US senators question Sullivan & Cromwell FTX bankruptcy role

Lawmakers are concerned about Sullivan & Cromwell’s proposed role as the lead law firm in FTX’s bankruptcy proceedings, given its history with the fallen crypto exchange.

Sullivan & Cromwell is not up to the task of investigating FTX

Four US senators have raised doubt over the suitability of top Wall Street law firm Sullivan & Cromwell (S&C) to investigate possible wrongdoings at Sam Bankman-Fried’s collapsed crypto exchange, FTX.

In a Jan.9 letter to Judge John Dorsey of the US Bankruptcy Court for the District of Delaware, senators Elizabeth Warren, John Hickenlooper, Cynthia Lummis, and Thom Tillis stated that Sullivan & Cromwell had carried out legal work for FTX before the crypto exchange filed for bankruptcy in November 2022.

The senators suggested that the law firm’s history with FTX meant it could not be trusted to investigate the cause of the crypto company’s implosion, which includes suspicion of fraud and misappropriation of customer funds.

In the letter, the bipartisan group of lawmakers urged Judge Dorsey to appoint a “strong, objective, and disinterested” examiner to thoroughly investigate Sam Bankman-Fried’s failed crypto empire.

According to them, S&C did not exhibit any qualities required to unearth the information needed to support the validity of any investigation or findings.

Law firm received $12 million from FTX

The senators said Sullivan & Cromwell had advised FTX on numerous legal matters, including “acquisition transactions and specific regulatory inquiries related to certain US business lines.”

The law firm had also reportedly acted as a “gatekeeper” for the crypto firm for years leading up to its collapse. Additionally, one of the partners in the law firm had allegedly served as FTX’s general counsel for a time.

A November 2022 filing by FTX looking to name S&C as the lead lawyers in its bankruptcy proceedings indicated the law firm received a $12 million retainer from an FTX subsidiary shortly before the crypto exchange filed for chapter 11 bankruptcy.

Before he was criminally charged, former FTX CEO Sam Bankman-Fried intended to testify before Congress that S&C had been part of a group that put “extreme pressure” on him to file for Chapter 11, according to a leaked transcript of his written testimony.

Did Sullivan & Cromwell suspect alleged FTX fraud?

In the lawmakers’ estimation, there are significant issues regarding S&C’s involvement in the running of FTX that need to be resolved, including the extent to which the law firm suspected fraud or ignored the absence of appropriate legal controls.

In their letter, the senators also stated that questions remain regarding the scope of S&C’s representation of FTX. And if Sullivan & Cromwell wasn’t the crypto exchange’s “primary external counsel,” the senators argued the law firm that played that role needed to be known.

With these “glaring and longstanding” issues, Senator Warren and her colleagues felt it was incongruous for the same law firm to purport to conduct investigations into alleged fraud and criminal activity identified by FTX’s current CEO, John Ray III, in a December 2022 testimony before the House Financial Services Committee.