Sam Bankman-Fried, the indicted founder of bankrupt cryptocurrency exchange FTX, wants a U.S. judge to throw out criminal charges brought against him following his extradition from the Bahamas, Reuters reported. In papers filed late Monday in Manhattan federal court, lawyers for the former billionaire said they asked Bahamas' Supreme Court to bar the country's government from authorizing U.S. prosecutors to move forward on the five charges, until their client has a chance to be heard. The lawyers said that a sixth charge, for violating U.S. campaign finance laws, should also be dismissed even though it was brought before his extradition, because the Bahamas did not consent to it. They want U.S. District Judge Lewis Kaplan to dismiss the charges, or try them separately from seven additional charges at Bankman-Fried's scheduled Oct. 2 trial. FTX was based in the Caribbean country. "To proceed otherwise would cause significant prejudice to Mr. Bankman-Fried and should not be permitted," his lawyers wrote on Monday. Bankman-Fried, 31, was extradited in December from the Bahamas to face charges he stole from customers, lied to investors and lenders, and violated campaign finance laws. Federal prosecutors in Manhattan later accused him of bank fraud and bribing Chinese officials.
A jury in Oregon has found electric utility PacifiCorp responsible for causing devastating fires during Labor Day 2020 in a civil lawsuit, the Associated Press reported. The jury returned its decision Monday, saying that the utility should be held financially liable for homes destroyed in the blaze. The jury awarded millions of dollars each to 17 homeowners who sued PacifiCorp a month after the fires, with most receiving $4.5 million and some $3 million for emotional distress. The jury also applied its liability finding to a larger class including the owners of nearly 2,500 properties damaged in the fires, which could push the price tag for damages to more than $1 billion. Those damages will be determined later. There has been no official cause determined for the 2020 Labor Day fires that killed nine people, burned more than 1,875 square miles (4,856 square kilometers) in Oregon and destroyed upward of 5,000 homes and structures. The blazes together were one of the worst natural disaster’s in Oregon history. The Portland utility didn’t shut off power to its 600,000 customers during the windstorm over Labor Day weekend in 2020 despite warnings from then-Gov. Kate Brown’s chief-of-staff and top fire officials, plaintiffs alleged. Its lines have been implicated in multiple blazes, one of which started in its California service territory and burned into Oregon.
Generic drugmaker Mallinckrodt is at risk of filing for bankruptcy again, a development that stands to disrupt its commitment to paying opioid victims under a settlement deal — but former executives are likely to keep their liability releases anyway, WSJ Pro Bankruptcy reported. The Dublin-based company, which reached a $1.7 billion opioid settlement last year through a bankruptcy filing, is now considering a repeat chapter 11 filing after struggling financially. If it files for bankruptcy again, its former executives’ grants of legal immunity from civil opioid lawsuits will likely be unaffected, according to legal experts. Those releases will stand “unless somehow the court in the second case felt it had the power to vacate the confirmation order in the first case — which rarely, if ever, happens,” said Bruce Markell, a former bankruptcy judge and now a professor at Northwestern University Pritzker School of Law. But the remaining $1.25 billion in opioid settlement payments that Mallinckrodt still owes could be reduced or delayed because those claims are unsecured, meaning there is no collateral that can be seized. Mallinckrodt’s financial position has weakened considerably since the settlement was reached. Its earnings have faltered since the confirmation of the chapter 11 plan, which shaved off about a quarter of the more than $5 billion debt load that Mallinckrodt brought to bankruptcy court. The company has also been weighed down by some high-interest debt obligations that weren’t resolved in bankruptcy, and it has faced continuing litigation from certain lenders.
The judge overseeing FTX's U.S. bankruptcy said Thursday that he would not defer to a Bahamian court about key issues like which FTX entity should collect assets and repay customers of the bankrupt crypto exchange, Reuters reported. Liquidators for FTX Digital Markets, the exchange's Bahamas-based subsidiary, have asked U.S. Bankruptcy Judge John Dorsey to let them seek a ruling from the Bahamas Supreme Court that their company controlled FTX.com's crypto exchange for international customers. FTX's U.S. bankruptcy team seeks to block the Bahamas litigation, calling it a power grab that would derail the company's ongoing efforts to repay customers. Judge Dorsey questioned the value of a Bahamian court ruling during a Thursday court hearing in Wilmington, Delaware, saying that he would retain authority over the $7 billion in assets recovered by the U.S. debtors no matter what the Bahamian court rules. Both courts would have to sign off before any assets transfer from the U.S. to the Bahamas, Judge Dorsey said. "It doesn't go to FTX Digital until I say it goes to FTX Digital," Judge Dorsey said. "So what are we gaining by having two parallel proceedings in two separate courts?" Chris Shore, an attorney for the Bahamian liquidators, said that a Bahamas court ruling would clarify each side's responsibilities and provide a framework for cooperation between the U.S. bankruptcy case and involuntary insolvency proceedings in the Bahamas.
The Sackler family owners of Purdue Pharma are a giant step closer to being reprieved. In winning an appeals court’s approval last week to resolve lawsuits accusing the family members of fueling the opioid crisis, Purdue’s bankruptcy case had to clear a new, stringent list of criteria that set a high bar for others seeking relief from mass lawsuits, according to a WSJ Pro Bankruptcy commentary. The U.S. Court of Appeals for the Second Circuit in Manhattan took more than a year and 97 pages in the landmark ruling that tackles a thorny issue for the judiciary: When should bankruptcy courts issue grants of immunity, known as third-party releases, to shield nonbankrupt businesses and individuals from lawsuits even when faced with objections? The debate about releases has taken on new meaning as a number of companies, such as 3M and Johnson & Johnson, and individuals, such as the Sacklers, try to escape mass lawsuits alleging harm from defective products or other wrongdoing. Some critics have argued that releases allow the wealthy and the powerful to use bankruptcy to get out of costly lawsuits without having to file for chapter 11 themselves and at claimants’ expense. In Purdue’s case, the pharmaceutical company sought to release its family owners from all current and future lawsuits, alleging that their efforts to drive sales hid the addictive nature of its flagship painkiller, OxyContin. In exchange, the family agreed to pay up to $6 billion in a settlement over time. Purdue’s request to extend the reprieve to the Sacklers cleared all seven factors the appeals court had laid out to consider whether such a release should be granted. Last week’s ruling also indicates that other companies or individuals seeking similar deals now need to meet the same legal threshold.
The liquidator of bankrupt crypto exchange FTX is trying to retrieve nearly $4 billion for creditors — from another bankrupt crypto firm. After a hearing on June 15, a court in the Southern District of New York will decide whether to let FTX pursue Genesis Global Capital (GGC), a crypto lender, over payments said to have been made shortly before the exchange’s collapse amid allegations of fraud, Wired reported. GGC, which filed for bankruptcy in January after being caught in the blowback from FTX’s implosion, only has about $5 billion in assets. GGC and FTX’s business relationship was substantial. The former provided Alameda Research, FTX’s sister company, with large loans — at one point amounting to nearly $8 billion — to fund its capital-intensive crypto bets, while GGC used FTX for its own crypto trading activity. The court motion filed by FTX’s liquidator describes GGC as “one of the main feeder funds” to FTX and therefore “instrumental to its fraudulent business model.” To fund its loans, GGC borrowed from individuals and institutions that owned large quantities of crypto, who received a cut of the profits in return. But this arrangement, combined with its close ties to FTX, made GGC triply vulnerable to trouble at the exchange. Not only did GGC have $175 million locked up on the FTX platform at the time of the bankruptcy, but the ensuing panic led to a surge in attempts by customers to redeem crypto from GGC. Unable to meet the influx, GGC was forced to suspend withdrawals as it sought an emergency cash injection — and ultimately, to file for bankruptcy itself. (Genesis Global Trading, the brokerage arm, remains active and solvent.) Now, GGC has to fend off FTX’s clawback claim, too. The suit alleges that Alameda paid GGC $1.8 billion in loan repayments and $270 million in collateral pledges, and that the lender — and nonbankrupt affiliate GGC International Limited — withdrew $1.8 billion from FTX’s trading platform, all in the 90 days before the exchange filed for bankruptcy. FTX claims each of these transactions should be reversed. If the case proceeds, GGC will likely argue that the $1.8 billion in loan repayments were made in the ordinary course of business, which would exempt them from being recalled. But it’s not guaranteed that, even if the New York judge allows FTX’s claim to continue, the dispute will ever get to court. The likelihood that clawback cases make it all the way to litigation, says Alan Rosenberg, partner at law firm MRTH and member of the American Bankruptcy Institute, is low; they almost always end in settlement. And FTX can use this fact to its advantage. “The truth is, there’s an economic consideration to be taken into account when defending [against clawbacks],” says Rosenberg. “Even if you have a great defense, it’s going to cost money to litigate. So you have to make a decision as to whether it’s more cost-effective to pay an amount to get rid of the claim.” The only mercy for creditors, says Rosenberg, is that both FTX and GGC — as bankrupt entities — have a fiduciary duty to reach an agreement as quickly as possible. “Everybody’s goal is to make a distribution to creditors. The more you fight, the more it will deplete the estate,” he says. “Both parties have an interest in reaching a resolution swiftly.”
Lawsuits against FTX’s financial backers and celebrity endorsers by customers of the failed cryptocurrency exchange have been consolidated before a single federal judge in Florida, Bloomberg News reported. A judicial panel on Monday ordered the creation of a multi-district litigation before U.S. District Judge K. Michael Moore in Miami, noting that the company had its U.S. headquarters there before filing for bankruptcy. Customers have filed several class actions against venture capital and private-equity firms, including Sequoia Capital and Thoma Bravo, that invested in FTX, claiming they enabled co-founder Sam Bankman-Fried, who is facing fraud charges stemming from the exchange’s collapse. Celebrities that endorsed FTX, including Tom Brady, Gisele Bundchen, Shaquille O’Neal and Larry David, have also been sued. FTX itself has been protected from litigation since its November chapter 11 filing in Delaware, but that stay doesn’t apply to third parties that allegedly facilitated the exchange’s actions. Bankman-Fried has pleaded not guilty to a 13-count indictment, part of which alleges he orchestrated a scheme to transfer billions of dollars in FTX customer funds to Alameda Research, an affiliated hedge fund, for risky trades and personal use.
Three years before its epic collapse, highflying Silicon Valley Bank was preparing to join the big boys of the banking world as it neared $100 billion in assets. But SVB needed help to make the leap, the Washington Post reported. “Immediately they decided to hire consultants,” one former SVB employee recalled, speaking on the condition of anonymity to describe internal decision-making. “Plug the gap with consultants.” Among the consultants that SVB turned to was McKinsey & Co., the blue-chip management-consulting group with a global roster of corporate and government clients. McKinsey was hired to identify gaps in SVB’s capital and risk-management programs — a job that might have spotted problems with the bank’s investment strategy long before the bank’s failure. But it didn’t work out that way. McKinsey’s work for SVB in 2020 and 2021 — which has not been previously reported — was sharply criticized by the Federal Reserve in its sweeping report on what caused the second-largest U.S. bank collapse since 2008. The Fed found that McKinsey had “failed to design an effective program” for assessing SVB’s problems and produced a report filled with “weaknesses.” McKinsey was not identified by name in the Fed’s postmortem examination, but a government official familiar with the regulator’s review, who spoke on the condition of anonymity to discuss internal details, confirmed that it was the consulting firm. Two former SVB workers also confirmed that McKinsey had been hired for the work later criticized by the Fed. The revelation comes as McKinsey continues to deal with the fallout from legal settlements over allegations by state and federal authorities regarding its disclosures in clients’ bankruptcy cases and its role in advising Purdue in marketing the painkiller OxyContin.
