said cryptocurrency exchange FTX had a closer relationship than previously disclosed with its bankruptcy law firm Sullivan & Cromwell LLP, adding to questions about the law firm’s work for past FTX management.
The founder and former chief executive of FTX, back online and in a new blog post that could suggest elements of his upcoming legal defense, said Sullivan & Cromwell was one of the main forces pushing him to resign and for the exchange to file for bankruptcy. Mr. Bankman-Fried is currently under house arrest at his parents’ California home as he faces federal fraud charges. He pleaded not guilty on Jan. 3.
Sullivan & Cromwell was one of two primary law firms FTX International used before the bankruptcy and it was FTX U.S.’s main law firm, Mr. Bankman-Fried wrote in a post Thursday on Substack, an online subscription-based newsletter platform.
Mr. Bankman-Fried said the law firm helped FTX and its U.S. units on some of their most important regulatory applications and concerns, as well as important transactions, and that he sometimes worked out of the Sullivan & Cromwell’s office in New York when he visited the city.
He added that FTX U.S.’s general counsel was a former member of the law firm without naming him. Ryne Miller previously served as a partner at Sullivan & Cromwell before joining FTX U.S. in August 2021.
Law firms seeking to work on chapter 11 cases are required under bankruptcy rules to disclose any past representations that could pose a conflict of interest before they can be officially retained. A spokesman for Sullivan & Cromwell said it had no comment beyond a statement it issued on Jan. 10, in which it said the firm “never served as primary outside counsel to any FTX entity. The firm had a limited and largely transactional relationship with FTX and certain affiliates prior to the bankruptcy, as is common, and is disinterested as required by the bankruptcy code.”
Mr. Miller didn’t immediately respond to a request for comment.
Mr. Bankman-Fried also said the law firm and Mr. Miller “were the primary parties strong-arming and threatening” him into naming the candidate they chose as the new CEO of the exchange. The new FTX CEO would also be in charge of the bankruptcy process that later picked the law firm as the bankruptcy counsel. Mr. Bankman-Fried also alleged that the law firm, while pressuring him to name a new CEO and to file for bankruptcy, quashed his efforts to raise the necessary liquidity that “could have made all customers whole.”
The allegations came after a bipartisan group of U.S. senators, in a letter Monday, questioned if Sullivan & Cromwell could lead an independent investigation into FTX’s collapse. The letter said Sullivan & Cromwell should disclose whether its lawyers suspected fraud at FTX or had concerns about the company’s lack of appropriate legal controls before it filed for chapter 11 in early November. The senators also urged Judge John Dorsey of the U.S. Bankruptcy Court in Wilmington, Del., who is overseeing the FTX case, to appoint an independent examiner to review how and why FTX failed. Judge Dorsey said the senators’ letter would have no impact on his decisions.
Two of Sullivan & Cromwell’s partners, both former regulators at the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, were also hired to help FTX’s new CEO investigate what went wrong at the exchange, The Wall Street Journal previously reported.
Companies commonly use existing law firms to handle bankruptcy filings. But the arrests of Mr. Bankman-Fried and other former FTX executives have drawn lawmakers’ attention to Sullivan & Cromwell’s prior work for the exchange.
Sullivan & Cromwell charged FTX more than $8.5 million in legal fees for work it did for the firm before the bankruptcy, according to the law firm’s retention application.
Sullivan & Cromwell also faces scrutiny from FTX creditors over its role in the bankruptcy process. FTX customer and creditor Warren Winter, in a filing to the Delaware bankruptcy court on Tuesday, objected to the retention of Sullivan & Cromwell. Counsel for Mr. Winter, who had several hundred thousand dollars of assets in his FTX account before the bankruptcy, said in the filing that Sullivan & Cromwell is an inappropriate candidate for the appointment and would undermine creditors’ and the public’s faith in the bankruptcy process.
Write to Mengqi Sun at email@example.com
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