FTX investors sue Sullivan & Cromwell claiming law firm aided fraud

FTX traders have sued Sullivan & Cromwell, accusing the regulation agency of aiding illicit schemes that helped advance a multi-billion greenback fraud earlier than the crypto alternate’s collapse.

Sullivan & Cromwell’s providers “went well beyond those a law firm should and ordinarily provides”, the investor grievance stated. “Lawyers were eager to craft not only creative but misleading strategies that furthered FTX’s misconduct.”

The lawsuit was filed on Friday (Feb 16) on behalf of a proposed class of FTX prospects, and provides to scrutiny of the elite Wall Street regulation agency that has acknowledged engaged on 20 authorized issues for FTX and its founder Sam Bankman-Fried within the 16 months earlier than the alternate’s 2022 implosion amid reviews of a liquidity disaster.

Sullivan & Cromwell didn’t instantly reply to a request for remark Saturday. The Moskowitz Law Firm, which is behind actions towards Tom Brady and different movie star endorsers of FTX, introduced the go well with in Miami federal courtroom.

The agency “actively participated” within the FTX fraud by authorized work that gave it deep perception into the alternate’s interior workings, traders allege. Firm legal professionals knew the place buyer cash was held and concerning the “untruthful and fraudulent conduct and misappropriation” of the cash, the traders declare.

The lawsuit makes Sullivan & Cromwell the second regulation agency to face an investor litigation over allegedly aiding and abetting the FTX fraud.

Fenwick & West, a Silicon Valley regulation agency which labored because the crypto alternate’s predominant company counsel, is dealing with a separate motion together with enterprise and personal fairness companies comparable to Sequoia Capital, Thoma Bravo and Paradigm.

Bankman-Fried in November was convicted of fraud and conspiracy for siphoning buyer cash into an affiliated hedge fund for dangerous investments, political donations, and costly actual property.

Embracing crypto

Sullivan & Cromwell, based in 1879, is among the many largest regulation companies within the US. It has embraced work with entities within the digital belongings enviornment, advising Coinbase, the biggest alternate within the US, in its combat with the Securities and Exchange Commission. The agency is poised to be appointed Binance Holdings’ impartial monitor following the alternate’s multibillion-dollar settlement with the US.

The agency turned an out of doors counsel to FTX in 2021 after FTX.US employed Ryne Miller as its normal counsel. According to the investor grievance, Miller, who got here to FTX from Sullivan & Cromwell, instantly made it his precedence to ship enterprise to his former agency.

The issues Sullivan & Cromwell labored on included FTX’s proposed acquisition of crypto alternate Voyager’s belongings in chapter and regulatory representations earlier than the Commodity Futures Trading Commission. The agency additionally represented Bankman-Fried in his private capability in relation to his place within the inventory buying and selling app firm Robinhood Markets.

The agency’s restructuring group, led by Andy Dietderich, has since served as FTX’s predominant chapter counsel, a job for which it has already billed no less than US$150 million. Dietderich instructed a choose overseeing the insolvency case on Jan 31 that FTX plans to repay prospects in full.

A federal appeals courtroom, nonetheless, has additionally ordered an impartial examiner to research the FTX case, citing in its choice the potential conflicts points raised over Sullivan & Cromwell’s work for the alternate previous to the chapter. BLOOMBERG