FTX Lawyers Sued: Creditors Say S&C Were 'Vital' to SBF Fraud

FTX Bankruptcy Saga Escalates with Class-Action Lawsuit

Sullivan & Cromwell (S&C) was allegedly aware of fraudulent actions and mismanagement of class members’ funds by FTX. Despite this, S&C allegedly saw an opportunity for financial gain from the misconduct of the FTX Group. Therefore, the case says, it implicitly consented to support illegal behavior for its own benefit. The lawsuit demands compensation for various charges , including civil conspiracy, assistance in fraud, and support in breaching fiduciary duties.

The lawsuit said :

“S&C knew of FTX US and FTX Trading Ltd.’s omissions, untruthful and fraudulent conduct, and misappropriation of Class Members’ funds. Despite this knowledge, S&C stood to gain financially from the FTX Group’s misconduct and so agreed, at least impliedly, to assist that unlawful conduct for its own gain.”

Century-Old Law Firm Faces Scrutiny

Sullivan & Cromwell is at the helm of the FTX bankruptcy case, having previously been the exchange’s external legal advisor. These dealings include FTX’s attempts to acquire the assets of Voyager Digital and its purchase of LedgerX, for which the firm received substantial fees. In the ongoing bankruptcy proceedings, the estimated fees for S&C, which was founded in 1879, could be hundreds of millions of dollars.

NEW: FTX sells DCI subsidiary for 💵 $500K, down from the $10M purchase price.

DCI, intended for FTX US and LedgerX, never integrated and now sold to CoinList at a 95% discount to recover bankruptcy debts 👀 pic.twitter.com/wxrER1HLHm

— Bitcoin News (@BitcoinNewsCom) February 12, 2024

The connection between FTX and Sullivan & Cromwell grew stronger when Ryne Miller transitioned from being a partner at S&C to serving as general counsel for the FTX Group in August 2021. Miller is accused of directing at least 20 cases from FTX back to his former employer.

In a separate legal document, Daniel Friedberg, the former chief regulatory officer at FTX, revealed :

“Mr Miller informed me that it was very important for him personally to channel a lot of business to S&C as he wanted to return there as a partner after his stint at the Debtors.”

Close Ties Under Scrutiny Amid Bankruptcy Proceedings

The lawsuit notes that former FTX CEO Sam Bankman-Fried frequently worked from S&C’s New York offices. This, the papers claim, illustrates the close connection between the two entities.

A spokesperson for S&C refuted claims of misconduct in a statement for media. They emphasized that the law firm had not served as the main external legal advisor for any FTX entity. They also characterized the firm’s relationship with FTX as limited and primarily focused on transactions prior to the start of the bankruptcy proceedings.

The potential for a conflict of interest involving S&C in the FTX bankruptcy case has previously attracted attention. In January 202 3, a bipartisan group of US senators appealed to the court for the appointment of an independent examiner. They argued S&C’s ties to FTX could compromise its ability to conduct a thorough investigation, thereby undermining trust.

We shall have to see what, if anything, comes of this case.

Was this Article helpful? Yes No

About the Author

Teuta Franjkovic

Teuta is a seasoned writer and editor with more than 15 years of experience. She has expertise in covering macroeconomics and technology as well as the cryptocurrency and blockchain industries. She has worked for several publications as a journalist and editor, including Forbes, Bloomberg, CoinTelegraph, Coin Rivet, CoinSpeaker, VRWorld and Arcane Bear. Teuta began her professional career in 2005, working as a lifestyle writer at Cosmopolitan in Croatia. From there, she branched out to several other publications, covering mainly business and the economy. She then turned her attention to the world of cryptocurrency and blockchain, believing that crypto is among the most important inventions in the history of humanity. Her involvement in fintech began in 2014 and she has since lent her expertise in writing, editing and gathering information about the world of crypto, blockchain, NFTs and Web3. An all-round news hound, mentor, editor, and writer, Teuta enjoys teamwork and good communication. She holds a WSET2 diploma and has a thing for chablis, punkrock music and shoes. She also holds a double MA in Political science and Entrepreneurship.

[email protected] LinkedIn Twitter