By Noreen Marcus, FloridaBulldog
The trial of ex-president Donald Trump for hoarding classified documents isn’t the only spectacle taking place in a South Florida federal court.
Lawyers for victims of what may be the crypto update of Bernard Madoff’s old school Ponzi racket are streaming or Zooming into U.S. District Judge K. Michael Moore’s courtroom at the Wilkie D. Ferguson, Jr. courthouse in downtown Miami, across the hall from where Trump was arraigned on June 13.
The lawyers, many from heavyweight firms, are flocking there because last month the judicial panel that finds a single home for widespread yet related civil actions chose Miami for this marathon.
Moore will have to wrangle 19 cases pending against FTX founder Sam Bankman-Fried and other principals and enablers of his bankrupt cryptocurrency exchange. Most of the cases were filed in California and East Coast cities, including at least three in Miami.
The Southern District of Florida is the right venue because “a significant part of FTX’s conduct” occurred there at its U.S. headquarters, it’s easily accessible for everyone and Moore is experienced in similarly complex cases, the U.S. Judicial Panel on Multidistrict Litigation says in its June 6 order. “We are confident he will steer this matter on a prudent and expeditious course.”
Moore, a former chief district judge, has served on the court since 1992. Before that he was a prosecutor for 16 years with U.S. Attorney’s offices in the Northern and Southern districts of Florida.
Apparently FTX is the first U.S. proceeding with cryptocurrency claims on the scale of the biggest traditional securities frauds. So what’s happening in Miami is closely watched by crypto specialists, said John Jasnoch, a San Diego plaintiffs’ securities lawyer who’s familiar with, but not personally involved in, the legal fallout from the FTX debacle.
He compared the FTX allegations to the Madoff Ponzi scheme. “It’s similar to Madoff in that new money came in to pay off older investors. Here it’s not as direct as that, but it’s new users’ funds getting stolen to try to make back losses from old customer funds,” Jasnoch said.
STARS VOUCHED FOR FTX
The FTX complaints allege that it marketed risky digital investments without disclosing the danger signs. Generally, the law requires ads for securities to be truthful and straightforward, not deceptive.
Marketing is an important and star-studded part of the litigation before Moore. FTX hired these celebrity endorsers who are named defendants in some of the complaints, the June 6 order says: football giant Tom Brady, his ex-wife supermodel Gisele Bundchen, comedian Larry David, Kevin O’Leary of “Shark Tank,” retired baseball great David Ortiz, Jacksonville Jaguars quarterback Trevor Lawrence and the Golden State Warriors, standing in for their acclaimed shooter Steph Curry.
Curry, for example, starred in an FTX commercial in March 2022. “I’m not an expert and I don’t need to be,” he says about cryptocurrency and holds up his cell phone. “I have everything I need to buy, sell and trade crypto safely.”
The marketing aspect of the case seems to favor the plaintiffs. Investors can argue they didn’t assume the widely publicized risks of buying cryptocurrency because trusted public figures assured them it was a safe bet.
“That’s what made the FTX fraud so insidious,” Jasnoch said. “They spent these millions on their marketing to say that if the industry is risky, this is the least risky place, when in fact it was the most risky.”
BANKMAN-FRIED’S CONFUSION DEFENSE
Once valued at $32 billion, the FTX exchange collapsed last year in a cascade-effect carryover from other failed exchanges and digital tokens. Ruinous withdrawals triggered FTX’s emergency bankruptcy filing on Nov. 11.
At that point the remaining assets vanished – to the horror of an estimated five million investors who found themselves locked out of their own virtual wallets.
The Miami Heat’s often sold-out arena along Biscayne Bay – and the home for many celebrity concerts in Miami — was named FTX Arena from 2021 until months after the collapse of the bankrupt crypto firm. The arena, once named American Airlines Arena, is now Kaseya Center.
Federal agents caught up with Bankman-Fried, 31, a high-rolling wunderkind with do-gooder cred and powerful Democratic contacts, in The Bahamas. He was extradited and charged in the Southern District of New York with siphoning FTX customer funds to his Alameda Research investment firm; if convicted, he could spend the rest of his life in prison.
Bankman-Fried denied he purposely commingled funds and blamed “confusing internal labeling,” Reuters reported. His lead counsel in Miami, Philadelphia attorney Jeremy Mishkin, did not respond to an email from Florida Bulldog seeking comment.
The New York federal judge overseeing Bankman-Fried’s criminal prosecution refused to dismiss charges of wire and bank fraud, operating an unlicensed money transmitter, bribery, and campaign finance violations. His trial could begin as soon as October.
A TRICKY RELATIONSHIP
The FTX litigation on Judge Moore’s docket has a gossipy local connection.
James Fox Miller, a prominent divorce lawyer and former Florida Bar president, is related to Bankman-Fried; he’s the nephew of Miller’s wife, Barbara Miller, a Democratic political consultant.
Complicating the family drama, Miller’s senior law partner David Boies is emerging as one of the lead plaintiffs’ lawyers in the FTX litigation.
Boies’ high-profile national firm Boies, Schiller & Flexner represents plaintiffs in at least three Miami investor lawsuits against Bankman-Fried and some of the celebrity endorsers.
“They filed the most FTX cases, they had the most complaints and plaintiffs, so there are other firms but they’re the ones that have spearheaded the FTX litigation,” Jasnoch said. He expects the Boies firm to play a major role for all the plaintiffs if Moore certifies the consolidated cases as a class action.
Miller is a Broward-based lawyer with the Boies firm, which also employs his son Charles Fox Miller, who is Bankman-Fried’s first cousin.
That has to be awkward for everybody.
“Sorry but I am walled off this matter and cannot make any statements of any kind,” James Fox Miller wrote in response to Florida Bulldog’s emailed request for comment.
MIXING CHARITY AND POLITICS
Bankman-Fried, the son of Stanford University law professors Joe Bankman and Barbara Fried, established himself as a crypto entrepreneur beginning in 2017 when he started his investment firm Alameda Research. The next year he launched FTX.
Once the money started rolling in, he spent generously on charity and Democratic candidates. Bankman-Fried contributed $5.2 million to President Joe Biden’s 2020 campaign, according to Reuters.
His aunt, Florida political consultant Barbara Miller, guided his philanthropic efforts. She introduced Bankman-Fried to Newton Sanon, whose nonprofit OIC of South Florida does workforce development, The New York Times reported after Bankman-Fried was arrested. [Barbara Miller is a donor to Florida Bulldog.]
The two men worked together on a financial literacy program in Broward for low-to-moderate-income adults. Students who didn’t have bank accounts could open one linked to the FTX platform and, if they wanted, buy digital currencies through the exchange.
Bankman-Fried touted the Florida program as he lobbied for legislation that would make the U.S. more crypto-friendly, according to the Times.
James Fox Miller celebrated his wife and nephew in a Facebook post quoted by the right-leaning Red Broward website. “Her goal in life has always been to leave the world a little better than she found it. Sam is doing it big-time,” he wrote when Bankman-Fried said he’d give $25 to every Ukrainian who used the FTX platform.
The post could not be verified. Last week the message on Miller’s Facebook page was “no posts available.” Barbara Miller also cannot comment, her husband informed Florida Bulldog.
THE TRIAL TIMING GAME
The Trump and FTX cases could inspire a parlor game: Guess which one will make it to trial first.
It’s hard to even speculate. Trump is a master of delay; the intricacies of executive privilege and classified document laws give his lawyers plenty of material to work with.
But based on Jasnoch’s recitation of all the preliminaries still ahead in the FTX matter, Bankman-Fried could be tried and convicted or exonerated before he sits at the defense table in Moore’s courtroom.
Now that the fraud cases are centralized in Miami, the next couple of months will be devoted to collaborating on one, two or a few master complaints, Jasnoch said. Then the parties will burn another six months with motions to dismiss on various legal grounds, followed by responses.
Whoever survives that round will move into a protracted battle over class-action certification. Moore will determine whether the cases are alike enough to proceed together or so different they must be tried separately. Dueling experts will debate that issue.
Even if Moore certifies a class, it could be decertified on appeal, which happened in 2006 to landmark Florida tobacco litigation. That would force the plaintiffs to file separate lawsuits, leaving them divided, if not conquered.
In the meantime, Bankman-Fried is free on a $250 million bond – the largest pretrial bond ever, a prosecutor told ABC News – and sidelined on house arrest at his parents’ Palo Alto, CA residence. The New York Post says it’s worth $4 million.