The FTX bankruptcy saga has taken a dramatic turn as creditors of the exchange have filed a class-action lawsuit against the law firm overseeing the case, Sullivan & Cromwell (S&C). In a court filing dated February 16, FTX creditors allege that S&C was complicit in FTX Group's alleged multibillion-dollar fraud, asserting that the law firm financially benefited from the fraudulent activities.
According to the lawsuit, S&C was purportedly aware of the negligent, dishonest, and fraudulent conduct of FTX US and FTX Trading Ltd., yet continued to engage with the entities, profiting from their misconduct. The legal action seeks damages on various grounds, including civil conspiracy, aiding and abetting fraud, and aiding and abetting breach of trust.
Sullivan & Cromwell, a venerable law firm with a century-long history, has been entrusted with overseeing the FTX bankruptcy proceedings. It's reported that the firm had previously advised FTX on significant transactions, such as the acquisition of assets from Voyager Digital and LedgerX, for which it received substantial payments. In the ongoing bankruptcy case, S&C's fees are expected to amount to hundreds of millions of dollars.
The connection between FTX and Sullivan & Cromwell was facilitated by former S&C partner Ryne Miller, who joined FTX Group as general counsel in August 2021. Allegedly, Miller transferred numerous cases from FTX to his former law firm, suggesting a potential conflict of interest.
Former FTX CEO Sam Bankman-Fried's close ties to S&C are also under scrutiny, with claims that he frequently worked at the law firm's New York offices and that the two entities shared a "very close relationship." Despite these allegations, a spokesperson for Sullivan & Cromwell has denied any wrongdoing, stating that the firm had no prior relationships with FTX or its affiliates before the bankruptcy and that their interaction was primarily transactional. However, concerns about potential conflicts of interest involving S&C have prompted calls for independent review by U.S. senators.
