Lawsuit claims fraud involvement by S&C in FTX bankruptcy

A new development has arisen in the FTX bankruptcy case, as creditors of the exchange have filed a class-action lawsuit against the law firm overseeing the case. The creditors allege that the law firm, Sullivan & Cromwell (S&C), actively participated in FTX Group’s fraud and benefited financially from it. The lawsuit seeks damages for civil conspiracy, aiding and abetting fraud, and aiding and abetting fiduciary breaches. Sullivan & Cromwell, a century-old law firm, has been overseeing the FTX bankruptcy proceedings and had a previous relationship with the exchange, receiving significant payments for its services.

The connection between FTX and the law firm was established by Ryne Miller, a former partner at S&C who joined FTX Group as general counsel. Miller allegedly directed numerous cases from FTX to his former law firm with the intention of returning there as a partner. Former FTX chief regulatory officer Daniel Friedberg stated that Miller had made it clear that channeling business to S&C was a personal priority for him. The complaint also highlights that former FTX CEO Sam Bankman-Fried frequently worked in S&C’s New York offices, indicating a close relationship between the two companies.

S&C’s fees for its involvement in the bankruptcy case are estimated to amount to hundreds of millions of dollars. This has raised concerns about a potential conflict of interest, which had previously prompted a group of bipartisan U.S. senators to call for an independent examiner to ensure unbiased investigations and findings. In response to these allegations, a spokesperson for S&C denied any wrongdoing, stating that the law firm had never served as primary outside counsel to any FTX entity and had only a limited transactional relationship with FTX prior to the bankruptcy.

The class-action lawsuit accuses S&C of being aware of FTX’s fraudulent conduct, including omissions, untruthful statements, and misappropriation of funds, and of assisting in these unlawful activities for its own benefit. The creditors are seeking compensation for the damages incurred as a result of these actions. The allegations against S&C add another layer of complexity to the ongoing FTX bankruptcy case, as the exchange’s creditors and stakeholders continue to seek resolution and accountability for the alleged fraud.