New probe sought into Sullivan&Cromwell’s role in FTX collapse News ▸ US ▸ FTX ▸ Bankruptcy
New probe sought into Sullivan&Cromwell’s role in FTX collapse
The examinations will determine S&C's awareness of FTX misconduct and potential conflicts during SBF's Robinhood shares acquisition.
2 min read
Updated: Jun. 11, 2024 at 6:08 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
FTX examiner Robert J. Cleary has sought court approval to further investigate the role of law firm Sullivan & Cromwell LLP (S&C) and other matters at the defunct exchange, according to a June 10 court filing.
The examiner said these investigations are expected to take 10 weeks and cost $3 million.
S&C’s involvement questioned
The June 10 motion revealed that the examiner would investigate the legal services Sullivan & Cromwell LLP (S&C) provided to Sam Bankman-Fried, the convicted founder of the now-defunct exchange, during his purchase of Robinhood shares.
Cleary aims to determine if S&C was aware of fraudulent activities within FTX and whether any conflicts of interest were overlooked when the court approved their retention as counsel. According to the filing:
“The investigation would discern more generally if, in connection with or as a consequence of this representation, S&C advised on, possessed or gained knowledge of, or had been made aware of critical facts relating to the FTX Group’s misconduct.”
If S&C’s representation of SBF in acquiring Robinhood Markets shares is found improper or conflicted, it could have significant legal and financial implications for all parties involved.
A spokesperson for S&C told CryptoSlate in a June 11 statement:
“Sullivan & Cromwell remains confident in our prepetition work for FTX and the commencement of the Chapter 11 cases, and we welcome the Examiner’s findings to date rejecting various baseless allegations about our work for FTX. If the Court concludes that any points require further review, we will continue to cooperate fully with the Examiner.”
In May 2022, SBF acquired a 7.6% stake in Robinhood for $648.3 million. After FTX’s collapse, the US Department of Justice seized these shares, which became the subject of disputes among various FTX-related parties.
S&C’s broader involvement with FTX has also sparked controversy. In December 2022, Bankman-Fried claimed S&C pressured him into declaring bankruptcy to earn legal fees. Additionally, FTX creditors have filed a class-action lawsuit against the firm, arguing that it should be held partially responsible for the exchange’s collapse.
Other FTX investigations
Cleary’s motion also sought to probe into the pre-bankruptcy sale of Ledger Holdings Inc. (LHI) and the balance sheet holes in FTX US.
The examiner said inquiries into these matters would bolster public confidence in the bankruptcy process and uncover any misconduct or issues related to it. He added:
“Further investigation and reporting on FTX.US’s insolvency could promote public confidence in the bankruptcy process by refuting Bankman-Fried’s false claims that FTX.US was solvent as of the Petition Date.”
UPDATE: Included a statement from Sullivan and Cromwell on June 11
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FTX
FTX is a defunct cryptocurrency exchange, currently in bankruptcy proceedings, that was founded by Sam Bankman-Fried and Zixiao “Gary” Wang in May 2019.
Ledger
Founded in 2014, Ledger is a leader in security and infrastructure solutions for cryptocurrencies and blockchain applications.
Sullivan & Cromwell LLP
Sullivan & Cromwell LLP is an American multinational law firm headquartered in New York City that provides a high quality legal advice and representation to clients around the world.
Sam Bankman-Fried is the former CEO, and co-founder of defunct crypto exchange FTX and Alameda Research.
