By Alison Frankel
(Reuters) – Get ready for a fight over control of private litigation arising from the megabillion-dollar collapse of now-bankrupt crypto exchange FTX and the legal fees that go with it.
Plaintiffs’ lawyers have filed at least 11 class action complaints in federal courts in California and Florida on behalf of allegedly defrauded FTX customers. The suits overlap, but they name a variety of different defendants and espouse several different legal theories.
Despite that variation, lawyers from Boies Schiller Flexner and The Moskowitz Law Firm filed a petition on Friday asking a special panel of federal judges to transfer all of the private FTX cases to federal court in Miami, where name partners David Boies and Adam Moskowitz are litigating claims that FTX’s celebrity ‘brand ambassadors,’ including ex-NFL quarterback Tom Brady and comedian Larry David, violated Florida and U.S. securities laws by promoting FTX yield-bearing accounts. The cases contend that the accounts were unregistered securities.
Boies Schiller and Moskowitz Law told the special panel, known as the U.S. Judicial Panel on Multidistrict Litigation, that the judge overseeing their Miami cases, U.S. District Judge Michael Moore, has already proven in their brand ambassador cases that he can steer FTX cases quickly and efficiently.
They also argued that their firms ‘are uniquely positioned to lead this litigation for all affected FTX customers.’
In a phone interview on Monday, Moskowitz told me that he and the Boies firm are far ahead of other plaintiffs lawyers in developing claims against potential FTX defendants, including defendants not yet named in their brand ambassador cases.
‘We’re finding new aiders and abetters and are going to be filing new cases,’ he said. ‘We want to make sure there’s one forum for all customers to seek relief.’ Moskowitz, whose firm is based in Florida, said that it makes sense for that forum to be Miami federal court because FTX was headquartered in Miami and Florida securities laws allow investors to bring claims against defendants who allegedly abetted fraud. (I emailed David Boies about the motion, but he said he was at court and couldn’t meet my deadline.)
I should pause here to say that I asked many of the FTX defendants about the new consolidation motion. A spokesman for Sam Bankman-Fried declined to comment on the private suits. Latham & Watkins, which represents FTX celebrity endorsers including Brady and David, did not respond to my email.
Not everyone pursuing claims on behalf of FTX customers agrees with Boies and Moskowitz. A rival team of plaintiffs firms believe that San Francisco federal court is the appropriate place to litigate the FTX cases they’ve filed and that they’re the right lawyers to head up the case.
Earlier this month, seven law firms led by Edelson; Pomerantz; Kaplan Fox & Kilsheimer; and Audet & Partners moved to consolidate four California class actions before a single judge, U.S. District Judge Jacqueline Scott Corley of San Francisco. Though their class actions originally asserted different theories, ranging from racketeering accusations to California state law claims, the firms argued that they are all essentially alleging that FTX founder Bankman-Fried and his high-ranking colleagues engaged in fraud, with help from FTX’s auditors and celebrity promoters.
I asked the firms in the California cases what they think of the new petition to move all of the litigation to Miami, where Boies and Moskowitz are already in charge. They said in a carefully worded email response that their team and the Boies/Moskowitz team have ‘distinct legal perspectives and strategy’ and that ‘it is crucial for any case involving FTX to progress in a clear and straightforward manner.’
The California group added: ‘We have built a strong team and are confident in our litigation strategy. We eagerly anticipate presenting our case to a jury as soon as possible.’
It sounds, in other words, like the firms that got together to propose a leadership slate for the California litigation are not going to acquiesce to the Boies and Moskowitz plan to move all of the cases to Miami. (Moskowitz told me the California group did not reach out to his firm before proposing their leadership team.)
Boies and Moskowitz also asked the judicial panel to include three California class actions accusing Silvergate Bank of facilitating FTX’s alleged fraud in the move to Miami. Those cases had been consolidated in San Diego federal court but were voluntarily dismissed last week.
One of the lawyers in the Silvergate cases, Daniel Girard of Girard Sharp, declined to comment on the plaintiffs’ plans for the litigation, but it’s a good bet that he and the other lawyers who filed suits naming the bank will refile the allegations in a different court, perhaps before Scott Corley in San Francisco.
Silvergate counsel from Sheppard, Mullin, Richter & Hampton did not respond to my request for comment. The bank has not addressed the substance of plaintiffs’ claims in court filings.
FTX accounting firms Armanino and Prager Metis are named as defendants in two of the California class actions and will surely be named if the judge in those cases approves plaintiffs’ plans to file a consolidated complaint. I contacted both firms but did not hear back.
You may be wondering why all of this wrangling over control matters. The answer is that duplicative private litigation could wind up costing FTX customers money. (To be clear, these private cases are different from cases that could be brought by a court-appointed receiver or trustee in FTX’s Chapter 11 bankruptcy.) In class actions, class members typically turn over part of their recovery to the lawyers who have litigated on their behalf. If different groups of lawyers pursue overlapping class actions against different defendants, FTX customers could end up paying both sets of lawyers. They might wind up netting more money if the litigation were consolidated under the leadership of just one group.
The question, if the cases end up being consolidated before just one federal judge, is which group will be appointed to lead. If the judicial panel sends the litigation to Florida, Boies and Moskowitz probably have an edge. If the cases go to California, the California slate is a likelier candidate.
It will be a few months before any ruling on the Boies and Moskowitz consolidation petition. But the fight to head the litigation is now officially afoot.
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(Reporting By Alison Frankel; editing by Leigh Jones)