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Bankman-Fried withdraws D&O coverage suit against CNA

Sam Bankman-Fried

FTX founder Sam Bankman-Fried, who was found guilty earlier this month of stealing from customers of his now-bankrupt cryptocurrency exchange, has withdrawn a coverage lawsuit he filed against a CNA Corp. unit that was one of his excess directors and officers liability insurers.

No explanation was provided in the voluntary notice of dismissal that was filed Monday in U.S. District Court in San Jose, California, in Samuel Bankman-Fried v. Continental Casualty Co.  His attorneys and CNA did not respond to requests for comment.

According to documents filed in the case, primary insurer Beazley LLC issued a $5 million policy to Mr. Bankman-Fried’s company Paper Bird Inc. and related companies in August 2022.

The first layer of excess policies in the tower, with a $5 million limit of liability, was issued by QBE Insurance Co., with CNA providing the second excess layer of $5 million. Hiscox Syndicates Ltd. provided the final $5 million layer of excess coverage, according to court papers.

The Beazley and QBE policies have been exhausted, triggering coverage under the CNA policy. The lawsuit said CNA had refused to pay Mr. Bankman-Fried’s covered expenses on a current basis, as the policy required.

The lawsuit charged CNA with breach of contract and insurance bad faith and sought a judicial declaration that CNA must pay defense costs.

The litigation was filed Oct. 2. A motion to intervene was filed Oct. 10 by Daniel Friedberg, FTX’s former chief regulatory officer and general counsel, contending that while the policies were issued to holding company Paper Bird, it was undisputed that Mr. Friedberg and Mr. Bankman-Fried were insureds “under all relevant policies,” including the CNA policy and that he was also entitled to coverage under the policy.

Mr. Friedberg charged that because of an “inequitable first-come first-served distribution scheme,” he had not received any insurance proceeds, although 13 insureds have received $2.6 million of the funds that have been paid out, and Mr. Bankman-Fried has received about $5.6 million of the more than $10 million that has been paid out from the primary and first and second layers, including “emergency” funding from CNA.

Separately, in a filing in U.S. District Court in Oakland that names Mr. Bankman-Fried and 18 others, Hiscox Syndicates Ltd. v. Samuel Bankman-Fried et al., Hiscox states it expects coverage limits to be exhausted, and asks the court to deposit its policy limits into the court’s registry and discharge it from further liability.

The case was reassigned from the U.S. District Court in Oakland to the district court in San Francisco on Wednesday.

Mr. Friedberg’s attorneys did not respond to a request for comment.