Thoughts on legal concerns surrounding the FTX situation: document preservation and communications

Aside from concerns about bankruptcy clawbacks, the biggest repeat legal-oriented question I’ve been getting since the FTX fallout is: are my communications going to end up in court or in Bloomberg? Should I just delete everything? Should I save everything?

It’s borderline impossible to give a large diffuse group of people clear guidance about their obligations in this regard. (And the usual disclaimers about not being able to provide legal advice to entities/​people other than Open Phil still apply.) But I can lay out some principles and processes that should help people make better-informed decisions. Unfortunately this probably cannot be reliably exported to non-US contexts.

Are My Records Going to Become Public?

I think the most useful piece of information I’ve been able to give people who have asked about this kind of thing in the last two weeks is that being asked to turn things over to an investigation or discovery process does not mean you have to turn entire email servers or hard drives over. You only have to turn over what’s responsive to the inquiry. And having to turn over your materials does not automatically mean that they become public.

The materials will probably go to some windowless legal office where dozens of junior attorneys (or interns) are listening to podcasts under fluorescent lights while combing through thousands of pages of documents trying to find stuff that’s relevant to the matter they’re working on. When they do notice something that could be relevant, they’ll stop and read more carefully. If it informs the matter, even in a small way, it could become an exhibit in a litigation proceeding, and that would make it accessible to the public, and therefore fair game for the media.

It’s uncommon for these review processes to dig into issues that aren’t relevant to the proceeding that triggered the discovery. The peccadillos of day-to-day life are unlikely to draw additional investigative scrutiny.

That said, if, for example, you’re regularly corresponding with Sam Bankman-Fried or Caroline Ellison, I would just assume all of that correspondence is going to be relevant and, eventually, public. The farther removed the correspondence is from anyone at the epicenter of any investigations, or from investigation-relevant subject-matter, the less likely it is to have to be turned over, or if turned over, made public.

A final, minor, point: if you’re worried about leaks, I think it’s fair to say that most of those don’t come from legal teams, who would be risking their careers and credentials in leaking confidential material.

Quick recap of the process:

Discovery request or subpoena → you turn over material responsive to the request → junior lawyers look through massive quantity of information for relevant material → relevant material may become an exhibit in legal proceedings, which are accessible to the public → material accessible to the public can get picked up in the media

Should I save/​delete everything?

Legal obligations to preserve documents generally hinge on whether you have a “reasonable anticipation of litigation.” This can mean you think you’re actually going to be a party to a lawsuit (either because you sue someone, or they sue you). It could also mean that you get a discovery demand or a subpoena or some other formal notice from a court.

If something does trigger a legal obligation to preserve documents, you need to make sure that the material in your possession that could be relevant to the proceeding in question doesn’t get deleted. For example, if you use Signal a lot, and you have Signal messages set to delete after a week, you should screenshot any relevant texts before they get deleted. You should also turn off deleting for any threads that might end up containing relevant information in future conversations.

A few rules of thumb on preservation after the duty to preserve has been triggered:

  • Once you have a legal obligation to preserve docs, that is ongoing, so as new documents get created, the same obligations will apply to them.

  • Even if you delete something, keep in mind that the person you’re corresponding with may have preserved it for their own reasons or to satisfy their own obligations. Conduct yourself accordingly.

  • Generally if you have to ask yourself “will I be seen as engaging in a cover-up if I delete this document?” then you shouldn’t delete the document.

Even if you don’t have any legal obligation to preserve documents, you may choose to retain stuff for your own benefit. For example, you may want to save documents that demonstrate your own lack of culpability, or that establish you have a claim against someone else. Or if you think you may be drawn into bankruptcy proceedings, you may want to keep relevant records of your dealings with the grantor and financial documentation. These could help you establish a claim as a creditor or defenses against clawbacks later.

Looking Ahead

I’ve said this before, but the bankruptcy proceedings are going to play out very slowly. It’ll likely be months before the debtors can even untangle who received money from whom, much less take any action on the information. So it could be a good, long while (read: a couple of years) before you get any kind of formal notice that would trigger a duty to preserve records. If you want to follow along to try to get a better sense of the landscape as this unfolds, you can register here to receive case filings. (it takes a special kind of nerd to get into these, so probably not a great use of most people’s time).

There’s also been lots of reporting of criminal and civil investigations by multiple US and non-US regulatory agencies, which are likely to target both FTX corporate groups as well as individuals. The preliminary stages of such investigations are usually undertaken outside of the public eye, maybe through a secret grand jury or the delivery of targeted fact-finding subpoenas.

It’s extremely unlikely that the average reader of this post will get a subpoena anytime soon, but if you do, you can reach out to the CEA Community Health team for support by filling out this form. They cannot provide you legal advice but will try to assist you in finding an attorney to advise you through the process and represent your interests.

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