Law Firm Sullivan & Cromwell To Face Scrutiny In FTX Bankruptcy Hearing Friday

FTX paid the white-shoe law firm $8.5 million for legal work prior to filing for bankruptcy protection. 

New FTX CEO John Ray defended Sullivan & Cromwell’s role in the case, saying former FTX executives left a “dumpster fire” at the crypto exchange. 

Sam Bankman-Fried used to work out of Sullivan & Cromwell’s office in New York City. Now, the law firm is facing scrutiny over whether it can investigate FTX, the disgraced former billionaire’s crypto empire.

A bankruptcy court judge will hear arguments on Friday about whether the white-shoe law firm was too close to the troubled crypto exchange before it imploded. 

The U.S. Trustee overseeing the FTX bankruptcy proceedings filed an objection to Sullivan & Cromwell along with two other firms serving as counsel to the FTX debtors. A pair of FTX customers with money stuck on the frozen exchange also have objected to the law firm’s role. Plus, a group of U.S. senators is raising their own questions. 

“In the most flagrant attempt by a fox to guard a henhouse in recent memory, Sullivan & Cromwell has applied to be appointed the FTX Group’s bankruptcy counsel,” Warren Winter, an FTX customer who has $350,000 on the platform, wrote in a court filing objecting to the appointment. Richard Brummond, another FTX customer, also objected. 

“Sullivan & Cromwell is not only an inappropriate candidate for appointment as the FTX Group’s bankruptcy counsel it is a target for investigation with its own potential liability. Its appointment as counsel would endanger the estate and create a rigged game, undermining creditors’ and the public’s faith in the bankruptcy process,” Winter added.

But FTX CEO John Ray, who took the helm of the company in November, argued in court filings that knocking Sullivan & Cromwell off the case could “severely” or “irreparably” harm efforts to get money back to creditors and customers.

“The advisers working at my direction have worked tirelessly and nonstop for the last 70 days to take control over what can only be described as a ‘dumpster fire’ in order to stop assets from being depleted and to take action to realize value related to the debtors’ assets. The advisers are not the villains in these cases,” Ray said in a court declaration. 

The FTX debtors slammed Winter and Brummond’s objections as “baseless” and part of a “fishing expedition.” The official committee of unsecured creditors in the FTX case has filed its own statement supporting Sullivan & Cromwell’s role in the bankruptcy. 

Pre-bankruptcy, FTX paid Sullivan & Cromwell $8.5 million
FTX was never a regular Sullivan & Cromwell client, but the firm did advise FTX on 20 specific matters, court documents show. The crypto exchange paid Sullivan & Cromwell $8.5 million to work on issues including its acquisition of LedgerX, failed crypto lender Voyager’s bankruptcy and regulatory concerns surrounding the Terra Luna collapse. 

The law firm was also relatively close with Bankman-Fried, the former FTX chief executive said in a recent blog post. He called Sullivan & Cromwell “one of FTX International’s two primary law firms prior to bankruptcy” and “FTX US’s primary law firm.” Lawyers for Sullivan & Cromwell did not respond to requests for comment.

“When I would visit NYC, I would sometimes work out of S&C’s office,” Bankman-Fried said. The FTX founder is facing criminal fraud charges in a separate case, and has been critical of Ray in the press. He reposted a Twitter thread on Thursday that raised questions about Ray and Sullivan & Cromwell.

Source: theblock.co