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FTX creditors has taken legal action against Sullivan and Cromwell. The law firm handling the exchange’s bankcrupty proceedings, alleging involvement in FTX’s fraudulent activities.
FTX Creditors Are Not Taking A Step Back
Prior concerns raised by senators, FTX creditors, and the exchange’s former CEO regarding the law firm’s close relationship with FTX prompted this class action lawsuit, questioning the firm’s impartiality.
The lawsuit argues that Sullivan and Cromwell’s extensive history with FTX prior to its collapse makes them partly responsible for the exchange’s actions. It points to multiple instances where the firm served as outside counsel for FTX, suggesting this granted them insight into FTX’s operations and enabled support for its fraudulent behavior.
During the 16 months leading up to FTX‘s collapse, Sullivan and Cromwell billed around $8.5 million in fees while serving as FTX’s primary legal counsel.
Allegations include claims that Ryne Miller, a lawyer who transitioned from Sullivan and Cromwell to FTX as General Counsel in 2021, advocated for directing business to Sullivan and Cromwell as outside counsel. This resulted in 20 engagements, including FTX’s efforts to acquire assets from crypto exchange Voyager and LedgerX.
The lawsuit further alleges that Sullivan and Cromwell represented a special purpose vehicle called Emergent, which used FTX customer funds to buy Robinhood stock, and also represented former FTX CEO Sam Bankman-Fried.
Based on insights from FTX insiders, the lawsuit asserts that Miller was aware of a “back door” in FTX’s platform enabling the funneling of customer funds to Alameda and shared this information with multiple individuals at Sullivan and Cromwell.
Additionally, the lawsuit highlights Sullivan and Cromwell’s substantial financial gains from overseeing the FTX bankruptcy proceedings. Their reported income exceeding $180 million since taking a leading role in the proceedings represents 10% of the firm’s total revenue for 2022. Paralegals reportedly billed up to $595/hr, while partners billed up to $2,165/hr.
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