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Johnson & Johnson is facing a key test of its plan to use the U.S. bankruptcy system to end more than 60,000 claims that a talc-based baby powder it sold for years causes cancer, Bloomberg News reported. A group of cancer victims is asking a federal judge in New Jersey to throw out, for the second time in less than two years, the insolvency case of LTL Management, a unit that J&J created to settle lawsuits over talc-based baby powder for $8.9 billion. Tuesday marks the start of a trial in which Bankruptcy Judge Michael Kaplan will again decide whether J&J is wrongly using bankruptcy laws to force a settlement. The bankruptcy court strategy has split lawyers suing J&J into two camps: those who back the settlement and are ready to drop their lawsuits, and holdouts who want to take their claims to juries around the country instead. Last year Kaplan sided with J&J against a unified band of the top plaintiff’s law firms in the U.S., but was overruled by a federal appeals court in Philadelphia, which ordered the judge to dismiss LTL Management’s first chapter 11 bankruptcy petition. J&J responded by tweaking its legal strategy and raising its settlement offer to $8.9 billion in order to attract support from cancer victims. LTL returned to bankruptcy in April and Kaplan agreed to hold a hearing to decide if the new case fixed the legal flaws that doomed the first effort.

Sam Bankman-Fried’s crypto conglomerate made “false statements” to banks about accounts commingling customer funds and fired an employee who raised concerns about the practice, the new management of bankrupt FTX alleged in a report Monday, Bloomberg News reported. FTX Group employees lied to banks about using trading firm Alameda Research’s accounts for FTX.com customer transactions after some banks questioned Alameda’s wire activity in 2020 and began rejecting transfers, according to the report. In one instance, a bank representative — noticing references to FTX — asked whether an Alameda account that received customer deposits would be used to settle trades for FTX. An Alameda employee was then directed by a senior FTX executive to lie and say customers “occasionally confuse FTX and Alameda,” but all incoming and outgoing wires are used to settle Alameda trades, the report said. The tangled relationship between FTX and Alameda was at the heart of the empire’s unraveling. Caroline Ellison, the former CEO of Alameda Research, estimated in March 2022 in private notes that FTX.com had a cash deficit alone of over $10 billion, the report said.
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In related news, one creditor of bankrupted cryptocurrency exchange FTX decided not to sit and wait to get their money back. Instead, the unidentified creditor of a FTX bankruptcy claim worth $31,307 converted the claim to a token on the Ethereum blockchain and sold it to a buyer who on June 23 used the token to borrow $7,500 worth of stablecoin USD, according to nonfungible token lending platform Arcade, Bloomberg News reported. A number of high-profile bankruptcies in the digital-asset space, not just the FTX insolvency, has left millions of investors frustrated over how much money they’ll be able to recover. Solutions to temporarily reduce the pressures have been popular in the crypto industry. By putting the claim on the blockchain, the ownership of the claim is represented by an NFT. Activity history on NFT marketplace OpenSea shows that the NFT was originally sold at a value worth about $12,163.33 in a version of Ether token, at the time. The “tokenization” process was facilitated by Found, a platform that allows users to trade tokenized bankruptcy claims. The lender of the loan ultimately decides the value of the NFT as a collateral, Gabe Frank, founder of Arcade told Bloomberg News. The loan is now set to be repaid in five days, according to Arcade, and in the event of a payment default, the lender can take the NFT, therefore, the ownership of the bankruptcy claim.
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FTX Chief Executive John J. Ray III released a report that alleged an unnamed senior lawyer assisted the crypto exchange’s founder, Sam Bankman-Fried, in misusing customer deposits, the Wall Street Journal reported. Based on the actions that the report alleges, the unnamed lawyer in the document appears to be FTX’s former chief regulatory officer, Daniel Friedberg, people familiar with the matter said. Friedberg has been cooperating with the investigation and didn’t know about the misuse of FTX customer funds, said one of the people, who is close to Friedberg. The report alleged that the lawyer and Bankman-Fried lied to banks and auditors, executed false documents, and moved between jurisdictions to avoid detection of wrongdoing. The exchange owed customers $8.7 billion at the time of its collapse, the report said.

Publishers Clearing House (PCH), which offers sweepstakes where people can win thousands of dollars per week for life, has agreed to pay $18.5 million and change its business practices to settle allegations it misled consumers about its contests, the U.S. Federal Trade Commission (FTC) said on Monday, Reuters reported. The FTC had accused PCH of using "dark patterns," a manipulative website design, to make consumers believe that they had to make a purchase to win or to have a better chance of winning. The agency said that it also added surprise shipping charges to purchases, among other allegations. "Today’s action requiring PCH to overhaul its user interface, compensate consumers for lost time, and stop surprise fees should send a clear message that manipulative design techniques are a no-go under our laws," Samuel Levine, director of the FTC Bureau of Consumer Protection, said in a statement. Among the changes required on PCH's website are "clear, conspicuous, and unavoidable disclosures" that no purchase is needed to win and a purchase would not increase a person's chance of winning, the FTC said in a statement.

Wintermute Trading Ltd., one of the biggest cryptocurrency market makers, was accused in a proposed class-action lawsuit of helping former Celsius Network Ltd. Chief Executive Officer Alex Mashinsky dupe investors in his now-bankrupt crypto lending firm, Bloomberg News reported. Plaintiffs who sued Mashinsky and other Celsius executives in July 2022 amended their federal lawsuit in New Jersey this week to add London-based Wintermute as a defendant, entangling another major industry player in the fallout from Celsius’s collapse. According to the lawsuit, Wintermute engaged in “wash trading” — which creates the illusion that an asset is trading far more often than it actually is — and other improper activities starting in March 2021 to inflate the value of Celsius’s native CEL token and loan products. Wintermute also played a key role in Mashinsky’s futile effort to prop up CEL in May 2022 after the collapse of the Terra and Luna tokens, the investors alleged. “This wash trading activity corrupted the CEL Token prices, as well as the reported trading volume, all in a strategic pattern to deceive investors,” lawyers for the investors said in the suit. Celsius froze all accounts on June 13, 2022, and filed for bankruptcy the next month amid a $2 trillion market crash that wiped out some of the industry’s biggest names and exposed hundreds of thousands of investors to steep losses.

Bankrupt FTX Trading Ltd. is suing to recover $700 million that the failed crypto exchange paid venture capital firm K5 Global and its principals after they provided access to celebrities and politicians, Bloomberg News reported. K5 Global founder Michael Kives and managing member Bryan Baum allegedly profited by ingratiating themselves with former FTX Chief Executive Officer Sam Bankman-Fried, who transferred vast sums from FTX to K5 and related ventures without meaningful due diligence, according to FTX’s lawsuit, filed Thursday in Delaware bankruptcy court. Bankman-Fried “was captivated” by Kives after attending a February 2022 dinner party at his house alongside guests including former politicians and a “centibillionaire CEO.” Days later, Bankman-Fried attended a Super Bowl party that included well-known celebrities, the lawsuit said. In an internal note Bankman-Fried drafted shortly after the events, he said Kives and Baum were “something of a one-stop shop for relationships that we should utilize” and that in exchange, the pair wanted him and FTX to consider celebrity endorsements with their friends and “maybe us to invest in them or some stuff, idk.” Read more.

In related news, a group of media organizations on Friday appealed a court decision that allows collapsed crypto exchange FTX to keep customer names secret during its bankruptcy case, Reuters reported. U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware, ruled earlier this month that FTX did not have to reveal its customers' names because doing so could expose them to identity theft and other scams. Bankrupt companies are typically required to reveal the names of their creditors and the amounts of debt they hold, including those of individual customers, but U.S. bankruptcy law contains an exception for information that would create undue risk of identity theft or other injury. Bloomberg, Dow Jones & Company, the New York Times Company and the Financial Times appealed Dorsey's ruling. Their attorneys have argued that FTX is not entitled to a "novel and sweeping exception" to bankruptcy's typical disclosure requirements simply because its customers used cryptocurrency. Read more.

The chemical and manufacturing giant 3M reached a $10.3 billion settlement yesterday with U.S. cities and towns over their claims that the company contaminated drinking water with so-called forever chemicals used in everything from firefighting foam to nonstick coatings, the New York Times reported. Under the sweeping settlement, 3M said it would pay out the money over 13 years to any cities, counties and others across the country to test for and clean up perfluoroalkyl and polyfluoroalkyl substances, known as PFAS, in public water supplies. 3M, which is facing about 4,000 lawsuits by states and municipalities for PFAS contamination, did not admit any liability. The company said the settlement covered remediation to water suppliers that detected the chemical “at any level or may do so in the future.”

Silicon Valley Bank customers whose deposits were seized by U.S. authorities after the lender’s collapse are fighting back, the Wall Street Journal reported. Customers who held money in the bank’s Cayman Islands branch found their accounts wiped down to zero after SVB collapsed in March, because a U.S. move to guarantee deposits didn’t apply to them. Their pain was compounded when they found out First Citizens BancShares had acquired their loans from SVB — meaning they had lost their money, but kept their debts. Several firms including venture-capital funds in Hong Kong and mainland China have pushed back, filing a petition in a Cayman Islands court last week to initiate a windup procedure of the former U.S. bank’s branch there. The depositors held around $38 million in their Caymans SVB accounts, according to the petition. The depositors hope the move will increase their chances of getting their money back from the Federal Deposit Insurance Corp., which seized their funds. The petition, filed by law firm Campbells to the Cayman court on June 13, argues that it is “just and equitable” for SVB’s Cayman Islands branch to be wound up, since the branch was unable to pay debt. The petition also asks the court to approve the appointment of official liquidators to help find ways to retrieve the funds. The liquidators will be able to investigate and keep depositors informed and to ensure they are treated fairly, said Paul Kennedy, a partner at Campbells.

Generic-drug maker Mallinckrodt yesterday said that it set aside more than $3.4 million in executive retention bonuses in the event of a possible filing for yet another bankruptcy. The move is latest sign of difficulty for the company, which has struggled to pay its bills in the wake of a $1.7 billion opioid settlement following allegations it helped propel the nation’s opioid crisis. The disclosure yesterday comes after the company last week said it reached an agreement to push back the due date of a $200 million payment from that settlement from June 16 to June 23. The company this month also opted not to make interest payments, and disclosed that some debt holders had proposed a second bankruptcy filing. Mallinckrodt emerged from chapter 11 last year.