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Creditors of FTX have initiated a class-action lawsuit against the law firm managing the exchange’s bankruptcy, Sullivan & Cromwell (S&C).
The creditors assert that S&C was actively involved in the multibillion-dollar fraud perpetrated by FTX Group and profited from it.
As per court documents filed on February 16, FTX creditors contend that S&C was aware of the fraudulent activities of FTX US and FTX Trading Ltd., as well as the misappropriation of funds belonging to class members.
“In spite of this awareness, S&C stood to benefit financially from the misconduct of the FTX Group and thus tacitly agreed to facilitate that unlawful behavior for its own advantage,” the filing stated.
The class-action lawsuit seeks compensation on multiple grounds, including civil conspiracy, aiding and abetting fraud, and aiding and abetting breaches of fiduciary duty.
S&C Previously Advised FTX on Transactions
Sullivan & Cromwell, a law firm with a history spanning a century, has been managing the FTX bankruptcy proceedings.
It has had a prior working relationship with FTX, acting as external counsel in various transactions, including FTX’s asset acquisition bid for Voyager Digital Holdings and the purchase of LedgerX.
The law firm received substantial payments for its services. In the ongoing bankruptcy case, S&C’s fees are projected to amount to hundreds of millions of dollars.
The link between FTX and Sullivan & Cromwell was established through Ryne Miller, a former partner at S&C who became general counsel for the FTX Group in August 2021.
It is claimed that Miller redirected at least 20 cases from FTX to his previous law firm.
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Former FTX chief regulatory officer, Daniel Friedberg, mentioned in a court filing that Miller emphasized the importance of directing business to S&C as he planned to return there as a partner following his tenure at FTX.
Bankman-Fried and S&C Maintained Close Ties
The complaint also underscores the close association between former FTX CEO Sam Bankman-Fried and S&C, indicating that Bankman-Fried frequently worked in the law firm’s New York offices.
“S&C acquired in-depth knowledge about Mr. Bankman-Fried’s financials through, as further alleged above, their representation of him in his personal capacity for a complex stock purchase related to Robinhood,” the filing noted.
In response to the allegations, a representative for Sullivan & Cromwell has denied any misconduct.
The representative stated that the firm had never acted as primary outside counsel for any FTX entity and had only a limited and transactional relationship with FTX and its affiliates prior to the bankruptcy.
S&C’s potential conflict of interest in the bankruptcy case had previously attracted attention.
In January 2023, a bipartisan group of US senators wrote to the judge, requesting an independent examiner, as they believed the law firm was not equipped to uncover the necessary information to ensure trust in any investigation or findings.
Meanwhile, S&C is also anticipated to be appointed as the independent monitor for Binance Holdings.
This decision follows Binance’s multibillion-dollar settlement with the US government.
As part of the selection process, former federal prosecutor and firm partner Sharon Cohen Levin is expected to lead the monitoring team.
The post FTX’s Legal Labyrinth: S&C Scrutinized Over Past Ties and Fraud Claims appeared first on Cryptonews.
