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Paul Weiss Drops Ex-FTX CEO Bankman-Fried on Conflicts (Correct)

Nov. 18, 2022, 3:46 PMUpdated: Nov. 21, 2022, 4:01 PM

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.

FTX collapsed in value last week and is now facing inquiries from U.S. and international regulators. The platform filed for Chapter 11 bankruptcy Nov. 11. Semafor first reported that Paul Weiss no longer represented Bankman-Fried.

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.

Bankman-Fried stepped down as CEO of FTX the same day as the Chapter 11 bankruptcy filing.

John J. Ray, a restructuring lawyer who once oversaw the liquidation of Enron Corp., is leading the company. FTX has retained Wall Street law firm Sullivan & Cromwell as an outside legal counsel in bankruptcy proceedings and investigative matters.

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.

The FTX founder is now facing scrutiny from multiple directions. Regulators are investigating whether FTX misused customer funds. A House subcommittee on Friday sent a letter to Bankman-Fried and Ray requesting information and documents relating to the exchange’s bankruptcy.

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.

FTX avoided registering its yield-bearing accounts as securities “so they could promote them to tens of millions of unaccredited investors,” attorney Adam Moskowitz said in an email. “We have the internal proof to show that was their plan.”

A lawyer has yet to enter an appearance on Bankman-Fried’s behalf in that action, which was filed in Miami federal court.

(Corrects Ripple Labs description in fifth paragraph of story published Nov. 18.)

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