FTX Creditors Sue Law Firm S&C for Fraud

FTX creditors have filed a class-action lawsuit against S&C the law firm managing the FTX bankruptcy case.

The creditors of the exchange have filed a class-action lawsuit against the law company managing the case ushering in a new chapter in the FTX bankruptcy case. Sullivan & Cromwell, was accused by FTX creditors of “actively” taking part in the “FTX Group’s multibillion dollar fraud” in a court filing on February 16.

“S&C knew of FTX US and FTX Trading Ltd.’s omissions, untruthful and fraudulent conduct, and misappropriation of Class Members’ funds. Despite this knowledge, S&C stood to gain financially from the FTX Group’s misconduct and so agreed, at least impliedly, to assist that unlawful conduct for its own gain.”

The creditors claimed that S&C profited financially from the deception. A number of claims in the case including civil conspiracy, helping and abetting fraud and aiding and abetting fiduciary violations are seeking damages.The century-old legal practice managing the bankruptcy process is called Sullivan & Cromwell.

In the past, the company is said to have provided outside legal guidance to the exchange in a number of transactions, such as the acquisition of LedgerX and its offer for the assets of Voyager Digital Holdings, for which it was paid a substantial fee. S&C’s fees in the present bankruptcy case are projected to be in the hundreds of millions of dollars.

Ryne Miller, a former partner at S&C who joined the FTX Group as general counsel in August 2021, was instrumental in forging the alliance between FTX and the legal company. Miller is accused of sending his old legal firm at least 20 cases from FTX Creditors. In a separate court document, former chief regulatory officer Daniel Friedberg stated, “Mr. Miller informed me that it was very important for him personally to channel a lot of business to S&C as he wanted to return there as a partner after his stint at the Debtors.

The complaint further states that because of “how close the relationship was” between the two companies, former FTX Creditors CEO Sam Bankman-Fried would frequently work in S&C’s New York offices. A representative for the law company previously refuted any misconduct stating that S&C had a “limited and largely transactional relationship with FTX Creditorsand certain affiliates prior to the bankruptcy” and that it had “never served as primary outside counsel to any FTX entity.

The possibility of a conflict of interest between S&C and the bankruptcy case has previously been examined. A group of US senators from both parties wrote to the judge in January 2023, requesting an independent examiner on the grounds that the law firm was “not in a position to uncover the information needed to ensure confidence in any investigation or findings.