FTX investors have sued Sullivan & Cromwell, accusing the law firm of aiding illicit schemes that helped advance a multi-billion dollar fraud before the crypto exchange’s collapse.
Sullivan & Cromwell’s services “went well beyond those a law firm should and ordinarily provides”, the investor complaint said. “Lawyers were eager to craft not only creative but misleading strategies that furthered FTX’s misconduct.”
The lawsuit was filed on Friday (Feb 16) on behalf of a proposed class of FTX customers, and adds to scrutiny of the elite Wall Street law firm that has acknowledged working on 20 legal matters for FTX and its founder Sam Bankman-Fried in the 16 months before the exchange’s 2022 implosion amid reports of a liquidity crisis.
Sullivan & Cromwell did not immediately respond to a request for comment Saturday. The Moskowitz Law Firm, which is behind actions against Tom Brady and other celebrity endorsers of FTX, brought the suit in Miami federal court.
The firm “actively participated” in the FTX fraud through legal work that gave it deep insight into the exchange’s inner workings, investors allege. Firm lawyers knew where customer money was held and about the “untruthful and fraudulent conduct and misappropriation” of the money, the investors claim.
The lawsuit makes Sullivan & Cromwell the second law firm to face an investor litigation over allegedly aiding and abetting the FTX fraud.
Fenwick & West, a Silicon Valley law firm which worked as the crypto exchange’s main corporate counsel, is facing a separate action along with venture and private equity firms such as Sequoia Capital, Thoma Bravo and Paradigm.
Bankman-Fried in November was convicted of fraud and conspiracy for siphoning customer money into an affiliated hedge fund for risky investments, political donations, and expensive real estate.
Embracing crypto
Sullivan & Cromwell, founded in 1879, is among the biggest law firms in the US. It has embraced work with entities in the digital assets arena, advising Coinbase, the largest exchange in the US, in its fight with the Securities and Exchange Commission. The firm is poised to be appointed Binance Holdings’ independent monitor following the exchange’s multibillion-dollar settlement with the US.
The firm became an outside counsel to FTX in 2021 after FTX.US hired Ryne Miller as its general counsel. According to the investor complaint, Miller, who came to FTX from Sullivan & Cromwell, immediately made it his priority to send business to his former firm.
The matters Sullivan & Cromwell worked on included FTX’s proposed acquisition of crypto exchange Voyager’s assets in bankruptcy and regulatory representations before the Commodity Futures Trading Commission. The firm also represented Bankman-Fried in his personal capacity in relation to his position in the stock trading app company Robinhood Markets.
The firm’s restructuring group, led by Andy Dietderich, has since served as FTX’s main bankruptcy counsel, a job for which it has already billed at least US$150 million. Dietderich told a judge overseeing the insolvency case on Jan 31 that FTX plans to repay customers in full.
A federal appeals court, however, has also ordered an independent examiner to investigate the FTX case, citing in its decision the potential conflicts issues raised over Sullivan & Cromwell’s work for the exchange prior to the bankruptcy. BLOOMBERG
