Wall Street Law Firm Sullivan & Cromwell Gets Sued Over Allegations It Aided and Abetted the FTX Crypto Fraud

Tue Mar 26 00:13:42 PDT 2024

https://wallstreetonparade.com/2024/02/wall-street-law-firm-sullivan-cromwell-gets-sued-over-allegations-it-aided-and-abetted-the-ftx-crypto-fraud/

Wall Street Law Firm Sullivan & Cromwell Gets Sued Over Allegations It
Aided and Abetted the FTX Crypto Fraud

By Pam Martens and Russ Martens: February 21, 2024 ~

Ryne Miller, Former Sullivan & Cromwell Partner; Now General Counsel of
FTX.US
Ryne Miller, Former Sullivan & Cromwell Partner, Became General Counsel of
FTX.US

The 144-year old Wall Street go-to law firm, Sullivan & Cromwell, may be
getting rich on the FTX bankruptcy legal fees, but it’s also doing a
helluva job destroying its reputation as a prudent law firm. Last Friday, a
federal lawsuit was filed against the law firm alleging civil conspiracy,
aiding and abetting fraud, aiding and abetting breach of fiduciary duty,
and violations of civil federal racketeering law in regard to its work for
the collapsed crypto exchange, FTX, which looted customer funds to the tune
of billions of dollars.

We’ll get to the stunning allegations in the lawsuit in a moment, but first
some necessary background.

Last year, Wall Street On Parade wrote more than 20 articles documenting
the labyrinthine and deeply conflicted ways that Sullivan & Cromwell had
enmeshed itself in the FTX crypto exchange before the house of cards
collapsed. (See a small sampling of our work in “Related Articles” at the
end of this article.)

One of Sullivan & Cromwell’s law partners, Ryne Miller, moved to FTX.US and
became its General Counsel. Another former Sullivan & Cromwell lawyer, Tim
Wilson, became General Counsel for FTX Ventures, the venture capital arm of
FTX. Sullivan & Cromwell had previously represented the kingpin of the
fraud, Sam Bankman-Fried, who was convicted in November 2023 on seven
counts of fraud and conspiracy. The law firm had also previously
represented the Head of Engineering at FTX, Nishad Singh, who has pled
guilty to fraud charges. According to Sullivan & Cromwell’s own bankruptcy
court declaration, it had been involved in more than 20 legal engagements
for FTX before it filed for bankruptcy on November 11, 2022. According to
the declaration, the law firm’s legal work began 15 months prior to the
collapse of the firm.

Notwithstanding these conflicts, Sullivan & Cromwell steamrolled its way
into becoming lead counsel of the FTX bankruptcy and then argued against
allowing the U.S. Department of Justice’s U.S. Trustee to appoint an
independent examiner – a legally mandated position for bankruptcy cases
exceeding $5 million. Equally troubling, the FTX bankruptcy judge, John
Dorsey, of the U.S. Bankruptcy Court for the District of Delaware, bought
into Sullivan & Cromwell’s arguments and declined to allow the U.S. Trustee
to appoint an independent examiner. The Third Circuit Court of Appeals
overruled the Judge last month.

Sullivan & Cromwell’s conflicts with FTX and its demand to be appointed
lead counsel in the bankruptcy were so over the top that in January of 2023
four sitting U.S. Senators (Elizabeth Warren (D-MA), John Hickenlooper
(D-CO), Thom Tillis (R-NC) and Cynthia Lummis (R-WY)) sent a letter to
Judge Dorsey. Senator Hickenlooper Tweeted a link to the letter with the
comment: “Get this: FTX’s legal advisors *pre-collapse* want to be
appointed to oversee investigations INTO the collapse.”

The Senators’ letter included this blunt assessment of Sullivan &
Cromwell’s conflicted role:

“To name just one challenge: will the firm’s lawyers be able to effectively
investigate their current and former partners who were central in FTX’s
conduct? Additionally, given their longstanding legal work for FTX, they
may well bear a measure of responsibility for the damage wrecked on the
company’s victims. Put bluntly, the firm is simply not in a position to
uncover the information needed to ensure confidence in any investigation or
findings.”

That assessment was clearly an understatement according to the federal
lawsuit filed last Friday against Sullivan & Cromwell by the Moskowitz Law
Firm on behalf of 16 customers of the FTX crypto platform.

Among the allegations in the lawsuit are the following:

“…from November 2022 to mid-January 2024, S&C’s income from matters just
related to FTX has surged, exceeding $180 million — or 10% of the total
revenue the 900-lawyer firm publicly stated it collected in all of 2022 —
with paralegals billing $595/hr. and partners billing up to $2,165/hr.”

“S&C attorneys served as the primary legal services providers for the RICO
enterprise, assisting in the structuring of the enterprise operations.”

“When the FTX fraud was revealed in November 2022, Mr. Miller and S&C moved
to consolidate power over the FTX Group without delay, quickly ousting SBF
[Sam Bankman-Fried] and his lieutenants and appointing in their stead
hand-picked successors to navigate FTX through the bankruptcy process.
S&C’s post-collapse maneuvering seems particularly calculated, given that
S&C was well positioned to see the collapse coming, via knowledge gleaned
from prior engagements.”

“Mr. Miller and S&C moved to divert the $250 million FTX Guaranty Fund from
LedgerX, one of the few entities S&C specifically chose not to include
among the over 100 FTX entities it forced into bankruptcy, in order to
secure receipt of a multi-million-dollar retainer to S&C before the FTX
Group filed for bankruptcy, presumably to improve the Firm’s revenues
throughout the extensive FTX bankruptcy process. With S&C’s assistance, SBF
and FTX caused billions in losses to Plaintiffs through at least two
separate schemes, both of which contributed to the downfall of the FTX
Group.”

“S&C was one of FTX US’s principal outside law firms and its conduct
mirrors that of the other MDL [Multi-District Litigation] Defendants. This
conduct violates numerous laws, including laws related to the sale of
unregistered securities, consumer protection, professional malpractice,
aiding and abetting fraud, negligence, breach of fiduciary duties, and
violations of the Racketeer Influenced and Corrupt Organizations Act
(‘RICO’). S&C provided services to the FTX Group entities that went well
beyond those a law firm should and ordinarily provides. As the evidence
will reveal, S&C lawyers were eager to craft not only creative, but
misleading strategies that furthered FTX’s misconduct. As several members
of Congress recently remarked, these and other services are ‘often central
to major financial scandals, given [legal counsel’s] role in drafting
financial agreements, risk management compliance practices, and corporate
controls.’ S&C is no different, and the services and strategies it provided
to the FTX Group were important to the eventual FTX Group’s fraud.”

The case is Edwin Garrison, et al., v. Sullivan & Cromwell LLP. It has been
filed in the U.S. District Court for the Southern District of Florida. The
case number is 1:24-cv-20630. It is part of Multi-District Litigation (MDL)
and was stayed by the Judge in an order yesterday while claims proceed in a
related case, In Re: FTX Cryptocurrency Exchange Collapse Litigation.