Wall Street Hallucinations: How OpenAI's Legal Advisors Brought Invented Precedents Into Court

Recipe for a Good Scandal

The perfect scandal piece requires a few obvious ingredients. It needs respected names and institutions with serious reputations to lose. The underlying problem should be presented as simply and accessibly as possible — the more complex it actually is, the more important that becomes. The specific case used as an example must illuminate a broader public issue, ideally one that's fresh enough to still have some shock value. Above all, the reader must be left with absolutely no room to shrug, side with the accused, and say, "Honestly, who cares?"

Let's run the stress test.

Manhattan vs. Cambodia

The lineup in this story couldn't be more stark. On one side: the Cambodian criminal syndicate Prince Group, which operates a network of private forced-labor camps. They industrialized pig-butchering, the systematic draining of victims' money. In this scheme, you might meet an attractive woman online and find that she falls for you within a week, then casually mentions "a small crypto investment opportunity — my uncle's in the industry." In reality, there's no woman on the other end. There's a prisoner who gets beaten if he doesn't meet his quota.

On the other side: the U.S. Department of Justice, which initiated a $15 billion asset forfeiture case against Prince, the largest in history. Their legal weapon of choice in this case is Sullivan & Cromwell, an absolute titan of the Am Law 100, with offices at the most expensive address in Manhattan, a track record of nine-figure deals, and a reputation beyond reproach. S&C also officially advises OpenAI on the "safe and ethical deployment of artificial intelligence." That one detail is what turns a routine failure into a perfect scandal.

Precedents That Never Existed

When S&C filed its complaint, it sought bitcoin assets scattered across the globe through an intricate web of offshore entities. The goal was a noble one: not just to seize the stolen funds, but to return them to victims.

The syndicate's attorneys, far less celebrated in legal circles, demolished the filing with ease. They found dozens of AI hallucinations embedded in the complaint: citations to nonexistent precedents, references to cases that were never decided because they were never real. Everything that could theoretically be hallucinated had been, and it had all made its way into documents submitted to a federal court.

The Wall Street elite folded without a fight. S&C partner Brian Dietderich sent the judge a letter of contrition. In it, he began by helpfully explaining the nature of AI hallucinations — in case the judge hadn't read the news in the past two years — and then walked through S&C's exemplary internal policies for working with AI systems:

• Two mandatory training modules before AI access. Completion is tracked and confirmed.
• The training repeatedly emphasizes the risk of hallucinations.
• Instructions direct attorneys to "trust nothing and verify everything."
• Failure to independently verify constitutes a violation of firm policy.

The letter's conclusion is staggering in its absurdity. Dietderich astutely observes: "The firm's policy regarding AI use was not followed in preparing the motion." He adds that some of the problems appear to have arisen "in whole or in part due to human error."

S&C has taken a serious reputational hit, earning a place in the unofficial AI Hall of Shame. Journalists couldn't resist pointing out the delicious irony: the firm that publicly advises OpenAI on ethics and responsible algorithm deployment had itself been burned by an LLM.

A Systemic Vulnerability

Above the Law, which dissected this failure with surgical precision, delivered the verdict: "This isn't an S&C problem. It's a problem for the entire profession."

Far from New York and Cambodia, in Paris, researcher Damien Charlotin maintains a public registry of AI hallucinations identified in court cases. At the time of publication, it already contained approximately 1,300 documented instances. Each entry represents an attorney who cited a fiction and a judge who had to deal with the fallout. How many times courts have accepted a hallucination as genuine precedent remains beyond the scope of both the registry and the press.

The judicial system knows how to defend itself and typically hits back hard. Cases built on fabricated sources are dismissed with prejudice. The attorneys themselves face fines, suspension, and disbarment. In Nebraska, attorney Greg Lake was indefinitely disbarred, in part for attempting to conceal his use of AI by lying about a "broken laptop." In Colorado, Zacharia Crabill received a one-year suspension for a similar attempt to deceive the court.

Against the backdrop of these very public professional executions, we return to the Wall Street elite. Sullivan & Cromwell attorneys walk into court with a fully hallucinated $15 billion lawsuit. They get caught red-handed. What does Judge Martin Glenn do? Nothing. No fines. No suspended partners. No disbarments. Justice simply looked the other way when confronted with the hallucinatory tendencies of the people officially teaching ethics to AI systems.

Stress Test Complete

The effort to seize $15 billion is now stalled on three fronts: resistance from the syndicate's lawyers, procedural chaos caused by S&C's AI hallucinations, and geopolitics. China has already labeled the U.S. action "theft" and is preparing to assert its own claim to the bitcoin.

Years may pass before victims see any actual compensation. The U.S. Department of Justice still needs to clear the seizure, unravel a web of offshore entities, and verify thousands of victims. The principal defendant, Prince Group head Chen Zhi, was detained in Cambodia in early 2026. Instead of being extradited to the United States, however, he was quietly deported to China, where he has since vanished from press coverage entirely.

The arrest did nothing to disrupt the crypto cartel's operations. Thousands of prisoners in Cambodian compounds are still online, still making new connections, still methodically working through their next victims in the pig-butchering pipeline.