Wall Street’s Go-To Law Firm, Sullivan & Cromwell, Got in Bed with Crypto; Now Its Reputation Is Being Hammered

Sun Apr 7 05:58:22 PDT 2024

https://wallstreetonparade.com/2024/03/wall-streets-go-to-law-firm-sullivan-now-its-reputation-is-being-hammered/

By Pam Martens and Russ Martens: March 25, 2024 ~

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

Since January, the reputation of Wall Street’s go-to law firm, Sullivan &
Cromwell, has been repeatedly hammered. It all stems from the law firm’s
decision some years ago to involve itself in legal representations of
crypto firms and/or their principals – an industry that 1,600 of the
brightest scientific minds in technology have called a sham.

On January 19, the Third Circuit Court of Appeals sharply rebuked the law
firm’s position that it didn’t need an independent watchdog appointed by
the U.S. Department of Justice to oversee the way it was handling the
collapsed crypto house of frauds (known as FTX) in bankruptcy proceedings –
despite it having significant conflicts of interests in the matter, such as
previously providing legal representation to the mastermind of the fraud,
Sam Bankman-Fried.

On February 16, 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 FTX, which had looted customer funds to the tune of
billions of dollars.

This month Sullivan & Cromwell is the subject of a scathing academic review
related to its work for FTX by two law professors, Jonathan Lipson of
Temple University-Beasley School of Law and David Skeel of the University
of Pennsylvania Carey Law School. The law professors name names – including
the alleged activities of key law partners at Sullivan & Cromwell related
to FTX.

Last year, Wall Street On Parade wrote 20 articles focusing on the glaring
conflicts of Sullivan & Cromwell in the FTX matter. Common sense indicated
it had rendered itself unfit for the role of lead counsel in the FTX
bankruptcy proceeding. (See a relevant sample in Related Articles below.)
We also provided much needed sunshine on the peculiar willingness of the
presiding Judge, John Dorsey of the U.S. Bankruptcy Court for the District
of Delaware, to sign off on a litany of orders that S&C requested as it
enriched itself to the tune of $180 million in legal fees from the FTX
bankruptcy proceedings in his court.

To even casual observers, Sullivan & Cromwell’s conflicts in the FTX case
were stunning.

One of Sullivan & Cromwell’s law partners, Ryne Miller, had 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 not only previously represented Sam
Bankman-Fried, who was convicted in November 2023 on seven counts of fraud
and conspiracy, but it had also previously represented the Head of
Engineering at FTX, Nishad Singh, who 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 FTX.

Sullivan & Cromwell’s conflicts with FTX and its demand to be appointed
lead counsel in the bankruptcy case were so suspicious that in January of
last year 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 drilled down as follows:

“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 perhaps too gentle according to the federal lawsuit
filed in February 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
[Sam Bankman-Fried] 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.”

Notwithstanding the myriad conflicts, Judge Dorsey was all-in on Sullivan &
Cromwell becoming lead counsel in the FTX bankruptcy. When Sullivan &
Cromwell 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 — Judge Dorsey sided with the law
firm.

Dorsey’s decision was sharply rebuked by the Third Circuit Court of Appeals
on January 19. The court wrote:

“Under the Bankruptcy Court’s interpretation, the appointment of an
examiner under either subsection of Section 1104(c) would be subject to a
court’s discretion and a judge would have the final say as to whether an
investigation was warranted. But this interpretation runs counter to the
statute’s plain language and established canons of construction.”

The Appeals Court also insightfully noted the following:

“First, an examiner must be ‘disinterested’… This requirement of
disinterest is particularly salient here, where issues of potential
conflicts of interest arising from debtor’s counsel serving as pre-petition
advisors to FTX have been raised repeatedly….”

The U.S. Trustee has tapped Robert Cleary of law firm Patterson Belknap as
its independent examiner to conduct the FTX investigation. Cleary is a
former U.S. Attorney for the District of New Jersey and the Southern
District of Illinois and a former Assistant U.S. Attorney in the Southern
District of New York. One of the areas that Cleary will examine is if
Sullivan & Cromwell’s conflicts were adequately addressed prior to its
appointment as lead counsel and if it failed to disclose any material
conflicts.

Sullivan & Cromwell ranks among the oldest law firms in America. It was
founded 145 years ago by Algernon Sydney Sullivan and William Nelson
Cromwell in the financial district of lower Manhattan. During the Wall
Street crisis of the 1930s, Sullivan & Cromwell built a reputation for
defending Wall Street firms against shareholder lawsuits and antitrust
actions. Sullivan & Cromwell also played a pivotal role in the 2008
financial crisis, the worst since the Great Depression. As Wall Street On
Parade previously detailed, the firm’s Senior Chair, Rodge Cohen, paved the
way for the Fed’s unprecedented $29 trillion bailout of Wall Street banks
after their corrupt activities collapsed the U.S. economy in 2008.

Why Sullivan & Cromwell decided to leap with both feet into the dodgy world
of crypto will, hopefully, inspire another academic paper very soon.