An independent investigation into Sullivan & Cromwell LLP, the law firm overseeing FTX’s bankruptcy, has revealed that they were indeed unaware of the financial troubles and fraud that led to FTX’s downfall.
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Former U.S. prosecutor, Robert Cleary, conducted the investigation and noted that Sullivan & Cromwell’s attorneys made false statements while representing FTX, but they did so unknowingly. The court-ordered investigation has largely cleared Sullivan & Cromwell (S&C) of conflicts of interest that would have undermined its restructuring advice.
Sullivan & Cromwell Defends Itself
After these findings were made public, Sullivan & Cromwell stated:
Sullivan & Cromwell remains confident in our pre-petition work for FTX and the commencement of the Chapter 11 cases, and we welcome the examiner’s findings to date, rejecting various baseless allegations about our work.
The law firm faced numerous questions about its role as FTX’s bankruptcy counsel, given the legal work it did for the exchange in the months leading up to its eventual collapse in November 2022.
Sullivan & Cromwell has defended its position, emphasizing its competence in bankruptcy investigations, and financial services litigation. The firm argued that their expertise made them the ideal choice to recover billions of dollars needed to compensate customers and creditors.
S&C Did Not Collude With SBF
The court appointed Robert Cleary, a former federal prosecutor, as an independent examiner. In his report, released on Thursday, Cleary wrote he “did not identify any error in the bankruptcy court’s decision authorizing the debtors to retain S&C.”
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Cleary found no evidence that Sullivan & Cromwell should have been aware that founder Sam Bankman-Fried (SBF) was misappropriating customer funds, which hindered account holders’ efforts to retrieve their money before the bankruptcy filing.
US Department of Justice Was Wary of S&C
The Department of Justice had initially objected to Sullivan & Cromwell’s application to handle the bankruptcy, which omitted the extent of its ties to the crypto exchange. For instance, Ryne Miller, a top FTX lawyer, was a former partner at S&C. Eventually, the law firm disclosed it had worked on over a dozen assignments for FTX before its bankruptcy, earning $8.5 million.
Despite S&C’s retention on the case, some FTX account holders accused the law firm of being too conflicted to be a central party in recovering customer funds. Two prominent law professors claimed that S&C’s conflicts “permeated” the exchange’s bankruptcy.
Sullivan & Cromwell represented FTX in acquiring the LedgerX exchange in 2021. Although the transaction has not been investigated, the bankruptcy court might want to reclaim the sale price from LedgerX’s previous owners. Cleary’s report highlighted gaps that complicated his ability to investigate the issue fully.
Cryptopolitan reporting by Jai Hamid
