even though FTX might also be sitting on material that could help the defense. In effect, they argued, prosecutors have been “outsourcing” the legal requirement to provide potentially helpful material to the defense team, shifting that responsibility to a “private party” with no obligation to Mr. Bankman-Fried.

Before SVB Financial Group bondholders can collect the billions they are owed, the bankrupt company may have to file a claim with the Federal Deposit Insurance Corp. to recover $2 billion worth of deposits trapped by the receivership of Silicon Valley Bank, Bloomberg News reported. That’s because the cash can only be returned to the bank holding company through the receivership process set up after federal regulators seized Silicon Valley Bank, the FDIC argued in court papers on Wednesday. SVB Financial has been sparring with the agency over the $2 billion since filing for bankruptcy in March. The dispute has already bogged down the Chapter 11 case and threatens to pit the bankruptcy process against the receivership process the FDIC uses to repay creditors. “Although the FDIC approved additional funding under the systemic risk exception to protect SVB’s depositors, nothing that has transpired since March 10 altered the debtor-creditor relationship that exists” between the former parent company and the FDIC, lawyers representing the agency wrote in court papers filed on Wednesday.

Experts testifying at a Thursday hearing categorically blamed executive mismanagement for the recent spate of bank failures feared to be hurtling the economy into a recession, The Hill reported. At a Senate Banking Committee hearing, banking and regulatory experts from the University of Richmond School of Law, Catholic University and the U.S. Chamber of Commerce lobbying group all said bad management was the primary causes of the failures. “Those three banks had very unique business models,” Chamber of Commerce vice president Tom Quaadman testified. “Silicon Valley Bank concentrated on capital intensive tech startups as well as biomedical startups. First Republic Bank concentrated on wealth management, whereas Signature Bank had a large exposure to digital assets.” Regulatory lapses on the part of the Federal Reserve were also cited by the experts and by lawmakers of both parties. While the hearing was focused on “holding executives accountable after recent bank failures,” no bank executives were present at the Senate hearing, and no legal actions have been taken against any of them.

A federal judge ordered a new round of settlement talks between Johnson & Johnson and lawyers who spurned the company’s offer to pay $8.9 billion to end tens of thousands of cancer claims filed by people who used the company’s popular baby powder, Bloomberg News reported. Holdouts want to take their claims to juries around the country instead of joining a proposal that would resolve all current and future lawsuits related to the health care giant’s talc-based products. About 40,000 people have sued J&J claiming the company for decades sold products like baby powder that were so contaminated that they caused cancer. J&J denies that the products were harmful and is trying for a second time to use a bankruptcy case filed in New Jersey by a small unit to force claimants to accept a deal. Bankruptcy Judge Michael Kaplan overruled objections from some of the holdouts who had opposed one of two mediators that will oversee the confidential settlement discussions.

Bankrupt crypto exchange FTX wants to claw back nearly $4 billion in funds from similarly bankrupt Genesis Global Capital, the company said in a court filing yesterday, CoinDesk.com reported. Genesis was "largely repaid" the nearly $8 billion in loans made to Alameda Research, an FTX-affiliated entity, in the weeks leading up to FTX's bankruptcy in November, the motion said. Genesis is a subsidiary of Digital Currency Group, CoinDesk's parent company. Genesis filed for bankruptcy itself in January. According to yesterday's filing, Alameda repaid $1.8 billion in loans to Genesis and pledged $273 million to Genesis in the 90 days before the various FTX companies filed for bankruptcy. Genesis also withdrew another $1.6 billion from FTX, while Genesis Global Capital International withdrew another $213 million in that same period. "The Avoidance Actions will seek to claw back funds received by Genesis and nondebtor affiliates so that these funds can be shared with all other creditors of the FTX Debtors in the FTX Chapter 11 Cases. These creditors include several million customers owed over $11 billion as of the time of filing of FTX Chapter 11 Cases," the filing said. There will be a hearing on May 25 to discuss the motion.

Johnson & Johnson should not be allowed to use a small unit’s bankruptcy case to end tens of thousands of cancer lawsuits because the strategy is rooted in bad faith, the U.S. Trustee said in a court filing, Bloomberg News reported. The health care products maker is trying for the second time to get itself “out of a jam as cheaply as possible,” using the chapter 11 filing of LTL Management, said the agency, which is an arm of the U.S. Justice Department. J&J created LTL in 2021 and made it responsible for resolving claims that tainted baby powder and similar products caused cancer. In a Monday court filing, the U.S. Trustee joined a group of advocates for cancer victims who have asked a federal judge in New Jersey to dismiss the LTL bankruptcy case. J&J put LTL back into bankruptcy last month about two hours after the first LTL case was dismissed. “In the weeks leading up to its second bankruptcy filing, LTL and its ultimate parent, Johnson & Johnson, engaged in a series of transactions that LTL admits were designed for no purpose other than creating artificial ‘financial distress,’” the U.S. Trustee said in the filing. J&J has an $8.9 billion settlement agreement with the “vast majority” of the law firms representing talc claimants, the company’s head of litigation, Erik Haas, said in an emailed statement. Should the bankruptcy survive and 75% of claimants vote in favor of the deal, all current and future talc suits would be settled.

Silicon Valley Bank’s roughly $7 billion municipal bond portfolio could pose a challenge for BlackRock Inc. as it starts liquidating the failed bank’s securities, investors say, Bloomberg News reported. The lender’s muni holdings were mostly long-dated bonds with low coupons, according to Nicholos Venditti, senior portfolio manager at Allspring Global Investments LLC, who said he saw the breakdown in a list circulated by dealers. The bonds fit solidly into a category of debt that got hammered by rising interest rates, the very phenomenon that ultimately helped spur the turmoil in the banking industry. Munis due in 22 years or longer lost 15.6% last year, almost double the decline of the broader market, data compiled by Bloomberg show. Such bonds are still deep underwater, triggering a tax provision for munis known as the de minimis rule. The measure requires investors to pay higher taxes on debt sold at hefty discounts, should it then appreciate. It’s a backdrop that’s making some money managers still recovering from last year’s pain even more reluctant to dive in. Read more.

​​The Senate Banking Committee will hold a hearing tomorrow at 10 a.m. ET titled, “Holding Executives Accountable After Recent Bank Failures.” Click here for more information.

The chief executive of AMC Entertainment slammed Robinhood Markets after the online brokerage posted a message in error on Monday saying that the movie-theater chain had filed for bankruptcy, the Wall Street Journal reported. Screenshots circulating on social media showed Robinhood briefly issued a bankruptcy alert for AMC along with a message: “This typically happens when companies are close to running out of money or have trouble repaying their outstanding debts.” AMC in recent years has faced financial problems, though it has not filed for bankruptcy. Its stock became popular with individual investors during the meme-stock frenzy of 2021 and has remained a favorite among the cohort, with some believing the price has further to run. AMC’s chief executive, Adam Aron, called Robinhood’s alert “so ludicrous, so wrong, so irresponsible” in a series of tweets. He later posted a poll asking his followers about whether “we should sue.” (Subscription required.)

Appaloosa Management, Centerbridge Partners and Silver Point Capital are among the titans of distressed-debt investing pushing for big payouts in the bankruptcy case of the former owner of Silicon Valley Bank, new court papers show, Bloomberg News reported. A group of eight firms holds more than $1.1 billion in senior notes and roughly $1.5 billion worth of preferred equity issued by SVB Financial Group, the holding company that went bust after a run on its bank earlier this year. By banding together and sharing the cost of attorneys and financial advisers, such groups can have enormous sway in major corporate bankruptcy cases. Appaloosa holds $345 million worth of SVB debt, Silver Point $231.7 million and Centerbridge $199.8 million, according to the court filings. The other companies in the group are Citigroup’s distressed trading desk, Millennium Management, Citadel, Attestor and Redwood Capital Management. Together, the group holds 35% of the $3.3 billion in senior notes SVB issued and 41% of the preferred stock. When such panels hold more than 34% of any class of debt, they often have veto power over any payout plan they oppose.

Akorn Pharmaceuticals has issued a voluntary recall of its drugs following the company's decision to close shop, USA TODAY reported. The recall list is comprised of 75 human drugs and 9 veterinary drugs, and is not associated with any adverse events, but with the company's February chapter 7 bankruptcy filing, in which they have agreed to shut down. The shutdown includes the closing of their quality program, meaning "the company will not be able to support or guarantee that the products will meet all intended specifications through the labeled shelf life of the product," the company stated in a press release. Akorn products were distributed to wholesalers, retailers, manufacturers, medical facilities, repackagers and consumers via the internet. The company is notifying distributors by mail and asking them to notify consumers and retailers about the recall. They are further advising that consumers discard their recalled products and get in touch with their doctor. For questions regarding the recall, consumers can get in touch with an Akorn at 800-932-5676 available Monday through Friday from 8 a.m. to 5 p.m. CDT.