Posts about legal use of AI usually recite instances of lawyers utilizing AI to draft briefs that contain fake citations thus landing said lawyers in a heap of trouble as judges tend to frown about such chicanery. Last month, however, Judge Rakoff, of the United States District Court for Southern District of New York, issued a much more topical decision on attorney/client privilege and AI which has not received nearly enough attention.

The quick facts are that the target of a criminal investigation queried an AI engine (Anthropic’s “Claude” in this case) regarding possible defenses and then shared the generated strategies with his attorney. The government sought production of the AI content, and the defendant resisted on the grounds of attorney/client privilege and work product doctrine. Judge Rakoff rejected both arguments and ordered the materials to be produced to the government. While addressing three prongs of the privilege analysis, the most far-reaching portion of Judge Rakoff’s reasoning was finding a lack of confidentiality as explicitly stated in Anthropic's terms of service.

While this case addressed the use of a public AI tool by the client, the reasoning applies to attorneys in equal measure. Extending this analysis, a lawyer who allows a public AI tool to ingest privileged material to generate work product would forfeit the privilege due to the lack of confidentiality as specifically detailed in the terms of service (which even lawyers never read). This is not a new problem. I authored a piece for the American Law Journal in 2013 titled “Partly Cloudy with a Chance of Sanctions” highlighting the risk of utilizing insecure cloud providers to store client data. The new AI tools magnify the risk of privilege waiver exponentially, however.

What can you do to prevent an intentional waiver that might result in losing a case, malpractice, sanctions, or even disciplinary action?

Lawyers: Exercise extreme caution using any technology into which privileged or confidential material is exposed. Do not use public AI tools to analyze privileged material. If utilizing AI, subscribe to safe platforms where the terms of service specifically protect the confidentiality of the material. Utilize best practices and obtain client consent to using AI safely and appropriately.

Clients: Do not expose confidential material to any AI tool without first seeking advice from counsel. Approach the use of AI as you would any web tool (such as Google) and assume that it might have to be produced in litigation absent explicit legal advice. Proactively query counsel as to their use of AI and ensure that the legal team, if using AI, is doing so on a secure private platform.

Sablone Advisory has decades of experience representing clients in the eDiscovery and data space. Give us a call, drop us a note, or stop by to learn how Sablone Advisory can help navigate the complex and ever-evolving interplay between technology and law.

Beware tensions arising from layered rounds of PE/VC capital in startups. The problem is not new, namely that raising progressive rounds of capital over time results in varying rights in liquidity, preferred equity structures, and control among private investment funds, resulting in ever more complex cap tables. The new wrinkle is the increase in durational risk associated with IPO or M&A activities for many startups. As the exit timeline for investors stretches, additional capital raises become necessary, thus layering the cap table with ever more complexity and conflicting agendas. Ironically, the problem is most acute in successful startups that have a good product, a strong sales record, and a bright future. While this issue has recently been highlighted in the AI startup space, it can affect companies in any industry.

How to manage the so-called “cap table tensions?”

For startups/founders: Approach capital raising in a deliberate manner. When desperate for an operational runway, it is enticing to take the most cash at the soonest moment. Consider the terms, especially control and preferred equity rights, carefully and weigh them against the company’s needs. The best deal may be one that gives you long-term flexibility rather than short-term gain. Rebalance these considerations at each capital raise iteration.

For private investment funds: Consider not just your investment in the company, and the rights for which you bargain, but also the obligations of the company to previous stakeholders and potential future round investors. This may sound elementary, but simply bargaining for preferred rights does not erase the tensions that will impact the investment when it is time to exit. As in any investment, contractual rights do not always mitigate real world conflicts that can negatively impact value and liquidity over time.

Both founders and private investment funds should retain qualified counsel, not just to close deals, but also to monitor the structure of the investment and provide advice as to the rights and obligations of the growing number of stakeholders as they evolve over time.

Sablone Advisory has decades of experience representing private investment funds and startups “at the intersection of law and finance.” Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help navigate this complex investment structure.

With geopolitical events dominating the news cycle, many of us may have missed warning signs. The Cliffwater Notes (pun intended) version:

• Cracks are forming in the massive private credit markets

• Cliffwater invoked its cap on redemptions this month, cashing out only 50% of requests.

• Black Rock and Morgan Stanley also invoked caps on redemptions.

• Blackstone’s credit fund recorded its first ever net withdrawal (redemptions outpacing deposits).
  

The turmoil in private credit can quickly spread to other asset classes as investors seek liquidity from even well-performing investments and (as the WSJ notes) credit funds redeem their own investments (such as in CLOs) to provide cash for redeeming investors. This is all eerily reminiscent of the 2008 credit crisis when a downward spiral of investor need for liquidity from asset classes with non-liquid positions created droves of so-called Zombie Funds with marked value but no actual market or liquidity.

What can you do?

If you are an investor, review your documents now to determine all of your rights. These may include not only redemption opportunities but also transparency, management, and even removal rights that may be leveraged to improve liquidity. Determine which is more important – immediate liquidity or long-term gain and then make a plan to meet your needs.

If you are a manager, take proactive steps to stem investor revolts and get ahead of any wave. Provide liquidity above contractual obligations where it can be done responsibly. Consider giving up certain control or providing additional transparency in exchange for reduced redemption rights. Communicate and work with investors in a collaborative fashion to meet their needs and find common solutions.

Both managers and investors should consider retaining qualified counsel to review fund documents, management contracts, and side letters to determine rights and create a plan to address market turmoil. Sablone Advisory has decades of experience “at the intersection of law and finance.” Take advantage of the lessons we learned representing institutional investors, fund managers, liquidators, investment banks, insurance companies, and high net worth individuals during the credit crisis. Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help.

Update: Ares Management and Apollo Global Management both had to limit redemptions this week in their private credit funds.

CNBC (March 25): "Comparisons to the build-up to the 2008 Global Financial Crisis are now intensifying as concerns over underlying loan quality grow."

Forbes (March 24) : "The private credit mess we've been talking about lately has raised a question no one wants to ask: Is 2026 shaping up to be another 2008?"

Sablone Advisory (March 18): "This is all eerily reminiscent of the 2008 credit crisis ..."

Global insolvency professionals have long utilized the US Bankruptcy Code’s Chapter 15 to obtain discovery and bring affirmative actions in the United States. As a quick primer, Chapter 15 governs cross-border bankruptcy matters and creates a mechanism for US courts to recognize foreign insolvency proceedings. Once a Chapter 15 Petition is properly filed and recognized, the full toolbox of US bankruptcy and litigation procedures are made available to the foreign representative (typically a liquidator or trustee).

A split has developed among US federal courts of appeal as to whether the bankruptcy code’s general jurisdictional requirement, that the foreign debtor have a domicile, place of business, or property in the United States, applies to Chapter 15. The Second Circuit (New York) says yes. The Eleventh Circuit (Florida) says no. Last month, the US District Court for the Southern District of Texas (Houston) chimed-in and followed the Second Circuit’s lead. In re Siu-Fung Ceramics Holdings Limited and SF Siegfried Lee, Case No. 24-33299 (Bankr. S.D. Tex. Feb 10, 2026) denied Chapter 15 recognition because the debtor did not have a domicile, place of business, or property in the United States. This sets up a potential appeal to the Fifth Circuit (Texas) which might ultimately result in the US Supreme Court having to adjudicate the split between the federal circuits.

Why this Matters: If you are a foreign insolvency professional, liquidator, or trustee, make sure you know the rules in the jurisdiction in which you file for Chapter 15 recognition. Even in the circuits that require a domicile, place of business, or property, it is a relatively low bar to clear. For example, a debtor who has transferred assets to a US bank account likely holds “property” in the US, thus satisfying the stricter jurisdictional requirements. Even this low bar requires proper evidence and pleading, however.

Alternate Mechanism: If you are a foreign insolvency professional and need discovery or testimony from US entities, consider utilizing 28 U.S.C. §1782 which allows for discovery in aid of foreign proceedings without the need for a Chapter 15 Petition.

How We Can Help: Sablone Advisory has decades of experience representing offshore liquidators and other insolvency professionals in Chapter 15 and Section 1782 actions in the United States. Give us a call, drop us a note, or stop by to hear how Sablone Advisory can help advance your foreign insolvency with the proper legal action in the United States.