Sullivan and Cromwell (S&C), the prestigious law firm handling the bankruptcy of the fallen crypto exchange FTX, is now in the legal crosshairs itself. A new class action lawsuit accuses S&C of being so entwined with FTX before its dramatic collapse that it allegedly bears partial responsibility for the debacle.
According to the lawsuit, S&C didn’t just serve as an external advisor; it was deeply involved in FTX’s operations, to the extent that it supposedly helped facilitate the exchange’s fraudulent activities. The firm racked up about $8.5 million in fees from FTX in the 16 months leading up to its implosion, the lawsuit claims.
The plot thickens with the transition of Ryne Miller from S&C to FTX’s General Counsel in 2021. The lawsuit alleges Miller was instrumental in securing S&C’s role as FTX’s go-to outside counsel, a relationship that spawned 20 different engagements, including significant moves like FTX’s attempts to acquire assets from Voyager and LedgerX.
A particularly damning accusation involves S&C’s representation of Emergent, a special purpose vehicle reportedly used by FTX to purchase Robinhood stocks using customer funds, and its representation of FTX’s then-CEO, Sam Bankman-Fried.
The lawsuit further alleges that after discovering a “back door” in FTX’s system, which allowed for the misappropriation of customer funds to Alameda Research, Miller informed several individuals at S&C about this critical vulnerability.
Since taking charge of FTX’s bankruptcy proceedings, S&C’s earnings related to FTX have reportedly skyrocketed to over $180 million, raising eyebrows about the firm’s billing practices and its deepening financial ties to the FTX case.
This legal action gains further traction against the backdrop of multiple U.S. Senators raising concerns about S&C’s potential conflict of interest and the previous calls for an independent examiner to investigate FTX’s downfall. Despite these concerns, a judge allowed S&C to continue its role in the bankruptcy proceedings, a decision met with controversy among creditors and observers alike.
With the Third Circuit Court of Appeals’ recent directive for an independent investigation into FTX, the scrutiny on S&C’s involvement and the broader implications for the crypto industry and legal ethics continue to intensify.
