Law \ Legal

Law Firm Conflicts News — Crypto Risk Revealed as FTX-related Matters Unfold, Indiana on Imputed Conflicts

Paul Weiss Drops Ex-FTX CEO Bankman-Fried Due to Conflicts” —

  • “Paul Weiss said Friday it has stopped representing embattled crypto mogul Sam Bankman-Fried, citing conflicts of interest.”
  • “Bankman-Fried, the former CEO of bankrupt crypto exchange FTX, is losing the firm’s help as US lawyers for the platform claim he is disrupting reorganization efforts through ‘incessant and disruptive tweeting.’”
  • “‘We informed Mr. Bankman-Fried several days ago, after the filing of the FTX bankruptcy, that conflicts have arisen that precluded us from representing him,’ Paul Weiss counsel Martin Flumenbaum said in a statement.”
  • “Flumenbaum is a longtime litigator whose past clients include the junk-bond trader Michael Milken and AIG. He currently represents Christian Larsen, the chairman of blockchain company Ripple Labs.”
  • “Court filings show that the exchange engaged with the law firm as its liquidity crisis became ‘increasingly dire.’ FTX and its vast network of related companies, including trading house Alameda Research, have estimated their assets and liabilities to between $10 billion and $50 billion. Bankman-Fried, once worth $16 billion, has seen his assets wiped out.”
  • “Bankman-Fried and several celebrity promoters of the exchange were also hit with a class action on Thursday accusing them of perpetrating a fraud designed to take advantage of ‘unsophisticated investors.’ The complaint, filed by the Moskowitz Law Firm and Boies Schiller on behalf of investors, alleges Bankman-Fried violated U.S. securities laws and that American consumers sustained over $11 billion worth of damages.”

A reporter who spoke with Mr. Bankman-Fried, tweeted a not safe for work summary of his take regarding the dialogue with his former counsel, for those curious. [And here is one of those ads mentioned in the last bullet, maybe Larry David had the right idea after all?]

Disciplinary Commission issues advisory opinion for law firms on imputed conflicts of interest” —

  • “The Indiana Supreme Court’s Disciplinary Commission on Friday published a nonbinding advisory opinion focused on Rules of Professional Conduct Rule 1.10, which outlines when a law firm is prohibited from representing a client based on imputed conflicts of interest.”
  • “In short, the commission reminded law firms should decline to represent, or withdraw from representing, a client when any individual lawyer at the firm (or joining the firm) is conflicted from the representation.”
  • “This is the situation unless the conflict is personal to that lawyer, or unless the affected clients have provided informed consent, the commission wrote.”
  • “‘When a lawyer departs a firm, the firm can represent parties adverse to the departing lawyer’s client unless the matter is the same or substantially related to the one the departing lawyer worked on while at the firm, or others remaining at the firm have information that would preclude representation under Indiana Professional Conduct Rules 1.6 and 1.9,’ the advisory opinion states. ‘A firm is not required to withdraw from a case if a lawyer joining the firm worked on behalf of an adverse party if the lawyer was not the primary lawyer on the case; the lawyer is effectively screened from the case at the firm; and sufficient written notice is provided to affected clients.’”
  • “The disciplinary commission further wrote that when potential conflicts inevitably arise in practice, firms need to have effective conflict check procedures, including, ‘carefully screening matters against the client matters of incoming and outgoing lawyers; taking steps to avoid entering an appearance on a case when a Rule 1.10 conflict exists; and, when possible, avoiding disqualification of the firm from current matters.’”
  • More details and scenarios in their advisory opinion.

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