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Good morning. The SEC is accusing bankrupt crypto company Terraform Labs of transferring $166 million to Dentons in a potential effort to avoid paying a judgment the regulator won against the company. Plus, a lawsuit involving Erika Jayne Girardi, a Hollywood costume designer and a U.S. Secret Service agent gets the OK to move ahead, and why some law grads taking the bar exam in California this week at a venue called the Cow Palace say they may not pass. Let’s leap in!
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The SEC is arguing that cryptocurrency company Terraform Labs should not be allowed to hire law firm Dentons or pay litigation costs for employees during its bankruptcy, criticizing a $166 million pre-bankruptcy retainer payment made to the firm as an “opaque slush fund,” Dietrich Knauth reports.
The SEC asserts that Terraform has sent $166 million to Dentons since the start of 2023, and that those transfers may have been intended to avoid paying a future judgment in the SEC’s lawsuit accusing Terraform of defrauding its investors.
Terraform Labs, which filed for Chapter 11 protection in January, has said that its bankruptcy will enable it to appeal a December ruling that granted partial victory to the SEC in its securities fraud case. A federal judge ruled that Terraform violated U.S. law by failing to register two digital currencies whose collapse roiled cryptocurrency markets in 2022, but hasn’t announced the damages yet.
After filing for bankruptcy, Terraform asked the bankruptcy court for permission to hire Dentons as special litigation counsel. The SEC said the payments can’t be allowed without more oversight from the bankruptcy court. The SEC argues that most of the retainer payments were transferred in the 90-day period before Terraform filed for bankruptcy and could be clawed back to repay Terraform’s other creditors.
Terraform and Dentons did not immediately respond to a request for comment.
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- A new venture by a legal tech entrepreneur Jimoh Ovbiagele and former Kirkland partner Jeffrey Gettleman says it can use artificial intelligence to help lawyers understand how individual judges think, allowing them to tailor their arguments and improve their courtroom results. The Toronto-based legal research startup Bench IQ raised $2.1 million in a pre-seed funding round that included Cooley, Fenwick and Wilson Sonsini.
- Former President Donald Trump has asked the 11th Circuit to throw out a Florida judge’s order imposing nearly $1 million in attorney sanctions for his failed lawsuit accusing Hillary Clinton and others of conspiring to rig the 2016 election, saying the sanctions were not justified.
- U.S. District Judge Joshua Wolson, a Trump appointee in Philadelphia, said at a Federalist Society event the judiciary needs to be “vigorous” in being transparent and policing against the over-sealing of records in order to shore up public confidence at a time when “judicial independence is very much under attack.”
- The Massachusetts Governor’s Council approved Democratic Governor Maura Healey’s nomination of her former romantic partner Gabrielle Wolohojian to the state’s highest court, despite some concerns about possible conflicts her candidacy raised. The panel voted 6-1 in favor of elevating Wolohojian from her spot on an intermediate appeals court to a seat on the state’s Supreme Judicial Court.
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That is the size of the bond that Donald Trump offered to post while he appeals a $454.2 million judgment that a judge imposed in New York state’s civil fraud case against him because is unable to post a full bond, his lawyers said. Trump is appealing a Feb. 16 decision by Justice Arthur Engoron, which includes a three-year ban from serving in a top role at any New York company and seeking loans from banks registered in the state. His lawyers said in a court filing that the “exorbitant and punitive amount of the judgment,” coupled with the lending prohibition, “would make it impossible to secure and post a complete bond.”
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Home improvement retailer Lowe’s has asked a federal appeals court to reconsider a decision allowing California employees to continue litigating claims of companywide labor code violations even if their own individual claims must be arbitrated. Alison Frankel explains why Lowe’s counsel from Gibson Dunn insist that a three-judge panel wrongly interpreted both U.S. Supreme Court precedent and the Federal Arbitration Act when it revived a former employee’s suit against the company earlier this month.
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“I could see my breath when I first arrived.“
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—California bar examinee Deborah Tharp told Reuters, saying it felt colder inside than outside the Cow Palace, an arena and event center near San Francisco where some examinees said they took the first day of the attorney licensing exam in cold temperatures. Some said they feared they would fail the two-day test because of the conditions. The venue was so inhospitable amid outside temperatures in the low 50s that some examinees struggled to complete the essay portion of the exam, according to comments posted to Reddit. The state bar said in a statement that its staff is working with Cow Palace to resolve the issues. The bar said that some test takers reported being cold Tuesday morning but by the end of the day some said it was too warm.
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- U.S. District Judge Charles Breyer in San Francisco will consider a request by the Center for Countering Digital Hate to dismiss a lawsuit by Elon Musk’s X Corp. X accused the nonprofit, which monitors online hate speech, of trying to drive advertisers away through a “scare campaign” showing that hate speech and other harmful content appeared to be overwhelming the platform. Lawyers for the center have called Musk’s suit “ridiculous.”
- Attorneys from the Alliance Defending Freedom will argue in Washington federal court on behalf of a pair of anti-abortion Christian medical nonprofits that say Washington state Attorney General Bob Ferguson is improperly investigating their activity based on his support for abortion rights. The nonprofits have sued to block Ferguson’s requests for documents and other information, which is part of an investigation into possible violations of Washington’s Consumer Protection Act.
- A bench trial begins in Mississippi federal court in a documentary filmmaker’s lawsuit against Lafayette County, Mississippi, after it enacted a curfew policy closing the county’s courthouse grounds from dusk until dawn. The filmmaker, John Rash, had requested a permit to hold a community art event projecting images onto the courthouse before the curfew was enacted. Rash, who is represented by Simpson Thacher and the ACLU, is accusing the county of violating his free speech rights, claiming the county enacted the curfew in order to block him from showing images related to a confederate monument on the court’s grounds.
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Court calendars are subject to last-minute docket changes.
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- Reality TV star Erika Jayne Girardi has lost her bid to strike a lawsuit accusing her and her estranged husband, indicted California attorney Tom Girardi, of bribing a former U.S. Secret Service official to pursue false charges of credit card fraud against a Hollywood costume designer. U.S. District Judge Michael Fitzgerald said that designer Christopher Psaila established “the probability of prevailing” on his claims against Erika Girardi.
- Google was hit with a $2.3 billion lawsuit by 32 media groups including Axel Springer and Schibsted, alleging that they had suffered losses due to the company’s practices in digital advertising. The move by the group comes as antitrust regulators also crack down on Google’s ad tech business.
- Sam Bankman-Fried lawyer Marc Mukasey urged a judge to impose a lenient sentence for the FTX founder’s conviction for stealing $8 billion from customers of the now-bankrupt cryptocurrency exchange, arguing clients would get most of their funds back. In a sentencing submission, Mukasey told U.S. District Judge Lewis Kaplan that a guidelines range between 5-1/4 and 6-1/2 years would be an appropriate prison term.
- The 7th Circuit has allowed Indiana to enforce a law banning the use of puberty blockers and hormones for transgender children under the age of 18, one of numerous such laws passed by Republican-led states around the country. The appeals court stayed a lower court order that had blocked the law, a little more than a week after hearing oral arguments in a challenge brought by families of transgender children and healthcare providers.
- Fossil fuel companies including Exxon, Chevron and Sunoco have asked the U.S. Supreme Court to scrap a decision that allowed Honolulu’s lawsuit alleging the companies misled the public for decades about the dangers of climate change to proceed to trial. The petition for certiorari challenges an October Hawaii Supreme Court decision that rejected the oil companies’ argument that the lawsuit is preempted, or blocked, by federal law because it seeks to regulate interstate emissions or commerce.
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- WilmerHale added Neena Shenai, a D.C.-based economic sanctions and export controls partner who most recently was senior legal director and chief counsel for global trade at Medtronic. (WilmerHale)
- Seward & Kissel brought on Sonita Bennitt as a tax partner in New York. She previously was at Goodwin. (Seward & Kissel)
- Norton Rose Fulbright added public finance partner Alison Radecki in New York from Orrick. (Norton Rose Fulbright)
- Fish & Richardson hired life sciences litigation partners Louis Fogel and Shaun Van Horn in Chicago from Jenner, where Fogel was co-chair of the life sciences practice. (Fish)
- Spencer Fane opened a D.C. office with IP partners Blair Jacobs, Christina Ondrick and John Holley. They arrive from McKool Smith. (Spencer Fane)
- Ogletree Deakins brought on partner Richard Rahm, who works on wage and hour class action litigation, in its San Francisco office. Rahm arrives from Littler, where he co-chaired the transportation industry group. (Ogletree Deakins)
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