Risk Update

Risk Updates — Conflicts Taint Called on Bankruptcy Probe, DOJ ABA Activities Curtailed

Posted Dan Bressler

“Silvergate Bankruptcy Probe Tainted by Conflicts, Examiner Says” —

  • “Bankrupt crypto-bank owner Silvergate Capital’s investigation into its top officers was tainted by conflicts of interest, a court-appointed examiner said. An independent director, Ivona Smith, appointed to probe Silvergate’s collapse into bankruptcy, used the company’s own law firm, which created an ‘inevitable conflict of interest,’ according to a report issued Friday by examiner Stephanie Wickouski.”
  • “Smith was appointed Silvergate’s independent director in August 2024, a month before the company filed for bankruptcy. She was asked to investigate possible misconduct by current and former directors and officers, including whether insiders improperly sold shares ahead of Silvergate’s collapse.”
  • “But before conducting an investigation, Smith participated in the votes to approve the company’s pre-arranged chapter 11 plan, which included legal releases for those insiders.”
  • “In her interview with the examiner last month, Smith said she didn’t recall any discussions of legal releases at that time and considered the releases to be ‘boilerplate,’ according to the examiner’s report. “
  • “The bankruptcy court overseeing Silvergate’s wind-down authorized the examiner appointment following a request from Joseph Stilwell, who runs Stilwell Activist Investments. In his request in October, Stilwell, who had recently been elected to the board, alleged that Silvergate’s legacy directors enriched themselves by selling shares while keeping shareholders in the dark for two years. Stilwell also criticized Smith for failing to hire independent legal counsel.”
  • “Smith issued her investigation report in December, concluding that pursuing claims against Silvergate’s insiders wouldn’t benefit the bankruptcy estate and recommended granting them legal immunity. But Wickouski, the examiner, said the report failed to support the ‘reasonableness of its conclusions.’ The Smith report hasn’t been made public. “

“Justice Department Limits Employee Engagement in ABA Events” —

  • “The Justice Department will not allow employees to participate in American Bar Association events in their official capacities or on official time, in the Trump administration’s latest salvo against the legal group that has been critical of its actions.”
  • “Deputy attorney general Todd Blanche’s Wednesday memo, sent to department employees and obtained by Bloomberg Law, escalates a clash between the administration and the voluntary lawyers’ association. The ABA has publicly denounced recent threats against federal judges and joined litigation against the government.”
  • “DOJ employees may not, while acting in their official capacities, ‘speak at, attend, or otherwise participate’ in events hosted by the ABA, nor may they attend them during business hours as employee time is one the department’s ‘largest expenditures,’ the memo said.”
  • “The department will no longer use taxpayer funds to pay for travel to ABA events, and employees who participate in events may not use their title in a way that could suggest the department ‘endorses or sanctions’ their personal views or those of the ABA, the memo said.”
  • “DOJ employees in policymaking roles may not hold leadership positions in the ABA, renew existing memberships, or ‘write, speak, or otherwise publish materials in ABA-sponsored media of any kind’ without approval, Blanche said. These employees may only participate in ABA events if approved by their component head and the deputy attorney general.”
  • “Career staff may attend ABA events and remain members, but any written contributions to the bar association’s published materials must be done off-duty and without government resources. The memo clarifies that employees cannot use any government device, internet access, or research databases to help them prepare materials for the ABA to publish.”
  • “Blanche attributed the department’s change in position to the bar association’s recent lawsuit with other organizations challenging the administration’s freeze on foreign aid funding.”
  • “‘The Department is actively litigating against the ABA, yet the Department continues to expend taxpayer dollars on ABA events, the ABA continues to use the participation of Department personnel to attract attendance to those events, and the ABA continues to use Department-engagement to legitimize positions it advances that are contrary to the federal government’s policies,’ Blanche wrote.”
  • “The ABA is ‘free to litigate in support of activist causes,’ but the department’s speech ‘must be focused on achieving the Department’s core Constitutional mission,’ the memo said.”