FTX Bankruptcy Lawsuit Alleges Firm Sullivan and Cromwell’s Complicity

Report has it that a class-action lawsuit has been filed against Sullivan and Cromwell (S&C), the law firm responsible for handling the bankruptcy proceedings of FTX, alleging its deep involvement with the now-collapsed exchange. The suit claims S&C should be held partially responsible for the actions leading to FTX’s downfall.

The lawsuit points out that S&C served as FTX’s primary legal counsel for 16 months leading up to its collapse, accumulating around $8.5 million in fees. It alleges that S&C gained intimate knowledge of FTX’s operations during this period and facilitated its fraudulent activities.

One significant aspect of the lawsuit is the involvement of former S&C lawyer Ryne Miller, who later joined FTX as General Counsel. The complaint asserts that Miller influenced FTX to engage S&C for various legal matters, including acquisitions and bids, resulting in significant financial gains for the law firm.

Furthermore, the lawsuit accuses S&C of representing conflicting interests by advising both FTX and entities involved in questionable transactions, such as the use of customer funds to purchase Robinhood stock through a special purpose vehicle called Emergent.

The complaint cites insider information alleging that Miller was aware of illicit practices within FTX and shared this knowledge within S&C. It also highlights S&C’s substantial income from overseeing FTX’s bankruptcy proceedings, exceeding $180 million.

S&C has yet to respond to the allegations.

This legal action against S&C is not without precedent. Earlier concerns were raised by U.S. Senators regarding the firm’s impartiality in the FTX case, prompting calls for an independent examiner. Despite objections and claims of potential conflicts of interest, S&C was retained for the proceedings.

In a related development, the Third Circuit Court of Appeals recently ruled that FTX must undergo an independent investigation, emphasizing the need to scrutinize industry practices beyond the purview of internal probes.

As the legal battle unfolds, the outcome of the class-action lawsuit and the broader investigation into FTX’s collapse could have significant implications for both the cryptocurrency industry and the legal profession.

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