An ongoing investigation concerning New York law firm Sullivan & Cromwell’s ties with FTX, a cryptocurrency exchange, is currently under way. This case primarily aims to determine whether S&C’s affiliations with FTX before the latter’s bankruptcy were indeed as limited as the law firm claims.
US Bankruptcy Judge John Dorsey has given the green light for the former Unabomber prosecutor, Robert Cleary, to evaluate whether potential conflicts of interest might have arisen from S&C’s pre-insolvency engagements with FTX and its former leader, Sam Bankman-Fried. The scope of the mandate includes scrutinizing S&C’s legal bill which has already exceeded $170 million during the bankruptcy proceedings.
The investigation primarily seeks to determine whether S&C provided undivided loyalty and impartial advice to its client, FTX. This means looking into whether S&C might have had interests, disclosed or otherwise, which could have compromised its advisory role.
This investigation further compounds S&C’s scrutiny due to its FTX-related work. An investor lawsuit filed in February maintains that S&C aided FTX’s unfair practices before the cryptocurrency exchange crashed, while a recent paper from law professors questions S&C’s statements in the days leading up to the bankruptcy.
The main question arising from Cleary’s investigation delves into whether there are existing conflicts of interest with S&C, which might not have been adequately addressed when the firm applied to be the leading counsel. One of the primary facets of the review will likely focus on assessing if S&C might have consciously or unintentionally omitted certain aspects of its relationship with FTX.
Sullivan & Cromwell has reportedly refuted the high charges since FTX filed for Chapter 11, arguing the costs will be modest compared to the potential recoveries. S&C stands by their claim that customers and creditors who can validate their losses will likely recuperate all of their money.
S&C’s defence of these allegations will likely shape the future legal landscape concerning the role and responsibilities of legal firms in bankruptcy cases, especially those involving cryptocurrency enterprises.