A class action lawsuit has been initiated against the New York law firm Sullivan & Cromwell (S&C), known for its prior role as legal counsel for the cryptocurrency exchange FTX. The lawsuit, filed in the U.S. District Court, Southern District of Florida, is led by Edwin Garrison among others. It accuses S&C of being complicit in the massive fraud scheme that led to FTX’s downfall, causing substantial losses for numerous investors.
The plaintiffs argue that S&C overlooked ethical and legal standards, contributing to the deceit that precipitated the crisis at FTX. The lawsuit, which spans over 75 pages, outlines alleged collusion and negligence on the part of S&C and FTX insiders, including aiding and abetting fraud and violating RICO statutes. This marks a determined effort by the plaintiffs to explore the extent of legal advisers’ involvement in this notorious financial disaster.
Specifically, the lawsuit points to instances of significant financial dealings and internal communications that suggest S&C’s deep involvement with FTX’s leadership, beyond mere advisory capacity. According to financial data from Bloomberg, S&C benefited financially from this relationship, earning around $8.5 million in fees in the 16 months leading up to FTX’s collapse.
Financial Gains and Alleged Conflicts of Interest
The legal action highlights that since taking charge of the FTX bankruptcy proceedings, S&C has allegedly earned more than $180 million, constituting about 10% of its total revenue for 2022. From November 2022 to November 2023, the firm billed over $153 million for their services in the bankruptcy case, averaging nearly $11.8 million per month.
Accusations extend to Ryne Miller, a former S&C attorney who became FTX’s general counsel, allegedly directing substantial legal business back to S&C. The lawsuit also questions Miller’s knowledge of dubious financial transactions involving FTX customer funds.
Amidst these allegations, the industry has raised concerns about potential conflicts of interest, leading to calls for an independent examiner to investigate FTX’s operations. In January 2024, the Third Circuit Court of Appeals ordered such an investigation, aiming to enhance transparency and possibly redefine industry standards.
As this legal drama unfolds, Sullivan & Cromwell is reportedly set to play a key role in overseeing Binance Holdings Ltd., acting as an independent monitor. This development follows amidst insider reports suggesting Sharon Cohen Levine, a former federal prosecutor, will lead the oversight team, with the Justice Department close to finalizing this decision.