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Steven Lee, Sean Shecter Author Law360 Expert Analysis on FTX Collapse Fallout, How Crypto Companies May Avoid a Similar Fate

Atlanta, Ga. (November 21, 2022) - Atlanta and Savannah Partner Steven H. Lee and Fort Lauderdale Partner Sean P. Shecter recently authored an Expert Analysis piece for Law360 titled, “What To Pay Attention To In FTX Fraud Probe.” The article addresses the collapse of FTX Cryptocurrency Exchange, the related federal investigations and lawsuits currently surrounding the company, and recommendations concerning how crypto-based companies may avoid the same fate as FTX.

Messrs. Lee and Shecter open the article by explaining that the Department of Justice (DOJ) and the Securities Exchange Commission (SEC) recently launched investigations into whether FTX Founder Sam Bankman-Fried used billions of dollars of customer funds to prop up his other investments. They also describe the $11 billion class action lawsuit that was recently filed against Mr. Bankman-Fried and several celebrities who endorsed FTX, alleging that they engaged in a “fraudulent scheme . . . to take advantage of unsophisticated investors. . . .”

The article further notes that the U.S. Attorney’s Office of the Southern District of New York has launched a criminal investigation of FTX. Detailing the elements that will need to be established to show that FTX engaged in wire fraud, Messrs. Lee and Shecter opine that authorities will focus on FTX’s own terms of service, Mr. Bankman-Fried’s public statements and communications, as well as the presence or absence of FTX’s corporate controls related to how it managed customer funds. They also predict that DOJ will likely evaluate related criminal charges such as conspiracy, seek to seize Mr. Bankman-Fried’s property or assets, and potentially move to extradite him if he is indicted and found to be present in the Bahamas, as has been reported.

Messrs. Lee and Schecter go on to provide recommendations for crypto companies and other organizations managing consumer funds. They explain that a company “ought to carefully examine its terms of service to ensure that they are not misrepresenting to customers how their funds may be used.”  The authors also suggest that crypto companies “would be well-advised to reevaluate their own policies in conjunction with regulations that currently apply to financial institutions.” They close the article by advising that “crypto-based companies should engage outside counsel in implementing corporate controls to ensure the proper checks are in place when handling consumer funds to ensure such funds are not misappropriated, as was allegedly the case with FTX.”

Mr. Lee serves as vice chair of Lewis Brisbois’ Government Investigations & White Collar Defense Practice. As a former federal prosecutor, he focuses his practice on government and internal corporate investigations and complex litigation matters.

Mr. Shecter serves as co-chair of Lewis Brisbois’ Government Investigations & White Collar Defense Practice, and chair of its Supply Chain Due Diligence Practice. A former federal prosecutor, he is also a member of the firm's Complex Business & Commercial Litigation, Sustainability and Environmental, Social, and Governance (ESG) Practices.

Read the full article as a PDF here or on Law360 here (subscription may be required).


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