In a recent development in the FTX bankruptcy saga, creditors of the cryptocurrency exchange have initiated a class-action lawsuit against Sullivan & Cromwell (S&C), the law firm overseeing the case. The creditors allege that S&C actively participated in the “multibillion-dollar fraud” orchestrated by FTX Group and financially benefited from the fraudulent activities.
According to court documents filed on February 16, the creditors assert that S&C was well aware of FTX US and FTX Trading Ltd.’s deceptive conduct and misappropriation of funds belonging to the class members. Despite this knowledge, the law firm allegedly collaborated with FTX Group in its misconduct, aiming to reap financial gains. The lawsuit brings charges of civil conspiracy, aiding and abetting fraud, and aiding and abetting fiduciary breaches, seeking damages for the alleged wrongdoing.
Sullivan & Cromwell, a century-old law firm, has been at the forefront of the FTX bankruptcy proceedings. The firm had previously served as external counsel for FTX in various deals, earning substantial payments for its services. The ongoing bankruptcy case is estimated to generate fees for S&C amounting to hundreds of millions of dollars.
The connection between FTX and S&C was established through Ryne Miller, a former S&C partner who assumed the role of general counsel at FTX Group in August 2021. Miller is accused of redirecting numerous cases from FTX to his former law firm, with the intention of securing a partnership upon his return to Sullivan & Cromwell.
Former FTX chief regulatory officer, Daniel Friedberg, revealed in a court filing that Miller emphasized the importance of channeling business to S&C for personal reasons, expressing a desire to rejoin the law firm after his tenure with FTX. The complaint also highlights the close relationship between FTX’s former CEO, Sam Bankman-Fried, and S&C, noting that Bankman-Fried frequently worked from the law firm’s New York offices.
In response to the allegations, a spokesperson for Sullivan & Cromwell denied any wrongdoing, emphasizing that the firm had never served as the primary outside counsel to any FTX entity. The spokesperson characterized the relationship with FTX as limited and mostly transactional prior to the commencement of the bankruptcy proceedings.
Concerns about S&C’s potential conflict of interest in the bankruptcy case had previously been raised. In January 2023, a bipartisan group of U.S. senators urged the judge to appoint an independent examiner, arguing that Sullivan & Cromwell might not be in a position to uncover essential information, thereby casting doubt on the integrity of any investigation or findings.
