FTX Creditors Launch Class-Action Lawsuit Against Sullivan & Cromwell Over Bankruptcy Case Misconduct
Summary:
A class-action lawsuit has been filed against Sullivan & Cromwell, the law firm managing FTX's bankruptcy proceedings, by the exchange's creditors. They accuse the firm of complicity in a multi-billion dollar fraud by the FTX Group and benefiting from it. The lawsuit seeks damages for charges including civil conspiracy and aiding fraud. A potential conflict of interest involving S&C has been previously raised, calling into question their ability to oversee the case impartially.
The latest development in the bankruptcy case of cryptocurrency exchange FTX is the filing of a class-action lawsuit by its creditors against the law firm managing the proceedings. Sullivan & Cromwell, a century-old law firm referred to as S&C, was accused in a Feb. 16 court filing by FTX creditors of being complicit in the FTX Group’s multi-billion dollar fraudulent activities, claiming the firm profited from FTX's fraudulent activities. They alleged that S&C was aware of misleading and fraudulent behavior, as well as misallocation of class members' funds by FTX US and FTX Trading Ltd. The law firm allegedly chose to turn a blind eye for its own gain.
The lawsuit is seeking damages for several charges including civil conspiracy, aiding and abetting fraud, and aiding fiduciary breaches. Previously, S&C purportedly acted as an external counsel for the exchange on various transactions, such as FTX’s attempts to secure assets of Voyager Digital Holdings and the LedgerX acquisition. The law firm supposedly received substantial fees for these services. In the current bankruptcy case, it is projected that S&C will be paid in the hundreds of millions.
Ryne Miller, a former S&C partner who assumed the role of general counsel at FTX Group in August 2021, has been credited for the union between the two entities. It is alleged that Miller redirected at least 20 FTX cases to his former law firm. According to ex-FTX chief regulatory officer Daniel Friedberg, in additional court documents, Miller expressed interest in returning to S&C following his tenure at FTX, thus driving a lot of business to the law firm.
Furthermore, it was noted in the complaint that the former CEO of FTX, Sam Bankman-Fried, regularly worked from the New York offices of S&C due to the close relationship between the businesses. A representative of S&C categorically denied any wrongdoing in a previous statement to Cointelegraph, stating that the law firm had not served as the main external council for any FTX entity. They said they had a limited, transaction-based relationship with FTX and certain affiliates before the bankruptcy.
Even prior to this, S&C’s potential conflict of interest in the bankruptcy case had been raised. Earlier in January 2023, a bipartisan group of U.S senators urged the court to appoint an independent examiner, stating that S&C was not capable of obtaining the necessary details to warrant trust in any investigation or its conclusions.
Published At
2/17/2024 8:01:09 PM
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