For Crypto Attorneys, FTX Bankruptcy Is a ‘Black Swan Event’: The Morning Minute

BLACK SWAN - A tumultuous week for cryptocurrency trading giant FTX culminated in a bankruptcy filing Friday. But, as Law.com’s Justin Henry and Alexander Lugo report, that may have been just the beginning. FTX has amassed a complex network of affiliated companies, including those who filed for bankruptcy Friday and have come under investigations by U.S. regulators. “FTX is so prominent in this industry as one of the top exchanges as well as its high-profile in its regulatory community as far as pushing regulatory laws…it’s going to take a long time to work back and gain the trust of the investment community,” said Jared Gianatasio, head of the cryptocurrency and digital assets practice at Kleinberg Kaplan, one of many firms gearing up to represent investors in the bankruptcies. “That’s both retail and institutional by the way.” The extent of the ripple effect this bankruptcy will have is not entirely known yet, because there can still be large entities with exposure to the exchange who have not made it public yet, Jeffrey Leavitt, an attorney involved with Kozyak Tropin & Throckmorton’s cryptocurrency practice, said. “It’s going to bring a rush of demand for bankruptcy lawyers who have knowledge of the crypto space because this is a black swan event that doesn’t really have a lot of precedents,” said Leavitt. “There’s probably going to be a lot of people and entities affected by this that will need that experience as this continues unfolding.”

UNDER PRESSURE -  The inadvertent disclosures in the Alex Jones trial and Jan. 6 investigation are likely to put more attention, and more pressure, on law firms’ technology competence, Law.com’s Cassandre Coyer reports. Mistakes from highly publicized cases could start catching insurers’ attention, said Mary Mack, CEO and chief legal technologist for The Electronic Discovery Reference Model. “At a certain point, these kinds of fails will create some malpractice liability,” Mack noted. “And then the insurance companies that underwrite attorneys will want to know if an individual attorney has processes that are up-to-date to safeguard their client communications.” However, while many firms have legal malpractice insurance, Hinshaw & Culbertson partner Steve Puiszis, a member of the firm’s professional liability practice, noted that inadvertent disclosures aren’t always covered by these policies, which is another reason for lawyers to purchase cyber coverage. “That’s another reason why lawyers need to also be considering cyber coverage, because if it doesn’t fit within the professional liability policy, it would fit within and be covered under your cyber policy,” he added.