Sullivan & Cromwell's history with FTX draws scrutiny as it racks up bankruptcy fees
FTX founder Sam Bankman-Fried has alleged that Sullivan & Cromwell lawyers made him the fall guy in the collapse of the cryptocurrency exchange while downplaying its work for the company. Photo by Seth Wenig/The Associated Press.
FTX founder Sam Bankman-Fried has alleged that Sullivan & Cromwell lawyers made him the fall guy in the collapse of the cryptocurrency exchange while downplaying its work for the company.
Sullivan & Cromwell began handling some FTX matters in summer 2021 after the U.S. arm of FTX hired law firm partner Ryne Miller as its general counsel, the New York Times reports. Sullivan & Cromwell worked on 20 legal matters for FTX and a related hedge fund, according to the newspaper.
Just four days before FTX filed for bankruptcy, Sullivan & Cromwell partner Andrew Dietderich declared that FTX was “rock solid” in an email to another lawyer, the New York Times reports.
Dietderich arranged for Bankman-Fried to be replaced as chief executive by a corporate turnaround specialist, John Jay Ray III, Bankman-Fried has alleged. Ray then sought the appointment of Sullivan & Cromwell to manage the bankruptcy.
Sullivan & Cromwell has since “racked up” more than $100 million in legal fees from the bankruptcy work, the New York Times says. The judge overseeing the bankruptcy has allowed the firm to continue the work after finding no evidence of actual conflicts.
The U.S. government is accusing Bankman-Fried of touting FTX Trading as a safe platform for crypto asset trading while diverting investor money to his privately held hedge fund.
At his federal fraud trial next month, Bankman-Fried “is expected to shift some of the blame for FTX’s bankruptcy” to Sullivan & Cromwell and a second firm that advised him, the New York Times says. He may use an advice-of-counsel defense suggesting that many of FTX’s actions were approved by its lawyers, according to the New York Times and earlier reporting by Reuters.
“In essence,” the New York Times reports, “Sullivan & Cromwell worked both sides of the crisis. When FTX was a darling of the corporate and political elite, the firm’s lawyers helped Mr. Bankman-Fried navigate Washington as he pushed to loosen regulations. After FTX failed, Sullivan & Cromwell worked closely with federal prosecutors, supplying them with key corporate records.”
Sullivan & Cromwell did not comment when contacted by the New York Times. The firm told Forbes in January that it was never primary counsel to any FTX entity, and its work before the bankruptcy was “limited and largely transactional.”
In a court declaration, Dietderich said it was Bankman-Fried who decided to appoint Ray, and Bankman-Fried made the decision after consulting with his father, Stanford Law School professor Allan Joseph Bankman.