Bankruptcy Lawyers Get Into Crypto Cases

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Welcome back to the Big Law Business column on the evolving legal market written by me, Roy Strom. Today we take a look at lawyers using Twitter to find clients in crypto exchange bankruptcies. Sign up to receive this column in your inbox on Thursday mornings.

The last tweet David Adler made before July praised quarterback Nick Foles for helping the Philadelphia Eagles win the Super Bowl. In 2018.

One Saturday in the summer, the New York bankruptcy attorney at McCarter & English picked up his phone and searched Twitter for Celsius, the crypto exchange that had filed for bankruptcy a few days earlier.

Adler began responding to some of Celsius’ desperate clients who didn’t know what would happen to their now frozen assets in a process most people know little about. There are around 1.7 million Celsius customers and social media is their native platform.

Adlers’ tweets caught the attention of a group of Celsius customers who received cash loans for the crypto they staked on the exchange. He was soon on the phone with a whale who deposited around $20 million in Bitcoin to receive a $5 million cash loan.

Borrowers were trying to organize, and somehow they approached me and put me in touch with some of the big people in the group who held me back, Adler said in an interview. .

He now represents the group in Celsius’s bankruptcy proceedings. It totals around 13,000 borrowers who have posted around $800 million in collateral on the exchange. His Twitter feed is a near-constant stream of news about the crypto mayhem, including screenshots of court documents and quotes from bankruptcy proceedings.

Adler is just one example of a group of lawyers who have found crypto clients in untraditional ways by scouring social media to put information in front of a rare group of bankruptcy participants: everyday people.

Few bankruptcies involve huge pools of regular Joe creditors like the failures of FTX, Celsius, BlockFi, and Voyager. When regulated banks or brokers fail, federally regulated insurance programs exist to protect account holders. But these insurance schemes do not exist in the unregulated world of crypto exchanges. And where these clients gather is not CLE classes or bar association functions.

Lawyers have been on Reddit, Twitter, Telegram. For us middle-aged lawyers, that’s a little or a lot foreign, said Troutman Pepper partner Deborah Kovsky-Apap. But you meet your customers where they are. And if they’re on social media, that’s where you go.

#CelsiusBankruptcy Judge Glenn at Galaxys advises that you are not going to crash your deadlines with me. Go back to your client and tell him what I need. Your client can agree to provide the information or blow the deal. You can’t force me to approve this deal

David Adler (@DavidJAdler1991) December 8, 2022

For his part, Kovsky-Apap took to social media to understand crypto exchange customers’ top questions about the bankruptcy process.

She answered these questions in articles published online.

August article by Kovsky-Apaps, Who Owns Crypto, Anyway? describes the different types of client accounts in Celsius bankruptcy and the types of treatment they might expect in bankruptcy. Weeks after it was published, she filed a court appearance representing an ad hoc group of Celsius account holders who argue their assets should be returned.

Alexandra Steinberg Barrage has left the Federal Deposit Insurance Corp. last year with the aim of putting his knowledge of banking regulations to good use in the booming world of crypto. When she joined Davis Wright Tremaine, she assumed a leadership role for the firm’s cross-crypto and blockchain practices.

It turns out that her decade of experience as a bankruptcy attorney early in her career, including working on the Enron and Lehman Brothers cases, became an even more important skill. As the crypto industry convulsed, Barrage found herself in the right place at the right time.

I was looking to do crypto and banking regulatory work. But over time, bankruptcy issues are really where the demand has been, she said. And there are very few people who understand traditional bankruptcy rules and crypto.

Barrage is representing Ripple Labs in the Celsius bankruptcy case, according to court documents. She said the firm represents multiple clients through crypto exchange bankruptcies.

She believes that crypto and blockchain have power and will survive the current crisis. And she hopes that when that day comes, Shell will return to help the industry navigate an ever-changing regulatory landscape.

Crypto isn’t going away, and if you assume it’s not going away, we need safeguards, she said. It’s not just a matter of working harder. They need more supervision. They need to make sure it doesn’t happen again.

If so, lawyers will know where to look for clients.

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It’s all for this week ! Thanks for reading and please send me your thoughts, criticisms and advice.

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