FTX investors sued Sullivan & Cromwell, accusing the law firm of aiding illicit schemes that helped advance a multi-b
illion dollar fraud before the crypto exchange’s collapse.
Sullivan & Cromwell’s services “went well beyond those a law firm should and ordinarily provides,” the investor com
plaint said. “Lawyers were eager to craft not only creative but misleading strategies that furthered FTX’s misconduct.”
The lawsuit filed Feb. 16 on behalf of a proposed class of FTX customers adds to scrutiny of the elite Wall Street la
w firm that has acknowledged working on 20 legal matters for FTX and its founder Sam Bankman-Fried in the 1
6 months before the exchange’s 2022 implosion amid reports of a liquidity crisis.
MLB, Formula 1 Face Fraud Suits for Promoting FTX Cryptocurrency
Sullivan & Cromwell declined to comment. The firm has previously said it had a “limited” relationship with FT
X and that it reported concerns to federal law enforcement after learning of the exchange’s problems.
The Moskowitz Law Firm, which is behind actions against Tom Bra
dy and other celebrity endorsers of FTX, brought the suit in Miami federal court. Sullivan & Cromwell “actively partic
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ipated” in the FTX fraud through legal work that gave it deep insight into
the exchange’s inner workings, investors allege. Firm lawyers knew where customer money was held and about the “untru
thful and fraudulent conduct and misappropriation” of the money, the investors claim.
The lawsuit makes Sullivan & Cromwell the second law firm to face an investor lawsuit over allegedly aiding and abetting the FTX fraud.
Fenwick & West, a Silicon Valley law firm which worked as the crypto exchange’s main corporate counsel, is facin
g a separate action along with venture and private equity firms such as Sequoia Capital, Thoma Bravo and Paradigm.
Bankman-Fried in November was convicted of fraud and conspiracy
for siphoning customer money into an affiliated hedge fund for risky investments, political donations, and expensive real estate.
Embracing Crypto
Sullivan & Cromwell, founded in 1879, is among the biggest law firms in the US. It has embraced work with entities in the digital assets arena, advising Coin
base, the largest exchange in the US, in its fight with Securities and Exchange Commission. The firm is poised to be
appointed Binance Holdings Ltd.’s independent monitor following the exchange’s multibillion-dollar settlement with the US.
The firm became an outside counsel to FTX in 2021 after FTX.US hired Ryne Miller as its general counsel. According to the investor complaint, Miller, who ca
me to FTX from Sullivan & Cromwell, immediately made it his priority to send business to his former firm.
The matters Sullivan & Cromwell worked on included FTX’s propo
sed acquisition of crypto exchange Voyager’s assets in bankruptcy and regulatory representations before the Commodity Futures Trading Commission.
The firm also represented Bankman-Fried in his personal capacity in relation to his position in the stock trading app company Robinhood Markets Inc.
The firm’s restructuring group, led by Andy Dietderich, has since served as FTX’s main bankruptcy counsel, a job for which it has already billed at least $1
50 million. Dietderich told a judge overseeing the insolvency case on Jan. 31 that FTX plans to repay customers in full.
A federal appeals court, however, has also ordered an independent examiner to investigate the FTX case, citing in its decision the potential conflicts issues rais
ed over Sullivan & Cromwell’s work for the exchange prior the bankruptcy.
The case is Edwin Garrison et. al. v. Sullivan & Cromwell, S.D.Fla., No. 1:24-cv-20630, 2/16/2024