Class Action Launched by FTX Creditors Targets Bankruptcy Lawyers for Alleged Pre-Collapse Connections
Sullivan and Cromwell (S&C), the bankruptcy law firm for FTX, is now facing a class action alleging close involvement with the exchange prior to its collapse.
Because Bitcoin
February 19, 2024
A recent The Block report states that Sullivan and Cromwell (S&C), the bankruptcy law firm for FTX, is now facing a class action alleging close involvement with the exchange prior to its collapse, leading to partial responsibility for the actions that ensued. The lawsuit centers on S&C's extensive history as outside counsel for FTX, alleging that the law firm gained insights into the exchange's operations and supported its fraudulent behavior. The class action contends that while FTX customers suffered losses, S&C profited, serving as FTX's primary legal counsel for 16 months and billing approximately $8.5 million in fees.
The lawsuit points to lawyer Ryne Miller's transition from S&C to FTX as General Counsel in 2021, alleging that he influenced business engagements with S&C as outside counsel, including FTX's bid for Voyager's assets and the acquisition of LedgerX. It asserts that S&C represented a special purpose vehicle, Emergent, used to buy Robinhood stock with FTX customer funds while also representing former FTX CEO Sam Bankman-Fried. The class action alleges that Miller was aware of a "back door" in FTX's platform, enabling the funneling of customer funds to Alameda, and shared this information with individuals at S&C.
The lawsuit also highlights S&C's financial gains in overseeing FTX's bankruptcy proceedings, citing a surge exceeding $180 million, equivalent to 10% of the firm's publicly stated total revenue for 2022. The law firm's billing rates, including partners at up to $2,165/hr, have come under scrutiny. S&C has yet to respond to requests for comment.
Notably, longstanding concerns about S&C's impartiality were previously expressed by U.S. Senators in January 2023, leading to calls for an independent examiner. Bankman-Fried accused S&C of pressuring FTX into bankruptcy and influencing the appointment of its preferred CEO. Although objections were raised, S&C was approved for retention in the bankruptcy proceedings. In January 2024, the Third Circuit Court of Appeals ruled that FTX must undergo investigation by an independent examiner, emphasizing the need for an unbiased probe in light of potential industry practices.
Resources: