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Good morning. Sam Bankman-Fried’s upcoming criminal trial is expected to give court watchers dueling explanations of the collapse of his FTX crypto exchange. Plus, Schulte Roth is suing a SPAC over legal fees from a failed casino merger; a new report says bar associations are stifling innovation; and the blockbuster Epic Games – Apple fight is set to unfold at the U.S. Supreme Court. It’s an epic Thursday newsletter.
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Sam Bankman-Fried, outside of Manhattan federal court in March. REUTERS/Amanda Perobelli
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Cryptocurrency mogul Sam Bankman-Fried’s criminal fraud trial is set to begin on Oct. 3, giving a Manhattan federal court jury a chance to weigh dueling narratives about the collapse of his FTX platform, Luc Cohen reports. Bankman-Fried’s trial is expected to last about six weeks.
In U.S. prosecutors’ telling, Bankman-Fried had embezzled money from depositors in his now-bankrupt FTX cryptocurrency exchange since its launch in 2019, and the resulting shortfall led to its collapse as crypto prices swooned last year. But in his version and in explanations from his lawyers, 31-year-old Bankman-Fried thought FTX, like a bank, could make investments with customers’ money as long as they were able to withdraw it — and he did not know that actions taken by his closest colleagues had jeopardized the availability of funds.
Bankman-Fried, an MIT graduate, has pleaded not guilty. He has acknowledged inadequate risk management, but denied stealing funds. He has been preparing for his trial from behind bars since Aug. 11, when U.S. District Judge Lewis Kaplan — who will oversee the trial — jailed him for likely tampering with witnesses.
>>> Read more: Who is Caroline Ellison, a key witness set to testify against Sam Bankman-Fried?
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- Schulte Roth is suing its former client 26 Capital Acquisition to recover more than $1.9 million in legal fees following the company’s failed merger with the largest casino in the Philippines. The law firm asked Delaware’s Court of Chancery to block 26 Capital, a SPAC, from dissolving before it pays its alleged legal fees. Schulte had advised 26 Capital on its planned $2.5 billion SPAC merger with Okada Manila, an affiliate of Japan’s Universal Entertainment. (Reuters)
- Polsinelli persuaded the 3rd Circuit to reject a lawsuit that claimed the law firm slacked off after receiving a flat fee of $14 million to defend a client facing an investigation and criminal prosecution. The appeals court upheld a lower court’s decision and said there was nothing in Polsinelli’s contract with mail-order pharmacy Philidor RX Services LLC and its former CEO requiring it to do more work than its co-counsel at WilmerHale. (Reuters)
- Former U.S. Attorney General Loretta Lynch is helping to lead a new practice at Paul Weiss advising companies whose diversity programs are under fire, as a legal backlash against race-focused initiatives gains steam in the United States. The law firm is the latest to market such a team following the U.S. Supreme Court’s decision to strike down race-conscious admissions policies at colleges and universities. (Reuters)
- A group of Paris-based lawyers leaving Shearman & Sterling for rival Proskauer Rose includes four partners and 15 other lawyers. Private equity transactional partners Xavier Norlain, Jeremy Scemama, Maud Manon and Matthieu Lampel and their team leave Shearman as a vote on its planned merger with Allen & Overy is scheduled to start this week. (Reuters)
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That’s the amount that Washington Trust Bank, the largest community bank in the country, will pay to settle DOJ charges that it discriminated against primarily Black and Hispanic mortgage applicants in Rhode Island. The government’s complaint alleges the bank engaged in a practice known as redlining by failing to provide lending services to residents in primarily Black and Hispanic neighborhoods in Rhode Island from 2016 through 2021. The DOJ has brought nine redlining cases and secured $98 million in relief since launching a coordinated enforcement effort to crack down on redlining in 2021.
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Shareholders with qualms about proposed settlements in Delaware Chancery Court will have to think hard about just how far they’re willing to take their protests, thanks to new rules the court adopted on Monday. The new provision, as Alison Frankel explains, requires objectors to put up “adequate security” if they want to oust lead plaintiffs and take over litigating the case. That scenario doesn’t happen often, Frankel says, though it recently arose in the viciously-contested litigation over AMC’s equity restructuring. Chancery rulemakers, Frankel says, seem to want to mitigate risk from objections. But are they ignoring the risk that legitimate challenges won’t be brought?
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“There are multiple ways to tackle re-imagining the bar; a court just needs to take the first step.”
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—A report from Stanford Law’s Deborah L. Rhode Center on the Legal Profession that said state courts should strip bar associations of some regulatory functions to spur innovation and lower the cost of legal services. State bar associations have a conflict of interest in their oversight of who is allowed to provide legal services, because most of the organizations also represent the professional interests of lawyers, according to the report. The report offers five options of how state courts can restructure legal practice regulation to minimize bar associations’ conflicts of interest and bolster innovation.
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- Opening statements are set to begin today in the first U.S. trial over allegations that Tesla’s Autopilot driver assistant feature led to a death, and its results could help shape similar cases across the country, Dan Levine and Hyunjoo Jin report. The trial in a California state court stems from a civil lawsuit alleging the Autopilot system caused owner Micah Lee’s Model 3 to suddenly veer off a highway east of Los Angeles at 65 miles per hour, strike a palm tree and burst into flames, all in the span of seconds. Tesla has denied liability, saying Lee consumed alcohol before getting behind the wheel. The electric-vehicle maker also claims it was not clear whether Autopilot was engaged at the time of crash.
- The U.S. Senate Judiciary Committee is scheduled to vote on several of President Joe Biden’s judicial nominees, including federal public defender Richard Federico for the 10th Circuit and U.S. Magistrate Judge Joshua Kolar in Indiana for the 7th Circuit. Kolar told Senators his military experience as a naval officer and as a judge had helped prepare him to serve on the court. Federico, a former military prosecutor and defense lawyer said his different roles within the Navy’s legal system “can only make me a better circuit judge.”
- Lawyers for venture capital firm Fearless Fund are due to respond at the Atlanta-based 11th Circuit to an effort by anti-affirmative action activist Edward Blum’s American Alliance for Equal Rights to win a preliminary injunction blocking the company from considering applications for grants only from businesses led by Black women. At a hearing this week, U.S. District Judge Thomas Thrash denied the request for an injunction. Blum’s organization quickly filed an emergency appeal asking the appeals court to prevent Fearless Fund from picking a grant winner.
- Florida Gov. Ron DeSantis faces a court deadline to ask a federal judge to dismiss a lawsuit from Walt Disney Co accusing him of retaliation for the entertainment company’s opposition to a state law on classroom sexuality instruction. Disney sued the Republican governor in April, claiming he was “weaponizing” state government in retaliation for the company’s criticism of a law that banned classroom discussion of sexuality and gender identity with younger children. Disney’s lawsuit came after state lawmakers passed legislation ending Disney’s virtual autonomy in central Florida.
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Court calendars are subject to last-minute docket changes.
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- U.S. District Judge Tanya Chutkan declined to recuse herself from presiding over the criminal prosecution of Donald Trump in D.C. federal court on charges that he tried to overturn the results of the 2020 presidential election. Chutkan ruled that her prior remarks in court while sentencing people convicted of storming the U.S. Capitol on Jan. 6, 2021, did not require her to step aside. (Reuters)
- Ohio urged the state’s highest court to let a ban on abortion after about six weeks take effect, just weeks before Ohio voters will decide whether to add a right to abortion to the state constitution. A state court judge in Cincinnati last year blocked the law from taking effect while he heard a lawsuit by abortion providers, including Planned Parenthood affiliates, finding that it likely violated the existing constitution by restricting the freedom to make healthcare decisions. (Reuters)
- U.S. District Judge Lance Africk in New Orleans in a 29-page order said a hospital consolidation in Louisiana was beyond the reach of federal antitrust law, delivering a setback to the FTC in a clash over the scope of its power to review certain acquisitions. Africk said Louisiana’s consideration and approval of the hospital transaction made it exempt from federal antitrust law. (Reuters)
- Creditors of fire safety company Kidde-Fenwal said its bankruptcy should not be used to resolve water pollution lawsuits against its parent company Carrier Global and predecessor Raytheon. U.S. Bankruptcy Judge Laurie Selber Silverstein heard creditors’ concerns at a hearing in Wilmington, Delaware, where she granted Kidde-Fenwal’s request for an additional 120 days to file a Chapter 11 bankruptcy plan. (Reuters)
- The DOJ accused eBay in a new lawsuit of violating the Clean Air Act and other environmental laws by allowing the sale of several harmful products, including devices that defeat automobile pollution controls. The online platform could face billions of dollars in penalties, including up to $5,580 for each Clean Air Act violation, the government’s complaint said. eBay called the lawsuit “entirely unprecedented” and said it would defend itself vigorously. (Reuters)
- Apple was ordered to face a private antitrust lawsuit by payment card issuers accusing the company of thwarting competition for its Apple Pay mobile wallet. U.S. District Judge Jeffrey White said the plaintiffs could try to prove that Apple violated federal antitrust law by enforcing a 100% monopoly over the domestic market for tap-and-pay wallets for iPhones, iPads and Apple Watches. (Reuters)
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