July 2024 - cypherpunks - lists.cpunks.org

Young Thug's 3rd Judge Denies Mistrial For Bench Swaps
by Gunnar Larson 02 Aug '24

02 Aug '24

Young Thug's 3rd Judge Denies Mistrial For Bench Swaps <https://www.law360.com/legalethics/articles/1863785?nl_pk=153d4a8a-6fb9-4a5…> By Cara Salvatore A Georgia judge who recently became the third presider in rapper Young Thug's sprawling racketeering trial ruled Tuesday there will be no mistrial on grounds of judge substitution, but said rulings on other mistrial motions are still to come. Read full article » <https://www.law360.com/legalethics/articles/1863785?nl_pk=153d4a8a-6fb9-4a5…> | Save to favorites » <https://www.law360.com/legalethics/articles/1863785?nl_pk=153d4a8a-6fb9-4a5…>

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Bank Regulators Issue Warnings on Fintech and Banking as Disasters Pile Up
by Gunnar Larson 02 Aug '24

02 Aug '24

https://wallstreetonparade.com/2024/07/federal-bank-regulators-issue-warnin… By Pam Martens and Russ Martens: July 31, 2024 ~ Wall Street Bull (Thumbnail)Last Thursday, the Board of Governors of the Federal Reserve System (the Fed), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), the federal supervisors of banks, issued 11 pages of warnings on what could go wrong when federally-insured banks get in bed with uninsured and untested financial technology companies. These financial technology companies are lovingly called Fintechs on Wall Street and in Silicon Valley where big money can be made by venture capitalists who bring the sexy-sounding Fintech startup as an IPO (Initial Public Offering) to investors on Wall Street. The Wall Street firm, in return, gets a nice payday in underwriting fees and a law firm also gets paid as counsel to the underwriters. Federal banking regulators have been in a frenzied scramble to deal with the growing fallout of disastrous marriages between Fintech and federally-insured banks. You might recall that after news broke that the fraudster crypto exchange, FTX, was using Silvergate Bank for deposits, there was turmoil at Silvergate, forcing it into eventual voluntary liquidation. (See Disgraced Silvergate Bank Hints It May Not Be Able to Cover All of Its Deposits; Fed Slaps It with a Cease and Desist Consent Order.) Then there is the mess with the Fintech payment app, Zelle. Things are so bad with that app that the U.S. Senate’s Permanent Subcommittee on Investigations had to hold a hearing on May 21. The Chair of that Subcommittee, Richard Blumenthal, opened the hearing with this: “The banks of America have a dirty little secret. It’s called Zelle. And it’s not just Zelle, it’s other P2P paid platforms—apps that people use to transfer money among their bank accounts. In the case of Zelle, it is nearly instantaneous. It’s almost always irreversible. And it is owned by banks. “In fact, Zelle is the largest peer-to-peer payment app. It’s actually operated by Early Warning Services, which in turn is owned and operated by the seven largest banks. And Zelle is often integrated into consumers’ existing online bank accounts and mobile apps. “Zelle markets itself as ‘A fast and easy way to send and receive money.’ But, as this Committee has found, a fast and easy way to lose money is often what happens on Zelle. And that is probably a more accurate catchphrase for Zelle and for other P2P platforms as well. What distinguishes Zelle is speed, permanence, and bank ownership, and that’s really the reason why we are focusing on Zelle, but the other platforms deserve attention as well. In fact, it’s less well known than other payment apps like Cash App and Venmo, but Zelle is by far the largest—several times its nearest competitor, and it is approximately three times larger than its nearest rival. “Zelle transfers are nearly instant and irreversible, and by the time a consumer knows they’ve been scammed, usually it’s too late to do anything about it—at least according to Zelle and according to the banks that own, control, and in effect operate Zelle. “Just three banks, J.P. Morgan Chase, Bank of America, and Wells Fargo handled 73% of all Zelle transactions in 2023….” The most recent embarrassment for U.S. banking regulators was the bankruptcy filing by Synapse Financial Technologies, a fintech startup that had financial backing from Andreessen Horowitz, the giant Menlo Park, California venture capital firm that has morphed into a major funder of the Super PAC, Fairshake, that is attempting to pack the U.S. Senate with crypto sycophants come the election in November. (See Crypto Just Got Exponentially More Dangerous: Meet Fairshake.) Synapse describes itself as “a finance platform” that “provides payment, card issuance, deposit, lending, compliance, credit and investment products as APIs [Application Programming Interface] to more than 18 million end users.” Very sexy stuff to Wall Street. Far less sexy is the fact that Synapse’s failure has prevented “More than 100,000 Americans with $265 million in deposits” to become locked out of their bank accounts since May, according to CNBC. How big is the scope of this potential Fintech/Banking disaster? The Hill reported this last week: “While the numbers vary, fintech companies have been valued today at more than $1 trillion. There is another $2.5 trillion in cryptocurrencies represented by 10,000 different coins, as well as about $1.3 trillion in synthetic and derivative crypto securities being sold by Wall Street. Blackrock and Grayscale have accumulated $42 billion under management in their Bitcoin Spot ETFs in just the six months since the Securities and Exchange Commission approved them.” In addition to issuing the 11-page warning, the federal banking regulators simultaneously issued a 32-page RFI (Request for Information) to the banks, seeking specific information on the entanglements of the federally-insured bank with all things Fintech. Question 14 on the RFI seems to drill down to a core problem in this loosey goosey world of federally-insured banking and Fintech. It asks: “In the context of bank-fintech arrangements, how are deposit accounts usually titled? Describe the range of practices reconciling bank deposit account records with the fintechs’ records. Generally, what party holds and maintains the account records? Describe the structure in place to exchange accurate customer information between the bank and the fintech company and how the agreements between banks and fintech companies generally address these matters. Describe any additional controls that banks or fintechs may use to provide for accurate reconciliations.”

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Prosecutors Say Bribery Ruling Won't Disrupt Madigan Trial
by Gunnar Larson 31 Jul '24

31 Jul '24

Prosecutors Say Bribery Ruling Won't Disrupt Madigan Trial <https://www.law360.com/governmentcontracts/articles/1863732?nl_pk=4126fe73-…> By Celeste Bott Prosecutors accusing former Illinois House Speaker Michael Madigan of corruption said Monday night his case is unaffected by the U.S. Supreme Court's ruling limiting the reach of a bribery statute that once criminalized gratuities, saying the government's allegations do not rely on gratuities, so "this dog will not hunt." Response attached | Read full article » <https://www.law360.com/governmentcontracts/articles/1863732?nl_pk=4126fe73-…> | Save to favorites » <https://www.law360.com/governmentcontracts/articles/1863732?nl_pk=4126fe73-…>

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NJ Judge Off The Bench For Cursing, Gifting Giants Tickets
by Gunnar Larson 31 Jul '24

31 Jul '24

NJ Judge Off The Bench For Cursing, Gifting Giants Tickets <https://www.law360.com/legalethics/articles/1863888?nl_pk=153d4a8a-6fb9-4a5…> By George Woolston A New Jersey municipal judge accused of using profanity in the courtroom, fraternizing with police officers at a Hooters restaurant and gifting New York Giants tickets to the town's code enforcement officer has been removed from the bench, the state Supreme Court said Tuesday. Order attached | Read full article » <https://www.law360.com/legalethics/articles/1863888?nl_pk=153d4a8a-6fb9-4a5…> | Save to favorites » <https://www.law360.com/legalethics/articles/1863888?nl_pk=153d4a8a-6fb9-4a5…>

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Sens. Look To Break Down Federal Barriers To Broadband
by Gunnar Larson 31 Jul '24

31 Jul '24

Sens. Look To Break Down Federal Barriers To Broadband <https://www.law360.com/technology/articles/1863625?nl_pk=2bd720dd-746c-4744…> By Nadia Dreid Three senators think they have the solution for speeding up the broadband permitting process in the form of a bill that they say will cut red tape and ensure applications are dealt with within the nine-month window the federal government has to do so. Bill attached | Read full article » <https://www.law360.com/technology/articles/1863625?nl_pk=2bd720dd-746c-4744…> | Save to favorites » <https://www.law360.com/technology/articles/1863625?nl_pk=2bd720dd-746c-4744…>

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OnlyFans Dupes Users With Chatty Impersonators, Suit Says
by Gunnar Larson 31 Jul '24

31 Jul '24

OnlyFans Dupes Users With Chatty Impersonators, Suit Says <https://www.law360.com/cybersecurity-privacy/articles/1863515?nl_pk=3dfd2fd…> By Bonnie Eslinger OnlyFans knowingly allows professional "chatters" to impersonate content creators on the subscription platform, duping users into thinking they're having a direct conversation with an individual they paid to connect with and resulting in personal information being shared with that stranger, according to a proposed class action filed in California federal court. Complaint attached | Read full article » <https://www.law360.com/cybersecurity-privacy/articles/1863515?nl_pk=3dfd2fd…> | Save to favorites » <https://www.law360.com/cybersecurity-privacy/articles/1863515?nl_pk=3dfd2fd…>

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Dominion Again Pushes DQ Bid For Ex-Overstock CEO Atty
by Gunnar Larson 31 Jul '24

31 Jul '24

Dominion Again Pushes DQ Bid For Ex-Overstock CEO Atty <https://www.law360.com/legalethics/articles/1863619?nl_pk=153d4a8a-6fb9-4a5…> By Alison Knezevich Attorneys for Dominion Voting Systems are again urging a D.C. federal judge to disqualify a Michigan attorney from representing former Overstock.com CEO Patrick Byrne in a defamation lawsuit, saying she and her client "lack any respect for the rule of law" and pose risks to Dominion employees. Memorandum attached | Read full article » <https://www.law360.com/legalethics/articles/1863619?nl_pk=153d4a8a-6fb9-4a5…> | Save to favorites » <https://www.law360.com/legalethics/articles/1863619?nl_pk=153d4a8a-6fb9-4a5…>

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SEC Asks To Amend Token Claims In Binance Complaint
by Gunnar Larson 31 Jul '24

31 Jul '24

SEC Asks To Amend Token Claims In Binance Complaint <https://www.law360.com/fintech/articles/1863657?nl_pk=d2b3e7ef-ab62-4a62-80…> By Aislinn Keely The U.S. Securities and Exchange Commission told a D.C. federal court that it plans on amending its claims concerning third-party tokens that traded on crypto exchange Binance's platform, according to a Tuesday status update in the enforcement suit. Report attached | Read full article » <https://www.law360.com/fintech/articles/1863657?nl_pk=d2b3e7ef-ab62-4a62-80…> | Save to favorites » <https://www.law360.com/fintech/articles/1863657?nl_pk=d2b3e7ef-ab62-4a62-80…>

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Judge John Dorsey Has Effectively Privatized Justice in the FTX Bankruptcy Case
by Gunnar Larson 31 Jul '24

31 Jul '24

https://wallstreetonparade.com/2023/02/judge-john-dorsey-has-effectively-pr… By Pam Martens and Russ Martens: February 23, 2023 ~ John T. Dorsey (2016 Photo from Internet Archives' Wayback Machine) John T. Dorsey (2016 Photo from Internet Archives’ Wayback Machine) Judge John Dorsey is the presiding judge in the bankruptcy proceedings for Sam Bankman-Fried’s collapsed house of cards, which includes the now frozen crypto exchange, FTX; his now shuttered hedge fund, Alameda Research; and more than 100 opaque affiliates operating in the shadows around the globe. Undisputed is the fact that despite FTX being represented by some of the most prominent law firms in America as it built this criminal enterprise – notably Sullivan & Cromwell – more than 10.3 million user accounts were looted of more than $8 billion right under the nose of Big Law. We say “notably Sullivan & Cromwell” in the above paragraph because not only did it work on more than 20 matters for the FTX group of companies for 16 months prior to its bankruptcy filing but its former law partner, Ryne Miller, served as General Counsel of FTX US since August of 2021. In addition, Sullivan & Cromwell has conceded that it personally represented Sam Bankman-Fried on his purchase of more than half a billion dollars of stock in Robinhood Markets (a stock trading app) – the rightful ownership of which is now the subject of multiple court battles. Equally problematic, an email by Sullivan & Cromwell law partner, Andrew Dietderich, has surfaced in a court filing indicating that just four days before FTX filed bankruptcy, Dietderich had told another law firm that FTX is “rock solid.” (Dietderich is now one of the key law partners involved in the FTX bankruptcy proceedings.) Given this set of facts, justice for the defrauded customers and the public interest would obviously demand that the pre-bankruptcy legal interactions between Sullivan & Cromwell, the FTX group of companies and Sam Bankman-Fried (as well as all other questionable activities by others) be investigated by an independent examiner, as is required under bankruptcy law when requested by the U.S. Trustee and debts exceed $5 million. Instead, Judge Dorsey ruled against the U.S. Trustee’s request for an independent examiner in the FTX bankruptcy proceeding and has signed an order making Sullivan & Cromwell the lead counsel overseeing the FTX bankruptcy case. By doing this, Judge Dorsey has effectively privatized justice while sitting on the bench of a federal court. Sullivan & Cromwell is a 144-year old Big Law firm with more than 900 attorneys. Its headquarters is located in the financial district in lower Manhattan on Broad Street. It filed the FTX bankruptcy case, not in U.S. Bankruptcy Court in lower Manhattan, but in U.S. Bankruptcy Court in Wilmington, Delaware – a two-hour drive for its law partners, some of whom are billing as much as $2,165 an hour in the FTX bankruptcy matter. (For 19 days in November and 31 days in December, Sullivan & Cromwell has thus far billed $20 million in legal fees and more than $239,000 in expenses. Part of those expenses include more than $20,000 for “Conference Room Dining” and “Meals – Overtime.”) Judges in U.S. Bankruptcy Court in Delaware, including Judge Dorsey, have previously ruled on multiple occasions against the appointment of an independent examiner when requested by the U.S. Trustee. This might explain the two hour drive to Wilmington, Delaware by Sullivan & Cromwell’s high-priced attorneys. As Sullivan & Cromwell’s partners are billing and eating their way through what’s left of defrauded crypto customers’ money, Judge Dorsey had the audacity to make the argument in turning down the U.S. Trustee’s request for an independent examiner, that it would cost too much money. The U.S. Trustee program is part of the U.S. Department of Justice, a federal agency. Its statutory mandate is “to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders — debtors, creditors, and the public.” The public’s vested interest in this matter could not be greater. The federal prosecutor who has thus far indicted Sam Bankman-Fried and two of his alleged co-conspirators (Caroline Ellison and Gary Wang), has called FTX “one of the biggest financial frauds in American history.” The entire life savings of some customers is gone with the allegation that their customer accounts were used as Bankman-Fried’s personal piggy bank to buy luxury real estate in the Bahamas; buy celebrity endorsements; slap his company’s name on sports stadiums; and funnel tens of millions of dollars to political campaigns. (And let’s not forget the millions of dollars in legal fees that went to Big Law firms – pre-bankruptcy – to keep this house of cards propped up. In addition to Sullivan & Cromwell, Forbes reported that the following U.S. law firms had worked for FTX prior to its bankruptcy filing: Fenwick & West; Gibson, Dunn & Crutcher; Hogan Lovells; Morrison Foerster; Paul Hastings; Perkins Coie; Quinn Emanuel Urquhart & Sullivan; Skadden, Arps, Slate, Meagher & Flom; and White & Case.) Adding to the logical premise that the public is heavily vested in a transparent and independent investigation of FTX and its enablers – and what is transpiring in these bankruptcy proceedings – a total of 18 state attorneys general and/or state securities regulators filed statements with Judge Dorsey’s court endorsing the U.S. Trustee’s request for an independent examiner. But in another show of how Judge Dorsey has privatized these proceedings, he ignored the wishes of 18 states representing more than a third of the population of the United States. We have made multiple requests to the offices of the U.S. Trustee, asking if the U.S. Trustee is planning to appeal the denial of its request to appoint an independent examiner. Thus far, no information on this topic has been provided to us.

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Sullivan & Cromwell’s Legal Work for Sam Bankman-Fried’s Crypto House of Fraud Is Getting a Closer Look in Two Federal Court Cases
by Gunnar Larson 31 Jul '24

31 Jul '24

https://wallstreetonparade.com/2024/06/sullivan-cromwells-legal-work-for-sa… By Pam Martens and Russ Martens: June 17, 2024 ~ Ryne Miller, Former Sullivan & Cromwell Partner; Now General Counsel of FTX.US Ryne Miller, Former Sullivan & Cromwell Partner Who Became General Counsel of FTX.US Last Monday, Robert J. Cleary of law firm Patterson Belknap filed a motion in the bankruptcy proceeding of Sam Bankman-Fried’s collapsed fraud, the FTX crypto exchange, seeking to launch three new investigations into legal work done by Sullivan & Cromwell for Bankman-Fried and FTX prior to the collapse of the fraud. Cleary is the independent examiner appointed by the U.S. Department of Justice’s U.S. Trustee, which acts as a watchdog in federal bankruptcy cases. Adding to the embarrassment for Sullivan & Cromwell with the announcement of the new investigations is the fact that Sullivan & Cromwell fought against allowing the U.S. Trustee to appoint an independent examiner after it had maneuvered itself into the position of lead counsel to the FTX bankruptcy proceeding, despite its multitude of conflicts with FTX. The presiding judge in the bankruptcy case, John Dorsey, had sided with Sullivan & Cromwell in the matter. The U.S. Trustee was forced to take the issue to the Third Circuit Court of Appeals. On January 19, a sharp rebuke to Sullivan & Cromwell and the judge was handed down. The court wrote in its decision: “Under the Bankruptcy Court’s interpretation, the appointment of an examiner under either subsection of Section 1104(c) would be subject to a court’s discretion and a judge would have the final say as to whether an investigation was warranted. But this interpretation runs counter to the statute’s plain language and established canons of construction.” The court added this: “First, an examiner must be ‘disinterested’… This requirement of disinterest is particularly salient here, where issues of potential conflicts of interest arising from debtor’s counsel serving as pre-petition advisors to FTX have been raised repeatedly….” The independent examiner’s June 10 motion explains the three new areas it wants to investigate as follows: “The first recommendation concerns S&C’s representation of Sam Bankman-Fried… in connection with his purchase of the Robinhood Shares…This inquiry would focus on (1) the scope and contours of that representation, and (2) based on that representation, what, if anything, S&C knew or should have known about the FTX Group’s misconduct and/or fraud… “The second recommendation concerns potential claims against the former shareholders of Ledger Holdings, Inc [parent of LedgerX]…that sold their interests prepetition to West Realm Shires Inc. [a/k/a FTX.US]…This inquiry would (1) seek to determine whether an avoidance action(s) is warranted with respect to unreleased shareholders, and (2) enable the Examiner to report on the underlying details of the prepetition sale of LHI to WRS, which report and findings would be in the public interest… “The third recommendation concerns the ‘holes’ or balance sheet shortfalls at FTX.US…This inquiry would center on (1) the existence of and the reasons these holes arose at FTX.US, (2) whether the balance sheet holes were the result of commingling of customer or corporate assets, (3) the frequency and magnitude of the holes, and (4) how they were resolved and by whom….” The independent examiner is asking for 10 weeks and $3 million to conduct the three new investigations. A hearing on the matter is scheduled for today in the federal bankruptcy court in Delaware before Judge John Dorsey. The independent examiner had released a preliminary report on May 23, which found no wrongdoing on the part of Sullivan & Cromwell. That report, however, indicated that further investigations would be requested by the independent examiner. Adding pressure on the independent examiner is the fact that powerful sleuthing into Sullivan & Cromwell’s work on behalf of FTX is being done by law firms representing plaintiffs who are suing Sullivan & Cromwell (S&C) in federal district court in Florida. The plaintiffs write in their complaint: “For its part, S&C facilitated the scheme to defraud and RICO enterprise by agreeing to provide and providing legal services to FTX US and FTX Trading Ltd…S&C did so knowingly, recklessly, or with willful blindness to the nature of the RICO enterprise but within the scope of the S&C’s employment and in furtherance of the firm’s business. In fact, in exchange for S&C’s counsel in these matters, FTX paid S&C significant fees.” There is no question that Sullivan & Cromwell’s ties to FTX were significant. One of Sullivan & Cromwell’s law partners, Ryne Miller, moved to FTX.US and became its General Counsel. Another former Sullivan & Cromwell lawyer, Tim Wilson, became General Counsel for FTX Ventures, the venture capital arm of FTX. Sullivan & Cromwell had previously represented the kingpin of the fraud, Sam Bankman-Fried, who was convicted in November 2023 on seven counts of fraud and conspiracy. The law firm had also previously represented the Head of Engineering at FTX, Nishad Singh, who pled guilty to fraud charges. According to Sullivan & Cromwell’s own bankruptcy court declaration, it had been involved in more than 20 legal engagements for FTX before it filed for bankruptcy on November 11, 2022. According to the declaration, the law firm’s legal work began 15 months prior to the collapse of the firm. Among the three areas that the independent examiner is asking to investigate, the LedgerX deal may prove to be particularly problematic. The plaintiffs in the case in federal court in Florida allege the following: “According to some FTX Insiders, S&C decided to intentionally keep FTX US Derivatives (formerly LedgerX) out of the FTX bankruptcy proceedings, with knowledge that it was in possession of approximately a quarter billion dollars of diverted FTX customer funds from which it could (and has) extracted significant revenue. In fact, from November 2022 to mid-January 2024, S&C’s income from matters just related to FTX has surged, exceeding $180 million—or 10% of the total revenue the 900-lawyer firm publicly stated it collected in all of 2022—with paralegals billing $595/hr. and partners billing up to $2,165/hr.” The Florida complaint also raises the following bombshell allegation regarding the LedgerX deal: “Through its work on the LedgerX acquisition and work in connection with LedgerX (d/b/a FTX US Derivatives) thereafter, S&C was privy to a software audit of the FTX systems, which Mr. Miller and then-CEO of LedgerX, Zach Dexter, oversaw. According to FTX Insiders, Mr. Miller became aware through that audit of the ‘back door’ in the FTX Platform code that allowed SBF [Sam Bankman-Fried] and his inner circle to embezzle FTX customer funds by funneling them to Alameda [Sam Bankman-Fried’s hedge fund], and communicated that fact to his mentors, Messrs. Dietderich and Eitel [lawyers at S&C], and others at S&C.” The Florida case is Edwin Garrison, et al., v. Sullivan & Cromwell LLP. It has been filed in the U.S. District Court for the Southern District of Florida. The case number is 1:24-cv-20630. It is part of Multi-District Litigation (MDL) involving FTX. Sullivan & Cromwell ranks among the oldest law firms in America. It was founded 145 years ago by Algernon Sydney Sullivan and William Nelson Cromwell in the financial district of lower Manhattan. During the Wall Street crisis of the 1930s, Sullivan & Cromwell built a reputation for defending Wall Street firms against shareholder lawsuits and antitrust actions. Sullivan & Cromwell also played a pivotal role in the 2008 financial crisis, the worst since the Great Depression. As Wall Street On Parade previously detailed, the firm’s Senior Chair, Rodge Cohen, paved the way for the Fed’s unprecedented $29 trillion bailout of Wall Street banks after their corrupt activities collapsed the U.S. economy in 2008. Related Articles: No One Trusts the FTX Bankruptcy Case: News Outlets Intervene; Justice Department Trustee Demands Independent Examiner; SEC Orders Disclosures A Sam Bankman-Fried Company Loaned or Invested More than $1 Billion in Clients of its Law Firm, Sullivan & Cromwell Sullivan & Cromwell, FTX Lead Counsel in Bankruptcy, Says It Has No Adverse Relationships, Despite Representing Four of FTX’s Crypto Exchange Competitors Bombshell Emails Raise Questions about What Sullivan & Cromwell Knew about Fraud at Sam Bankman-Fried’s Crypto Firms

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