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Crypto-Focused Law Firm Founders Battle Over Digital Assets

March 11, 2021, 1:08 AM

The growing acceptance of cryptocurrency—and its skyrocketing value—are fueling a legal fight among founders of a boutique law firm in New York and Miami.

Jason Cyrulnik, a former equity partner at Boies Schiller Flexner, in January 2020 was one of 15 lawyers to start the law firm, Roche Cyrulnik Freedman, which accepted cryptocurrency as a payment for its services.

More than a year later, Cyrulnik is battling the firm’s other two co-founders in court, alleging they are trying to seize his $60 million share of a cryptocurrency asset—a bounty whose value he claims in court papers has recently spiked to $250 million.

“I have never seen a more egregious scheme,” Cyrulnik’s lawyer, Marc Kasowitz, said in a statement. Kasowitz declined to discuss the identity of the cryptocurrency asset.

The drama shows the unintended downstream consequences firms can face when they embrace the growing popularity of digital currencies. The District of Columbia Bar recently joined bars in New York City and North Carolina that approved bitcoin and other cryptocurrency payments in return for legal services.

“Lawyers are permitted to take all kinds of things for payments, even if the value of those things changes over time,” said Noah Fiedler, who represents attorneys accused of ethics violations in addition to serving as partner-in-charge of Hinshaw & Culbertson’s Milwaukee office.

In a complaint filed Tuesday in a state court in Miami, Cyrulnik claims his now former partners voted to eject him from Roche Cyrulnik Freedman last month in an illegal scheme to strip him of the firm’s newfound largesse.

The firm, which has renamed itself Roche Freedman, claims it ejected Cyrulnik after he was abusive to colleagues and violated the terms of a memorandum of understanding dividing its profits.

Roche Freedman filed a lawsuit Feb. 27 against Cyrulnik in New York after he refused to leave the firm. A pretrial conference in the case is set for June 9.

Name partners Kyle Roche and Velvel “Devin” Freedman didn’t respond to requests for comment about the fallout involving their former partner.

Fiedler, the ethics expert, said paying an attorney in cryptocurrency is similar to paying a lawyer in company stock.

“The problem with crypto is that it’s so volatile,” he said. “Who reaps the rewards when the value skyrockets and who takes the risk when it nosedives?”

Cryptocurrency fees paid in advance of services raise additional hurdles, Fiedler said.

Those situations, he noted, are generally treated as business transactions between the lawyer and the client, instead of the usual payment of fees. They are subject to several additional safeguards to prevent conflicts of interest, he said.

Building a Business

Roche Cyrulnik Freedman, at the time of its founding a year ago, said it would focus on high-stakes litigation in emerging areas like cryptocurrencies and cannabis.

The firm is representing the estate of bitcoin developer David Kleiman in a lawsuit against alleged bitcoin creator Craig Wright.

Roche Freedman is also co-lead counsel in a class action case against iFinex Inc., owner of the cryptocurrency exchange Bitfinex and its associated stablecoin Tether. Bitfinex paid $18.5 million in February to settle a probe by New York State Attorney General Letitia James.

Cyrulnik claims in court filings that his $7.5 million book of business accounted for more than 60% of the firm’s gross revenue last year and kept it afloat while a cryptocurrency payment from its unidentified startup client appreciated in value.

While most tokens don’t usually generate such returns, over two weeks earlier this year the size of Roche Cyrulnik Freedman’s stake quintupled to $250 million, according to court filings by Cyrulnik.

“What these lawyers have done is flatly contrary to the parties’ binding agreement, their ethical and fiduciary duties and, governing Florida law,” Kasowitz said.

Kasowitz’s high-powered firm, Kasowitz Benson Torres, is where Cyrulnik’s brother, Kevin, is a commercial litigation partner and structured finance specialist, said a source familiar with the matter.

Kasowitz declined to discuss how his firm came to represent Cyrulnik, who didn’t respond to a request for comment.

Earlier this year, Cyrulnik’s now former firm brought on a new partner in Eric Rosen, a former lead federal prosecutor in a wide-ranging college admissions investigation that cost a former Big Law practice leader his job. Rosen is listed as co-counsel to Roche Freedman in the New York complaint it filed against Cyrulnik.

Sean Hecker, a former Debevoise & Plimpton partner who in mid-2018 linked up with litigator Roberta Kaplan to form New York’s Kaplan, Hecker & Fink, is also representing Roche Freedman in the dispute. Hecker, who didn’t respond to a request for comment, has his own cryptocurrency industry ties.

In February, Hecker represented Stefan He Qin, the 24-year-old founder of two cryptocurrency-focused hedge funds, as he pleaded guilty to duping investors out of $100 million. Hecker’s also advising one of the founders of cryptocurrency derivatives exchange BitMEX in a federal money laundering case.

Bitcoin and other virtual currencies and related assets have surged in value this year.

Coinbase Inc., the largest U.S. cryptocurrency exchange, filed plans to go public last month and disclosed an $18 million windfall for its top in-house lawyer. Payward Inc., another cryptocurrency exchange doing business as Kraken, could ride the bitcoin boom to a $10 billion valuation, according to Bloomberg News.

To contact the reporters on this story: Brian Baxter in New York at bbaxter@bloomberglaw.com; Chris Opfer in New York at copfer@bloomberglaw.com

To contact the editor responsible for this story: John Hughes at jhughes@bloombergindustry.com

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