Law Firm Sullivan & Cromwell Accused of Participating in Crypto Exchange FTX’s Fraudulent Activities and Enriching Itself During Bankruptcy

On Friday, February 16, 2024, a group of FTX investors filed a proposed class action lawsuit in U.S. District Court for the Southern District of Florida against prominent New York law firm Sullivan & Cromwell, alleging that the firm participated in the collapsed cryptocurrency exchange FTX’s fraudulent activities and further enriched itself during FTX’s bankruptcy proceedings.

The lawsuit alleges that Sullivan & Cromwell conducted legal work for FTX prior to its collapse that provided the firm unique insights into FTX’s flawed organizational structure and lack of internal financial controls. The investors claim lawyers at Sullivan & Cromwell were too eager to devise “misleading strategies” that enabled FTX’s wrongdoings.

A federal judge recently ruled that the lawsuit against Sullivan & Cromwell will advance as part of multidistrict litigation already underway in Miami federal court regarding FTX’s bankruptcy. FTX filed for Chapter 11 bankruptcy protection in November 2022 after disclosing billions in lost customer funds due to alleged mishandling and risky investments. Former FTX CEO Sam Bankman-Fried was later charged with fraud for using customer deposits to fund his own speculative ventures.

Adding to their claims, the group of FTX investors argue Sullivan & Cromwell was aware of FTX’s dire financial troubles but still sought to profit from the bankruptcy case. The lawsuit notes the firm has earned over $180 million to date for its representation of FTX through bankruptcy, which equals about 10% of Sullivan & Cromwell’s total revenue last year.

Some FTX creditors and US lawmakers had tried to block Sullivan & Cromwell’s appointment as bankruptcy counsel due to conflicts of interest stemming from prior work for FTX executives. However, additional disclosures led the US Trustee to no longer oppose their role in the bankruptcy proceedings. Going forward, the lawsuit brings to light serious accusations against Sullivan & Cromwell’s work surrounding FTX’s collapse and subsequent legal fallout.

Please contact BlockTribune for access to a copy of this filing.