Sam Bankman-Fried sues insurance company for defense costs as trial opens
As the final preparations for the trial of Sam Bankman-Fried were underway in Manhattan, attorneys for the embattled former FTX CEO were filing a suit against the Continental Casualty insurance company in the United States District Court of Northern California. That company has allegedly provided Paper Bird and its subsidiary FTX Trading directors and officers (D&O) insurance. The suit was filed by Bankman-Fried as an individual.
The suit claimed that Continental Casualty is the provider of Paper Bird’s “second-layer excess policy in the D&O insurance tower.” D&O insurance protects the directors and officers of a company from personal losses in the event of a suit against them. Such coverage can be organized into a metaphorical tower of policies, where a policy on a given layer comes into force when the policy below it reaches its limit.
According to the suit, the primary layer of D&O coverage provided $10 million for Bankman-Fried’s defense from two insurers, and Continental Casualty’s policy was intended to provide $5 million. The policy mandated that payments be made on a current basis. It covered the cost of defense against criminal charges, even though there was an exclusion for “fraudulent, criminal, and similar acts.” There was no clawback provision in the policy.
Related: Sam Bankman-Fried is paying for legal defense using previously gifted funds from Alameda: Report
The suit noted that Paper Bird’s two primary D&O policy providers, Beazley and QBE, paid his defense costs according to the terms of the policy. Bankman-Fried is demanding that Continental Casualty pay his defense costs according to its contractual obligation, along with damages, including court costs.
The third layer of Paper Bird’s D&O tower, provided by Hiscox Syndicates, is the subject of court action as well. Hiscox has filed a Complaint for Interpleader against Paper Bird and a long list of insured persons, including Bankman-Fried. An interpleader action compels the parties in a legal procedure to litigate their claims among themselves.
According to that complaint, filed on Aug. 9 in the District Court of Northern California, the Hiscox policy comes into force after the $15 million in underlying coverage. The complaint stated that Hiscox expected claims to be made under its policy for $5 million in coverage and the interpleading was necessary to ensure fair disbursement of policy funds.
Twenty individuals were named in the Hiscox complaint. They were all described as having connections to FTX, sometimes by title (head of a department).
According to the Financial Times, Paper Bird was the full owner of FTX Ventures and owned 89% of FTX Trading. The newspaper described FTX Trading as “the foundation company identified in FTX’s legal disclaimers.” Paper Bird was wholly owned by Bankman-Fried.
Bankman-Fried sought to collect D&O insurance payments under a policy issued to West Realm Shires, which is more commonly referred to as FTX US. That effort was opposed by FTX lawyers and the creditors’ committee and blocked by the U.S. Bankruptcy Court for the District of Delaware.
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Are Rachel Reeves’s fiscal rules quite as iron clad as she insists?
How tough is her armour really? And is there actually scope for some change, some loosening to avoid big tax hikes in the autumn?
We’ve had a bit of clarity early this morning – and that’s a question we discuss on the Politics at Sam and Anne’s podcast today.
Politics Live: Reeves to reform financial regulations
And tens of billions of pounds of borrowing depends on the answer – which still feels intriguingly opaque.
You might think you know what the fiscal rules are. And you might think you know they’re not negotiable.
For instance, the main fiscal rule says that from 2029-30, the government’s day-to-day spending needs to be in surplus – i.e. rely on taxation alone, not borrowing.
And Rachel Reeves has been clear – that’s not going to change, and there’s no disputing this.
But when the government announced its fiscal rules in October, it actually published a 19-page document – a “charter” – alongside this.
And this contains all sorts of notes and caveats. And it’s slightly unclear which are subject to the “iron clad” promise – and which aren’t.
There’s one part of that document coming into focus – with sources telling me that it could get changed.
And it’s this – a little-known buffer built into the rules.
It’s outlined in paragraph 3.6 on page four of the Charter for Budget Responsibility.
This says that from spring 2027, if the OBR forecasts that she still actually has a deficit of up to 0.5% of GDP in three years, she will still be judged to be within the rules.
In other words, if in spring 2027 she’s judged to have missed her fiscal rules by perhaps as much as £15bn, that’s fine.
A change could save the chancellor some headaches. Pic: PA
Now there’s a caveat – this exemption only applies, providing at the following budget the chancellor reduces that deficit back to zero.
But still, it’s potentially helpful wiggle room.
This help – this buffer – for Reeves doesn’t apply today, or for the next couple of years – it only kicks in from the spring of 2027.
But I’m being told by a source that some of this might change and the ability to use this wiggle room could be brought forward to this year. Could she give herself a get out of jail card?
The chancellor could gamble that few people would notice this technical change, and it might avoid politically catastrophic tax hikes – but only if the markets accept it will mean higher borrowing than planned.
But the question is – has Rachel Reeves ruled this out by saying her fiscal rules are iron clad or not?
Or to put it another way… is the whole of the 19-page Charter for Budget Responsibility “iron clad” and untouchable, or just the rules themselves?
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Is Labour plotting a ‘wealth tax’?
And what counts as “rules” and are therefore untouchable, and what could fall outside and could still be changed?
I’ve been pressing the Treasury for a statement.
And this morning, they issued one.
A spokesman said: “The fiscal rules as set out in the Charter for Budget Responsibility are iron clad, and non-negotiable, as are the definition of the rules set out in the document itself.”
So that sounds clear – but what is a definition of the rule? Does it include this 0.5% of GDP buffer zone?
Read more:
Reeves hints at tax rises in autumn
Tough decisions ahead for chancellor
The Treasury does concede that not everything in the charter is untouchable – including the role and remit of the OBR, and the requirements for it to publish a specific list of fiscal metrics.
But does that include that key bit? Which bits can Reeves still tinker with?
I’m still unsure that change has been ruled out.
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