🗞️ Sam Bankman-Fried Gets Grilled, Dismissing Portnoy's Complaint, & Stealth Layoffs
This Week: FTX's collapse turns the Crypto Winter into a full Ice Age, Barstool can dish it but can't take it, and stealth law firm layoffs are unfortunately here. Plus, Eli Lilly v Twitter, and Elon Musk's Irish GDPR nightmare.
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🚽 Crypto’s Calamitous Collapse
Oh, what a difference a few days make...
The collapse of crypto giant FTX and the mythos of its founder Sam Bankman-Fried didn't seem possible on November 1, but the cracks were already quietly forming as key executives began resigning over the summer.
The lethal ruptures started on November 2 when CoinDesk published a bombshell report detailing the murky relationship between Bankman-Fried's public crypto exchange platform, FTX, and his private trading firm, Alameda Research. Furthermore, it was revealed FTX/AR were effectively insolvent.
As Reuters notes, CoinDesk reviewed a leaked balance sheet that "allegedly showed that much of Alameda’s $14.6 billion in assets were held in FTT. Alameda CEO Caroline Ellison tweeted that the balance sheet was merely for a 'subset of our corporate entities,' with over $10 billion of assets not reflected." However, she declined any requests for comment as speculations grew.
Then, on November 6, Changpeng “CZ” Zhao, head of FTX/Alameda's main frenemy Binance, tweeted that his company not only held some $2 billion in FTT, but would be selling it. "Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books," Zhao said.
Whelp, that triggered a rush on FTT that effectively destroyed FTX/Alameda. Binance swooped in and offered to buy the company to rescue it, going so far as having Bankman-Fried sign a non-binding LOI, but the deal fell apart as quickly as it materialized. "The issues are beyond our control or ability to help," Zhao tweeted. "Sad day. Tried."
On November 11, FTX, Alameda, and some 130 other affiliated corporate entities filed for bankruptcy, reports the New York Times. As of now, reports believe some one million creditors are lining up in the suit.
BUT THE PLOT THICKENS!
As Fortune and the Associated Press note, the SEC and DOJ are investigating whether FTX was funneling "customers’ deposits to fund bets at Bankman-Fried’s hedge fund, Alameda Research." While such allegations would be shocking if true, the crypto industry does currently walk an interesting-if-razor-thin-tightrope between traditional banking and a securities market.
The scandal has left people asking if FTX's collapse mirrors that of Lehman Brothers in 2008. Larry Summers, the former Treasury Secretary and director of the National Economic Council, told Bloomberg that it reeks more of Enron than anything else. "If we had a few fewer economists and quants, and a few more forensic accountants running around," Summers continued, "I think it would help us detect what was going on in countries and in companies."
So where does this leave us now? Well, some are predicting this mess will destroy the entire crypto industry—but that seems a bit overblown. It'll take some time to see the shockwaves this collapse will create through the crypto industry, but also in various hedge funds and through the economy. That being said, it might not all be so bad. FTX's downfall may accelerate serious regulation once and for all in the crypto markets, and help define terms and rules.
📉 Big Law's Big Cuts
How are things going in Silicon Valley right now? Well, Big Law firm Gunderson Dettmer has made two rounds of layoffs in 3 months—cutting some 30 attorneys in total across the Bay Area and New York offices. As Above The Law reports, "some Gunderson associates billed as little as 10 hours last month." A shocking figure for a firm of this size, and a harbinger of where the economy is heading. But Gunderson Dettmer isn't the only one. Law.com reports, Kirkland & Ellis cut between 20 and 25 associates, while Cooley has also laid off an "unspecified number of associates" according to Bloomberg Law.
Earlier this year, Gunderson Dettmer announced they would be delaying new associates' start dates to January 2023.
The accelerating pace of layoffs mirrors the growing list of tech firms cutting large chunks of their staff. “It creates a slowdown on the privacy side, for regulatory work, anything these early-stage companies need help with,” Julie Brush, a legal recruiter in San Francisco, told Law.com. “So that serves as a domino effect. We were already heading into an environment where clients are being coveted by the partners who brought them in, and now you’ve got a glut of associates at all levels and there’s not enough work to service them.”
Big Law isn't the only one cutting staff—Big Tech is too. Amazon, Meta, Twitter, Salesforce, Apple, and more have announced large layoffs in recent weeks. “For the past 10 years, the abundance of cash led to an abundance of hiring,” Josh Wolfe, an investor at Lux Capital, told the New York Times. But that free-flowing liquidity masked a lot and created pressures to grow—even if it wasn't yet justified.“The pressure is to just spend the money quick enough so you can grow fast enough to justify the kinds of investments VC’s want to make,” said Eric Rachlin, founder of Body Labs.
As in 2008 and 2001, these mass layoffs and some of the corporate legal world's top names signals economic troubles ahead. But are so-called "stealth" layoffs—firings that come with no advanced notice—the way to go about this? And what will the scores of freshly unemployed attorneys do now?
🗣️ Insider Knowledge
A federal judge in Massachusetts has thrown out a defamation suit brought by Barstool Sports founder Dave Portnoy against news site Insider.com. The suit claims that Insider violated Portnoy's privacy rights when it published a story detailing the allegations by two women of sexual misconduct and assault against the founder. While Insider only covered two allegations, several more women have accused Portnoy of sexual assault. Regarding Insider's reporting, Portnoy asserted that his private sex life has no legitimate public interest, and that Insider's two stories on the matter “have had a disastrous effect on Mr. Portnoy’s personal and professional reputation,” his suit states. However, Chief Judge F. Dennis Saylor IV, said that Insider's reporting does not meet the standards set for defamation of a public figure, notes the Washington Post. Furthermore, Saylor stated that Portnoy “does not allege that Insider’s anonymous sources were fake, or that the articles misrepresented what the women told [Insider’s reporters]." In short, Portnoy failed to allege actual malice, which is vital to the claim.
Following the suit's dismissal, a spokesperson for Insider wrote in an email that "Our reporting on Dave Portnoy was careful, fair, and accurate,” before adding that “we are pleased and gratified that the judge dismissed his complaint.”
As it relates to defamation, actual malice is a high bar. And for the invasion of privacy claim? Well, the Court said it best: “Issues of consent and power imbalance in sexual relationships are very much matters of current public concern and the legitimate public interest […] [i]n short, under the circumstances, plaintiff had no reasonable expectation of privacy in the text and social media messages published by Insider.”
📤 What Else We’re Forwarding
Ad Blocker: After a fake account tweeted that "insulin is free now" last week, pharmaceutical giant Eli Lilly lost nearly 5% of its market capitalization in a single day. In response, Eli Lilly halted ad buys on Twitter, saying that "for $8, they’re potentially losing out on millions of dollars in ad revenue," cites the Washington Post.
Musk's Mess: Elon Musk is not willing to comply with GDPR requirements for making Ireland Twitter's "main establishment", reports TechCrunch. The risk for the social media platform if it fails to comply is regulatory hell that could prove incredibly costly and may open up the company to serious legal issues.
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