FTX investors have recently filed a suit against prominent law firm Sullivan & Cromwell, accusing them of aiding illegitimate schemes that allegedly facilitated a multi-billion dollar fraud prior to the collapse of the cryptocurrency exchange. The investor complaint suggests the legal services from Sullivan & Cromwell significantly surpassed what regular law firms would offer and asserted the lawyers concocted not just innovative but deceiving strategies that served FTX’s misconduct.
Filed this past Friday, the lawsuit names a proposed class of FTX customers as plaintiffs and adds to the growing scrutiny of the Wall Street law firm. As reported by Bloomberg Law, Sullivan & Cromwell has admitted to having worked on 20 legal matters concerning FTX and its founder, Sam Bankman-Fried, in the 16 months preceding the crypto exchange’s crisis in 2022 due to steep liquidity shortages.
Investors assert that Sullivan & Cromwell “actively participated” in the fraud through their legal duties that gave them a comprehensive understanding of FTX’s operations, alleging that the firm’s lawyers had knowledge of where customer money was stored and the alleged “untruthful and fraudulent conduct” that led to money being misappropriated.
This lawsuit makes Sullivan & Cromwell the second law firm to weather investor litigation for allegedly facilitating the alleged fraud by FTX. Silicon Valley law firm Fenwick & West, which served as FTX’s primary corporate counsel, along with a handful venture and private equity companies such as Sequoia Capital, Thoma Bravo, and Paradigm, are already dealing with a separate action.
Sam Bankman-Fried, the founder of FTX, was convicted back in November for fraud and conspiracy, after reportedly diverting customer funds into a subsidiary hedge fund for high-risk investments, political contributions and real estate purchases.
Having been established in 1879, Sullivan & Cromwell is amongst the largest law firms in the United States and has shown interest in working with digital asset-based entities like Coinbase. The law firm is also expected to take on the role of an independent monitor for Binance Holdings Ltd., subsequent to the crypto exchange’s settlement in the United States.
According to the investor complaint, the law firm started representing FTX as outside counsel in 2021, following Ryne Miller’s appointment as general counsel for FTX.US. Miller, who transitioned to FTX from Sullivan & Cromwell, allegedly prioritised giving business to his former employer. Throughout this period, the law firm took on tasks such as FTX’s proposed acquisition of assets from the bankrupt crypto exchange Voyager, in addition to representing Bankman-Fried individually in relation to his position with Robinhood Markets Inc.
Sullivan & Cromwell’s restructuring group, led by Andy Dietderich, has since served as the main bankruptcy counsel for FTX, and has so far billed a bare minimum of $150 million as fees. Moreover, a federal appeals court has also ordered an independent examiner to investigate the case, citing potential conflicts arising from Sullivan & Cromwell’s work for the crypto exchange prior to its bankruptcy.
The case Edward Garrison et. al. v. Sullivan & Cromwell is currently being heard in the South District of Florida with the case number 1:24-cv-20630, filed on February 16, 2024.