Sullivan & Cromwell accused of being FTX’s ‘partner in fraud’

The lawsuit seeks to hold S&C jointly and severally liable for the damages caused by the RICO enterprise.

A group of FTX creditors, represented by Edwin Garrison, has launched a class-action lawsuit against the prestigious law firm Sullivan & Cromwell (S&C), alleging that the firm knowingly provided services or assistance that directly enabled or facilitated FTX’s fraudulent activities, according to a legal document dated February 16.

“FTX could not have achieved fraud of such tremendous scale alone. S&C’s immense resources, connections to regulators, expertise, and assistance were vital to perpetuating the scheme,” the filing wrote.

The lawsuit accuses S&C of being involved in a civil conspiracy, aiding and abetting fraud and fiduciary breaches, and engaging in a RICO enterprise allegedly operated by FTX and its former CEO, Sam Bankman-Fried (SBF). A RICO enterprise is an organization with a structure and operations designed to achieve illegal goals repeatedly over time.

Specifically, creditors alleged that S&C used its legal expertise, regulatory knowledge, and extensive resources to enable FTX’s deceptive practices. As highlighted in the legal filing, Ryne Miller, a former S&C attorney who became General Counsel for FTX US, was a key figure in forming a close relationship between S&C and FTX, partly due to his regulatory connections.

Miller was said to have leveraged his network to smooth FTX’s path through hurdles like the LedgerX acquisition, reportedly funded with stolen funds.

“Ryne Miller’s connections to regulators were crucial to the pursuit of this deal. With Miller in place, and S&C at the helm, FTX enjoyed a direct throughline to CFTC Commissioner Rostin Behnam, whom Mr. Miller and SBF repeatedly emailed directly, conferenced over Zoom, and met privately over dinners to discuss “a LedgerX matter of considerable urgency,” “a potential stablecoin regulatory framework,” and the CFTC’s “continued engagement” as FTX US proceeded with the LedgerX acquisition,” the filing noted.

Creditors alleged that S&C knew about FTX’s misused funds and regulatory issues but continued to provide services. The filing cited ’round-trip’ transactions and the Robinhood purchase via Emergent as examples of S&C’s alleged involvement in operations that illegally diverted customer funds.

Moreover, creditors criticized S&C for neglecting its due diligence responsibilities, especially given its representation of various FTX entities. They argued that this should have revealed fraudulent activities and mismanagement of customer assets. Creditors contended that S&C paid no heed to the lack of internal governance and the complex interactions between FTX and Alameda Research.

Notably, creditors argued that S&C profited from its pre-bankruptcy work for FTX, which helped perpetuate the fraud and was positioned to earn significantly from the bankruptcy proceedings that followed.

Sullivan & Cromwell began handling some legal matters for FTX in the summer of 2021 after FTX US hired law partner Ryne Miller as its general counsel. However, on November 11, 2022, FTX filed for bankruptcy, and the firm has since been closely involved in the bankruptcy case.

S&C’s restructuring group, led by Andy Dietderich, has served as FTX’s main bankruptcy counsel. Last month, Dietderich told a judge that FTX plans to repay customers in full. However, repayments will be calculated based on Bitcoin’s value at the time of the bankruptcy filing. This sparked outrage among many customers, who argued that this valuation unfairly left them at a significant loss.

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