WEST PALM BEACH, FLORIDA – Forty miles south of the West Palm Beach County Courthouse, a tragedy was just hours away from unfolding at Stoneman Douglas high school when Devin “Velve” (or Vel) Freedman of the New York-based law firm, Boies Schiller & Flexner LLP (BSF), filed a lawsuit against Australian computer scientist Dr. Craig Wright at the U.S. District Court for the Southern District of Florida on behalf of the estate of one David Kleiman, deceased since 2013 and represented by his brother, Ira.
The complaint accuses Wright of hatching a complicated scheme to abscond with the treasure trove of Bitcoin the two men had accumulated as part of a business partnership before the “paralyzed IT security expert” and former Palm Beach County police officer lost a long battle with MSRA. Then worth approximately US$5.12 Billion, the digital assets in question have now more than doubled in value and after nearly three years of controversy and backstabbing, instructions have been submitted to the jury, which is set to begin deliberations in a case with momentous implications for the future of the original blockchain-based, peer-to-peer cryptocurrency.
In order to prove their case, the plaintiff must acknowledge that Wright is the inventor of Bitcoin and, counterintuitively, the defense’s best strategy would be to undermine that claim, which their client has been making for several years and is at the center of another lawsuit – this one brought by Dr. Wright against video blogger, Peter McCormack, in the UK for defamation.
Back in Florida last week, Ira Kleiman’s team of lawyers switched gears and seemed to turn against the best interests of their client, when they called digital forensics expert Dr. Matthew Edman to the stand as their final witness to examine the communications between the late David Kleiman and Craig Wright. Edman’s testimony suggested that Wright forged the dates on the documents, thereby undercutting the prosecution’s entire case. The “bait and switch” prompted the defense to file a motion for early judgement.
Further damage was done by the plaintiff himself when he contradicted his own deposition taken years earlier and the sworn testimony of two of the defense’s witnesses. Under cross examination by lead defense attorney Andrés Rivero, Kleiman identified two people whom his brother had allegedly told about his Bitcoin dealings; one of which had already testified to the contrary and another who would fail to corroborate his statement under oath soon thereafter.
The sudden implosion of the case against Dr. Wright lends credence to the long-held belief in parts of the cryptocurrency community that the Florida trial is a red herring, designed to corner the Australian technologist and force him to relinquish any legal claims he might have in the U.S. as the inventor of Bitcoin. Given that an opposite ruling has already been handed down in a foreign jurisdiction, the outcome everybody expects South Florida jurors to deliver sometime this week entails serious legal ramifications, that are sure to determine how the nascent field of cryptocurrency law in America – and by extension blockchain law – is framed.
Getting The Bag
Potential windfalls over a dead man’s supposed Bitcoin fortune seems like a plausible motivation for Ira Kleiman to bring the case against Dr. Wright. As the sole beneficiary of his brother’s estate, Ira would stand to become a billionaire overnight if his allegations are found to be true and, crucially, if he actually had the cryptographic keys that unlocked his brother’s disputed riches.
Since neither party, it appears, has the private keys, access to the fabulous Bitcoin wealth stashed away on the blockchain is a moot point, which gives rise to other questions such as why any law firm would take the case, and more importantly, who would put up the millions of dollars that the prosecution of Dr. Craig Wright has cost to date.
Unlike Wright, who is already a billionaire and can fund his own defense, Ira Kleiman was in no position to pay Freedman’s billable hours or that of his high-priced team of legal pit bulls. For years, Ira dangled a piece of his brother’s billion-dollar digital stash as a reward for anyone who would help him take the Australian to court. A 2016 email surfaced by Coingeek from the court records shows Ira Kleiman promising “a percentage” of David’s “sizable amount of Bitcoins” to “the party that assists” him in paying for the lawsuit.
While the recipient of the email is redacted in the example above, it’s very likely that the financial backers of Kleiman’s legal action received a similar version of this request. The real source of his funding is hidden behind a front company called BTCN 1610-491, LLC, listed in the Certificate of Interested Parties and Corporate Disclosure – a procedural filing required of both litigants, which discloses the parties “that may have a financial interest in the outcome” of the case.
BTCN’s true owners were revealed in the early days of the trial, when Freedman was forced to admit that a third-party litigation funder called Parabellum Capital was providing “litigation financing assistance” for the case and Kleiman, in his own deposition, confirms that he shared the details of his planned legal action against Wright with Parabellum.
Parabellum was initially Credit Suisse’s Legal Risk Strategies & Finance business until it was spun off by its co-founders into an independent company in 2012. Third party litigation financing is not new in principle, but the commercial variety is a much more recent and controversial practice that began in 2007 with the first publicly traded law firm, Juridica Investments. Since that time, commercial lawsuits such as Kleiman’s have become yet another investment opportunity for individual investors, corporations, investment banks and hedge funds, that seek to profit from the “adverse economic relationship between capital-constrained attorneys and litigation-cost-averse clients”.
Among the many other problems posed by this dynamic is the fact that defendants remain in the dark about who is really suing them. Parabellum’s client list is not publicly available and, as a result, the true identity of Ira Kleiman’s benefactors are not actually known. What we can be certain of is that Boies Schiller & Flexner recognized a major opportunity in this space – especially around digital assets and the blockchain –, and decided to spin off a new law firm of its own with the lead attorney on Ira’s case, Vel Freedman, and blockchain and cryptocurrency law expert Kyle Roche as partners.
Co-founded by BSF equity partner Edward “Ted” Normand and former Editor in Chief of the influential University of Pennsylvania Law Review, Roche Freedman LLP sprinted out of the gate with a blockbuster class action suit on stablecoin company Tether and cryptocurrency exchange Bitfinex over allegations of Bitcoin price manipulation in the fall of 2019, just after Kleiman had claimed a partial victory over Wright, who was forced to give up half of any Bitcoins mined before 2014.
Tether is a type of cryptocurrency known as a ‘stablecoin’, which means it is backed by a ‘stable’ asset, which is Tether’s case is the U.S. dollar. It accounts for 70% of all trading in Bitcoin, which places it in a privileged position within the digital assets ecosystem. In 2017, the Paradise Papers leaks showed that Tether and Bitfinex were controlled by the same people, spurring an investigation by the New York Attorney General’s office, which resulted in an US$18.5 Million fine and the barring of Tether’s business activities throughout the state of New York, though Tether admitted no wrongdoing.
Roche Freedman’s class action was described as a “money grab” by Tether and, without even considering the fact that half of the charges have since been dropped, there is no question that money is at the top of the firm’s priorities as evidenced by the short-lived name change that took place in 2020, when Roche brought in another BSF equity partner, Jason Cyrulnik, to burnish the credibility of the young firm. An internal spat over digital asset distribution devolved into a public legal dispute, with Cyrulnik and Roche Freedman filing lawsuits against each other in what has become yet another legal battle over cryptocurrency in U.S. courts, which goes to the heart of what is really taking place.
In addition to Roche Freedman’s class action against Tether and Bitfinex in New York and the “copycat” suit filed in the U.S. District Court for the Western District of Washington a few days later, nearly a dozen class action suits have been brought against cryptocurrency companies by Roche Freedman and newcomer Selendy & Gay PLLC, that have implications across multiple international jurisdictions, spanning South Africa, Switzerland, Taiwan, the U.S., China, Seychelles, Singapore, Japan, Hong Kong, British Virgin Islands, and the Cayman Islands.
Kleiman v. Wright might prove central to a particular aspect of the case law currently being constructed through these legal actions, funded by largely anonymous, third parties, who nonetheless have both the means, and more than likely a major stake, in the way the judicial system treats digital assets, in general. Maintaining an air of mystery around Satoshi Nakamoto and the true origins of Bitcoin seems to serve certain interests more than others, but as governments intensify their involvement in the cryptocurrency sector, a deeper look into the cast of characters that make up the “trial of the century” provides some clues.
Curse of the Lubavitchers
Rivero Mestre founding partner and Dr. Craig Wright’s lead defense attorney, Andrés Rivero, must have had a feeling of Déjà vu while cross-examining Ira Kleiman, whose name is phonetically almost identical to that of the man who cost him a seat in the Florida Congress nearly thirty years ago. Fresh off a five-year stint as Assistant U.S. Attorney for the Southern District of Florida, partly coinciding with William Barr’s first tenure as Attorney General, Rivero ran straight into Miami’s political machinery and got mauled.
In 1994, Rivero’s star was rising and he was poised to parlay his recent political achievements into a spot in the Florida House of Representatives for the state’s 107th district, which had recently been reshuffled in a significant redistricting plan crafted two years earlier and included parts of South Beach, Key Biscayne, Little Havana and many other pivotal areas, previously represented by one of Dade County’s most notorious politicians, Al Gutman, who was convicted of Medicare fraud, money laundering and witness tampering in 1999.
About half of the district’s non-Hispanic registered voters were Jewish, according to contemporary political analysts. But they still accounted for a small fraction of the total voting bloc, which was overwhelmingly Republican and Cuban. Gutman, a Cuban-American Jew, bridged the gap between the two and had represented it in the Florida legislature from 1984 until he took over an open-seat in the State Senate in 1992.
Rivero’s candidacy was an unwelcome announcement for the Gutman-linked Republican incumbent, Bruno Barreiro, who had taken Gutman’s post after he vacated it. When an “unqualified candidate with a Jewish last name” appeared out of the blue, Steven Leifman, who had lost a close race to Barreiro in 1992 general election, called out what he believed to be direct interference by Gutman’s political machinery, telling the Miami New Times that it didn’t “take a genius to figure out what’s going on here”.
Isaac Klayman was the name of Rivero’s surprise challenger. A completely unknown individual with no political background whatsoever, whose only purpose was to divert the 107th district’s Jewish vote away from the Democratic candidate. The tactic had been employed by Gutman before to keep another Hispanic Democrat off the ballot in 1988. “They’re doing the same thing they’ve always done”, said Eladio Armesto III, who decided to forgo a spot in the Democratic primary that year after Gary Alan Fried, the son-in-law of one of Gutman’s cronies filed only to withdraw (with a full refund) two minutes before the deadline.
Perhaps due to his more prestigious resume, the message to Rivero was far more direct. Gutman’s closest associate and a corporate officer in at least one of the crooked politician’s business concerns, Henry “Kiki” Berger set up a meeting with the young, up and coming lawyer at a waterfront Japanese restaurant steps away from where Miami City Hall is today. “There’s a [political] machine in this district,” Berger reportedly warned Rivero. “It’s my machine, but I’m neutral on this race. Alberto [Gutman] and I are not going to get involved,” he continued, “But Bruno [Barreiro] knows how to run the machine.”
In a real-life scene right out of Scarface, Berger told Rivero exactly how it would go down: “They’re going to go after you. They’re going to put pressure on you and pressure on your family. They’re going to say that you’re a communist because you went to Harvard. And they’re going to put a Jewish Democrat in the primary against you.” Berger disputes the exact wording and intent, but both the meeting and the thrust of the conversation is confirmed by all parties.
Klayman, who was described as a “300-pound Lubavitcher” due to his girth and a false rumor that he belonged to the Lubavitch religious community, never campaigned and only ever gave one interview to the press. But even that is shrouded in uncertainty, since the interview questions were faxed and answered in writing by a PR consultancy firm with ties to Gutman’s political campaigns and real estate ventures.
Ultimately, Rivero’s campaign had to spend tens of thousands of dollars more than it would otherwise had to as a result of Klayman’s “phantom” candidacy, and although he would go on to win the primary, Rivero’s war chest had been considerably depleted by the time he went up against Barreiro in the general, where he lost by about 1,500 votes.
Decades later, Rivero has not stopped moving up the ranks and is among the finalists to be appointed to the top job at the U.S. Attorney’s Office for the Southern District of Florida, where he began his career all those years ago, working with then Assistant Attorney General, Robert Mueller, in the Justice Department’s controversial investigation into BCCI.
Now, Rivero finds himself at the center of another financial scandal in a courtroom battle with a name that sounds like a lot like one that got in the way of his political ambitions many moons ago. The Kleimans of the Bitcoin trial, however, seem to link to interests far more powerful than a handful of mobbed-up politicians in the Magic City.