Failed crypto exchange FTX‘s creditors are reportedly suing bankruptcy law firm Sullivan & Cromwell (S&C), as part of an extensive lawsuit that is alleging major fraud involvement.
Digital currency exchange FTX creditors are now seeking damages against Sullivan & Cromwell for its previous engagements with the FTX exchange.
The FTX bankruptcy case has evolved into another chapter as the firm’s creditors have filed a class-action lawsuit against S&C, which has reportedly been overseeing the case with FTX.
As part of a court filing submitted on February 16, 2024, FTX creditors claimed that S&C had intentionally taken part in the “FTX Group’s multibillion dollar fraud.” The lawsuit further alleges that the law firm had benefited financially from FTX’s wide range of fraudulent activities.
As stated in the filing, S&C allegedly knew of FTX US and FTX Trading Ltd.’s “omissions, untruthful and fraudulent conduct,” as well as the alleged “misappropriation of Class Members’ funds.” According to the lawsuit, “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.”
The lawsuit is now seeking damages for several different counts, such as civil conspiracy, along with allegedly aiding and abetting fraud, and assisting and abetting fiduciary breaches.
Notably, Sullivan & Cromwell is an established law firm that is tasked with handling the ongoing FTX bankruptcy proceedings. The law firm had also notably served as Counsel to the crypto exchange in various transactions/deals, such as FTX’s previous bid for the assets of Voyager Digital as well as its acquisition of LedgerX.
The law firm reportedly took substantial payments for these legal services. As part of the ongoing bankruptcy case, S&C’s fees could potentially be in the range of hundreds of millions of dollars. The business relationship between cryptocurrency exchange FTX and law firm S&C had been established by Ryne Miller, an ex-partner at the law firm who had joined the FTX Group as General Counsel back in August of 2021.
Miller had reportedly taken around 20 cases from FTX to the law firm.
Ex-FTX Chief Regulatory Officer Daniel Friedberg said in official court papers that Mr. Miller had notified him that it was critical for him to direct substantial business to S&C as he was interested in returning there as a partner following his engagement at the Debtors.
The recent complaint further states that ex-FTX Chief Executive Officer Sam Bankman-Fried, or SBF, was reportedly seen working regularly at S&C’s business offices, which are based in New York (implying that the parties had a very close relationship).
In statements shared with various media outlets, law firm S&C has claimed that they have not served as primary outside counsel to any FTX entity. They further claim that they had a minor and primarily a transactional or typical business relationship with FTX.
S&C’s conflict of interest with the ongoing bankruptcy case has been a subject of media attention. Back in January of last year, several US lawmakers told the presiding Judge that they were recommending an independent examiner, alleging that S&C had not been in a suitable position to unveil the details required to gain confidence in any ongoing probe or related case findings.