Sullivan & Cromwell targeted in lawsuit for alleged FTX collusion

A new class action lawsuit is targeting the New York-based law firm Sullivan & Cromwell (S&C), which previously served as legal counsel for FTX. 

The class action complaint, filed with the U.S. District Court, Southern District of Florida, is spearheaded by named plaintiffs Edwin Garrison and others and asserts that S&C played an instrumental role in the multi-billion dollar fraud scheme carried out by FTX.

It claims the law firm essentially acted as an accessory to the devastation suffered by countless investors entangled in the FTX downfall.

The exhaustive lawsuit, extending over 75 pages, paints a detailed portrait of alleged collusion and deliberate oversight, implicating both the renowned law firm and FTX insiders. 

Allegations of aiding and abetting fraud

At the heart of the allegations lies the claim that S&C disregarded fundamental legal and ethical standards and actively perpetuated the deception that led to the FTX crisis. 

The compendium of claims ranges from counts of aiding and abetting fraud to violating RICO statutes, signaling the plaintiffs’ determination to uncover the potential entanglement of legal advisers in one of the most infamous financial debacles of the digital age.

Garrison and his co-litigants have pinpointed specific instances of what they claim are illicit activities, such as significant financial transactions and internal communication, which they argue S&C must have been privy to, given the close advisory relationship they had with the FTX leadership.

They also highlighted that the law firm’s engagement with FTX wasn’t merely superficial; citing financial figures from Bloomberg, the plaintiffs claim S&C profited immensely from the relationship, raking in approximately $8.5 million in fees during the 16 months before FTX went under.

Sullivan & Cromwell’s windfall from FTX downfall

According to Garrison, S&C has made more than $180 million since it started overseeing the FTX bankruptcy. The figure is about 10% of S&C’s total reported revenue for 2022. 

Other reports indicate that between November 2022 and November 2023, Sullivan & Cromwell invoiced upwards of $153 million for their services in the FTX bankruptcy case, with their work for the fallen crypto exchange averaging a monthly revenue of nearly $11.8 million.

The narrative takes a more condemning turn with accusations that former Sullivan & Cromwell attorney Ryne Miller, upon transferring to FTX as general counsel, funneled significant legal business back to his old firm. 

The filing also scrutinized Miller’s potential awareness of questionable financial transactions involving FTX customer funds, including an alleged “back door” leading to its controversial funds transfer to sister trading house Alameda Research.

Conflict of interest draws concern

Concerns about conflicts of interest have echoed across the industry, climbing up to the Senate, where calls for an independent examiner were previously made. 

A landmark development in the case arrived in January 2024, when the Third Circuit Court of Appeals posited a mandate for FTX to undergo an investigation by an independent examiner—in an effort to bring transparency and potentially reshape industry norms.

The creditors’ legal maneuver strategically requests jury trials on all triable claims, underscoring a purposeful march towards an intricate and likely high-stakes courtroom showdown. 

Sullivan & Cromwell to oversee Binance?

News of the class action comes just as other reports citing insider sources emerge that Sullivan & Cromwell is poised to secure a critical role overseeing Binance Holdings Ltd.

The firm is reportedly taking on the role of an independent monitor, edging out a significant number of rivals in the legal and consulting arenas for this sought-after position. 

The sources hinted at Sharon Cohen Levine, who boasts a background as a former federal prosecutor spearheading the oversight team. While official confirmation is pending, indications suggest that Sullivan & Cromwell’s engagement in this role is imminent, with the Justice Department nearing a final decision.