Week In Crypto: Ex-FTX CEO Hires Ghislaine Maxwell Lawyer, Kim Kardashian Escapes Promo Penalty

December 9, 2022
FTX’s disgraced former CEO taps Ghislaine Maxwell’s trial lawyer, Kim Kardashian breathes a sigh of relief and Celsius is ordered to return $44m worth of crypto to customers.

FTX’s disgraced former CEO taps Ghislaine Maxwell’s trial lawyer, Kim Kardashian breathes a sigh of relief and Celsius is ordered to return $44m worth of crypto to customers.

Sam Bankman-Fried, founder and former CEO of FTX, has confirmed that he has hired the same attorney who represented Ghislaine Maxwell when she was convicted of federal child sex trafficking charges.

This week, during a live Twitter Spaces interview, Bankman-Fried said he has hired Mark S. Cohen of the international law firm Cohen & Gresser.

In late 2021, the high-profile lawyer defended Maxwell from charges related to her procurement of underage girls for Jeffrey Epstein, the deceased financier who died in 2019 while being detained in a New York prison.

Bankman-Fried’s hiring of Cohen comes as a surprise given that last week, during an interview with ABC News, the former CEO claimed to have only $100,000 in his bank.

When asked during the Twitter Spaces interview how he would pay for Cohen’s counsel, Bankman-Fried could not answer.

“In terms of paying legal fees, I'm still working that out,” he said. “I’m not sure if I will be able to pay all the legal fees.”

Bankman-Fried will also be working with Christian Everdell, another member of Cohen & Gresser's White Collar Defense & Regulation and Litigation & Arbitration groups.

Everdell previously worked as an assistant US attorney for the Southern District of New York (SDNY), the same office that prosecuted the Maxwell case.

In 2014, while still at SDNY, Everdell was awarded the "American Hero Award" by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) following the conviction of Mexican drug trafficker Joaquin "El Chapo" Guzman.

Subpoena potential

In other FTX news this week, the US Senate Banking Committee said it will subpoena Bankman-Fried if he does not voluntarily attend a hearing into the FTX bankruptcy next Wednesday (December 14).

In an open letter to Bankman-Fried and Cohen, committee chair Senator Sherrod Brown (D-OH) gave the former CEO just 24 hours before the hearing starts to confirm his attendance.

“You must answer for the failure that was caused, at least in part, by the clear misuse of client funds and wiped out billions of dollars owed to over a million creditors,” said Brown.

“There are still significant unanswered questions about how client funds were misappropriated, how clients were blocked from withdrawing their own money and how you orchestrated a cover up.”

Separately, Representative Maxine Waters (D-CA), who chairs the House Financial Services Committee, also said she is “willing” to subpoena Bankman-Fried if chooses not to attend a congressional hearing next Tuesday (December 13) as requested.

Kim Kardashian and the ghost of crypto promos past

While Bankman-Fried made preparations for future legal proceedings, reality TV star Kim Kardashian cleared up some previous ones.

This week, a California District Court dismissed a proposed class action lawsuit against Kardashian for her promotion of the EthereumMax crypto token in 2021.

The token, which has since collapsed and is now essentially worthless, was promoted by Kardashian and other celebrities such as boxer Floyd Mayweather and NBA basketball player Paul Pierce.

"Are you guys into crypto?” Kardashian posted to her 225m followers in June 2021. “This is not financial advice but sharing what my friends just told me about the EthereumMax token!

“A few minutes ago EthereumMax burned 400 trillion tokens — literally 50% of their admin wallet giving back to the entire E-Max community.”

Nine plaintiffs, who all bought EthereumMax based on the celebrities’ endorsements, sued the defendants in an attempt to hold them liable for financial losses they incurred.

The plaintiffs argued that the defendants had engaged in a conspiracy to artificially and fraudulently inflate the value of the EthereumMax tokens in a “pump and dump” scheme.

However, while highlighting the ease with which the celebrities were able to entice their followers into purchasing tokens, Judge Michael Fitzgerald ruled that the evidence of fraud was insufficient for the defendants to be held liable for losses incurred.

“This action demonstrates that just about anyone with the technical skills and/or connections can mint a new currency and create their own digital market overnight,” he said.

“The court acknowledges that this action raises legitimate concerns over celebrities’ ability to readily persuade millions of undiscerning followers to buy snake oil with unprecedented ease and reach.

“But, while the law certainly places limits on those advertisers, it also expects investors to act reasonably before basing their bets on the zeitgeist of the moment.”

Kardashian was previously ordered to pay $1.26m in October by the Securities and Exchange Commission (SEC).

As reported by VIXIO, the SEC sued Kardashian for failing to adequately disclose that she was paid $250,000 for the Instagram promotion of EthereumMax quoted above.

Celsius to return $50m to custody users

Finally, there was some good news for Celsius customers from the crypto lender’s latest bankruptcy hearing.

On Wednesday (December 7), Judge Martin Glenn ordered Celsius to return about $44m worth of crypto to Celsius Custody customers.

“I want this case to move forward,” said Glenn during the hearing, as reported by Bloomberg. “I want creditors to recover as much as they possibly can as soon as they possibly can.”

As reported previously by VIXIO, the order aligns with Celsius’ Terms of Use, which had made clear that customers of the platform’s Custody arm were still, at all times, the legal owners of the crypto they deposited there.

In contrast, customers of Celsius’ Earn or Lend products are deemed unsecured creditors in Celsius’ Terms of Use, and their prospects of recompense are less clear.

At its peak, Celsius claimed to have more than $20bn worth of crypto-assets deposited across all its product lines.

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