FTX’s bankruptcy lawyers at Sullivan & Cromwell were not complicit in the fraud that led to the crypto company’s collapse, concluded a court-appointed examiner on Thursday.
In November, a court convicted former FTX CEO Sam Bankman-Fried of stealing $8 billion from FTX customers. Creditors and investors accused the company’s lawyers at Sullivan & Cromwell of failing to stop the fraud while positioning themselves for a lucrative role as the primary bankruptcy counsel.
Former prosecutor Robert Cleary, who led an independent bankruptcy court investigation, found no evidence that the law firm knew about the fraud or ignored any “red flags” during their pre-bankruptcy work, which included assisting FTX with regulatory filings and a failed buyout of crypto lender Voyager Digital. Sullivan & Cromwell stated, “We remain confident in our pre-petition 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.”
The U.S. Trustee, a Department of Justice bankruptcy watchdog, had demanded an independent investigation into the fraud and mismanagement at FTX before its collapse, asserting it was “too important” to leave to creditors and current management. The office of the U.S. Trustee declined to comment.
Cleary’s investigation found that Sullivan & Cromwell attorneys made false statements to outside parties during their work but did not know at the time that the statements were untrue. For instance, Sullivan & Cromwell partner Andy Dietderich told Voyager Digital on November 7 that FTX’s finances were “rock solid” and dismissed concerns about FTX’s ability to close the deal as “silliness” based on rumors spread by a rival bidder, Binance. However, that same day, Bankman-Fried was desperately trying to raise emergency financing, and FTX declared bankruptcy four days later, according to Cleary’s report.
FTX creditors unsuccessfully tried to block Sullivan & Cromwell from representing FTX in its bankruptcy due to the firm’s previous ties to the company, including FTX’s former U.S. general counsel, Ryne Miller, who was a former partner at Sullivan & Cromwell. FTX investors also sued the law firm, accusing it of abetting Bankman-Fried’s fraud. According to court documents, the firm charged more than $180 million for its work on FTX’s Chapter 11 from November 2022 until January 2024.
The bankruptcy judge overseeing FTX’s case initially rejected the U.S. Trustee’s demand for an examiner, deeming it duplicative and costly, but an appeal overruled that decision.
