FTX Investors Drop Lawsuit Against Law Firm Sullivan & Cromwell

A group of FTX investors informed a Miami federal court on Wednesday that they will voluntarily dismiss their proposed class action against the prominent U.S. law firm Sullivan & Cromwell.

The investors accused Sullivan & Cromwell of participating in the multibillion-dollar fraud of the defunct cryptocurrency exchange and enriching itself as FTX’s lead bankruptcy counsel. The firm had represented FTX in about 20 matters before the exchange collapsed.

Lead plaintiffs’ counsel Adam Moskowitz told Reuters that the court currently does not recognize any claim against the New York-based law firm. He cited the work done by FTX bankruptcy examiner Robert Cleary from Patterson Belknap Webb & Tyler.

Cleary’s reports issued in May and September indicated that Sullivan & Cromwell did not engage in the fraud that led to the crypto company’s collapse and did not ignore red flags during its representation of former FTX CEO Sam Bankman-Fried.

“Bob Cleary’s second report gave us enough evidence that there was no claim there,” Moskowitz stated.

A spokesperson for Sullivan & Cromwell expressed satisfaction, stating that the firm is “pleased that the plaintiffs have withdrawn their meritless claims unconditionally,” adding that their focus remains on returning billions of dollars in recovered assets to FTX’s creditors.

The lawsuit alleged that Sullivan & Cromwell possessed unique insight into the exchange’s “convoluted organizational structure, abject lack of internal controls, and dubious business practices.” The lawsuit also accused the firm’s lawyers of eagerly crafting “creative, but misleading strategies that furthered FTX’s misconduct.”

In a May filing, Sullivan & Cromwell countered that the allegations had “numerous legal defects” and relied on “threadbare allegations, unwarranted assumptions, and legal conclusions that the court need not accept as true even at the pleading stage.”

FTX filed for bankruptcy in November 2022 after claims surfaced that the company misused and lost billions of dollars in customers’ crypto deposits. A year later, a jury found Bankman-Fried guilty of defrauding FTX customers by misusing their funds for his own risky investments.

Last week, plaintiffs’ lawyers reached a deal with the FTX bankruptcy estate regarding the rights to sue on behalf of the crypto exchange’s customers. Moskowitz noted that the deal occurred independently of the investors’ decision to drop the lawsuit against Sullivan & Cromwell.

On Monday, FTX received court approval for its bankruptcy plan, allowing it to fully repay customers using up to $16.5 billion in assets recovered since the collapse of the once-leading crypto exchange.

The case is titled In Re: FTX Cryptocurrency Exchange Collapse Litigation, U.S. District Court for the Southern District of Florida, 1:23-md-03076.