Author: Alison Frankel, Reuters; Translation: Song Xue, LianGuai
Manhattan federal prosecutors on Saturday asked a Florida judge overseeing the civil litigation arising from the collapse of the cryptocurrency exchange FTX to pause the sprawling case until the conclusion of the criminal trial of FTX founder Sam Bankman-Fried.
Prosecutors from the Manhattan U.S. Attorney’s Office said the entire civil case against Bankman-Fried and three other former senior FTX insiders should be postponed until after the criminal trial set to begin on October 3, which is expected to include testimony from one of Bankman-Fried’s former colleagues who has reached a plea agreement with the government.
Prosecutors said the civil charges against former insiders for defrauding FTX customers almost entirely overlap with the government’s criminal case against Bankman-Fried. Allowing the plaintiffs’ lawyers to proceed with the civil case could interfere with the imminent criminal trial, prosecutors said.
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The plaintiffs’ lawyers in the consolidated civil case apparently have no objection to the complaints against the FTX insiders. A spokesperson for David Boies, co-managing partner at Boies Schiller Flexner, said he is in trial and unable to be reached. But the Manhattan U.S. Attorney’s Office declined to comment on the motion to pause and said in Saturday’s filing that neither the FTX insiders nor the lead plaintiffs’ lawyers in the civil litigation object to the stay.
More intriguingly, prosecutors asked for a halt to all evidentiary disclosures from dozens of other defendants in the civil case, including FTX’s former law firm and auditor; U.S. and foreign venture capital investors who provided funding for the rapid growth of the cryptocurrency exchange; and celebrity athletes, entertainers, and social media influencers who were compensated to serve as “brand ambassadors” for FTX.
The lead plaintiffs’ lawyers separately sued these groups of defendants in August. But in Saturday’s filing, prosecutors argued that the allegations in these complaints significantly overlap with the criminal charges against Bankman-Fried, and therefore the plaintiffs’ lawyers should be barred from obtaining testimony or other discovery from any of the defendants until after Bankman-Fried’s trial concludes.
According to the government’s filing, the plaintiffs’ lawyers do not agree.
Prosecutors told Miami U.S. District Judge Michael Moore, who oversees the civil litigation, that they have sought the agreement of the plaintiffs’ lawyers handling the civil case to pause the proceedings. The government said those lawyers “informed the government that they do not consent.”
Incidentally, the disclosure of evidence in the cross-district civil case has already been put on hold, though that situation could change within days.
This is why in July of this year, the defense lawyers for several FTX brand ambassadors, as well as the defense lawyers for FTX audit firms Prager Metis and Armanino, separately filed motions to block the aggressive evidence disclosure requests made by the plaintiff’s lawyers. At that time, the plaintiff’s lawyers had not yet filed an appeal in the consolidated litigation. All of these motions sought to keep Moore in a discovery state until he resolved the defendants’ anticipated motion to dismiss FTX’s claims.
Moskowitz and Boyes-Schiller defended their motion for expedited discovery. They also warned the defendants to expect more similar situations in a motion requesting the early appointment of a special master to resolve inevitable disputes over evidence disclosure. In that motion, the plaintiff companies stated that they had already or expected to make additional requests for evidence disclosure to FTX’s former law firm and its venture capital investors, and they also planned to issue at least 10 third-party subpoenas to other law firms, banks, and accounting firms for information.
A few days after the submission of the documents, Moore signed a self-initiated order to preserve all evidence in this massive civil case until at least September 19, when the defendants will respond to the complaints submitted by Moskowitz and Boyes-Schiller on August 3.
In the injunction, the judge stated that the defendants could seek an extension of the stay in evidence disclosure after filing a motion to dismiss.
Apparently, Moskowitz and Boyes-Schiller seem to be planning to request Moore’s permission to resume their efforts to obtain information. Why refuse to agree to the government’s request for a temporary suspension?
After all, Bankman-Fried’s trial is only two weeks away. Prosecutors in criminal cases have stated that they expect the trial to last six weeks. Therefore, the government requested a two to three-month suspension of evidence disclosure in the civil lawsuit. For a typical cross-jurisdiction litigation, especially one involving dozens of defendants and dozens of defense lawyers, three months is not a long time.
On the other hand, Moskowitz and Boyes-Schiller are trying to expedite the FTX civil case. In addition to the early discovery requests made to brand ambassadors Prager Metis and Armanino, the plaintiff companies also disclosed settlement negotiations underway with some FTX defendants. In the documents submitted on Friday, Moskowitz and Boyes-Schiller stated that they had reached a proposed settlement with the three founders of FTX, YouTube influencer Kevin LianGuaiffrath and Tom Nash, and Jacksonville Jaguars quarterback Trevor Lawrence.
The summary of FTX’s civil lawsuit shows that the response to the government’s motion to stay proceedings should be filed on October 2, the day before the scheduled start of the Bankman-Fried trial. Prosecutors stated that they do not expect any objections from the defendants to their request to suspend evidence gathering. (To confirm this, I reached out to several influential defense lawyers for the defendants, including Latham & Watkins and attorneys from Sidley Austin’s Prager Metis and Hunton Andrews Kurth, but did not receive a response.)
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