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Crypto Leaks Risks Roche Freedman Losing More Class Action Work

Oct. 17, 2022, 9:31 AM

An upstart litigation boutique that has made a name for itself by taking on crypto firms is on the ropes and at risk of losing its status as counsel in class actions.

Roche Freedman faces the repercussions after a website called Crypto Leaks released recordings of founding partner Kyle Roche boasting of his relationship with blockchain startup Ava Labs and voicing an apparent strategy to target the company’s competitors.

The law firm has faced disqualification motions in at least five cases, four of which are class actions brought by the firm, according to court filings. A judge on Oct. 13 removed the firm as interim lead counsel in a class action that accuses the crypto exchange Bitfinex and Tether of market manipulation.

Ava Labs, meanwhile, is transitioning away from using Roche Freedman as outside counsel, said a person from the company familiar with the matter and who spoke on the condition of anonymity.

Disqualification is a harsh remedy for courts to employ because people generally “shouldn’t be denied their choice of counsel,” said Jan Jacobowitz, a University of Miami law professor. “But it doesn’t mean it shouldn’t be employed on the right set of facts.”

Launched in 2019 by expats of Boies Schiller, Roche Freedman has been among the most active firms in the cryptocurrency litigation space. In addition to the Bitfinex/Tether market manipulation case, the firm represented plaintiffs in a matter that resulted in a jury ordering self-professed bitcoin inventor Craig Wright to pay $100 million in damages for cheating a deceased friend over crypto intellectual property.

The case is now on appeal in the Eleventh Circuit. Wright’s counsel is among the parties pushing for the Roche Freedman law firm to be removed.

Crypto Leaks

Roche has said the recordings stem from meetings he had in London in January 2022 with what he originally thought were potential investors in a business venture. In an affidavit submitted in court in September, he claimed a defendant in an action the firm is opposing was behind a scheme to obtain compromising recordings of him. He did not name the defendant.

It remains unclear who is behind the Crypto Leaks website, which launched this summer and only has published three posts. But the response to recordings of Roche has been swift.

District Judge Katherine Polk Failla on Oct. 13, in removing Roche Freedman from the Bitfinex/Tether case, said “it is too easy to say Mr. Roche was drunk and stupid.” She added, “His statements were coherent and logical and too detailed for me to dismiss out of hand.”

Failla also concluded the class would not suffer from any diminished quality in legal representation from the firm’s co-lead counsel—the law firms Selendy Gay Elsberg and Schneider Wallace.

Roche Denial

Roche and Ava Labs Chief Executive Officer Emin Gun Sirer have categorically denied allegations that they targeted competitors through litigation. Sirer has said Roche made false statements about their relationship to impress potential business partners.

Roche Freedman responded to the recordings by kicking Roche off its class action practice and barring him from participating or benefiting financially from ongoing class action matters.

Still, opposing counsel in at least five matters, including the entities behind the BitMEX crypto exchange and TRON blockchain protocol, have pushed for the entire firm’s removal.

Even Roche Freedman’s co-lead counsel in the action against Bitfinex and Tether pushed for the firm’s termination on grounds that it would eliminate a “sideshow.”

A partnership agreement produced in court in 2021 showed that Roche retained Ava Labs as a client in 2019 and that the blockchain developer agreed to distribute some of its Ava Labs tokens to partners in exchange for legal services.

Roche’s fellow name partner Devin “Velvel” Freedman has acknowledged that some of the firm’s attorneys own tokens issued by Ava Labs or equity interest in the company. He has said such engagement is not improper and that the firm has never abused the legal system.

The law firm did not comment on Failla’s Oct. 13 decision.

To contact the reporter on this story: Justin Wise at jwise@bloombergindustry.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com

© 2022 Bloomberg L.P. All rights reserved. Used with permission.