CareCredit - Women's Health April 2024

FTX Investor Suit Accuses Law Firm in Aiding Fraud

A new lawsuit accuses an FTX-affiliated law firm of helping abet the cryptocurrency exchange’s fraud.

The suit, filed last week by a group of FTX investors, accuses the 140-year-old firm of Sullivan & Cromwell of actively taking part in the multibillion-dollar fraud that led to FTX’s collapse.

Due to its relationship with FTX, the suit says, Sullivan & Cromwell (S&C) knew of FTX’s “omissions, untruthful and fraudulent conduct, and misappropriation” of investor funds.

“Despite this knowledge, S&C stood to gain financially from the FTX Group’s misconduct and so agreed, at least impliedly, to assist that unlawful conduct for its own gain,” the suit continued.

Sullivan & Cromwell’s services “went well beyond those a law firm should and ordinarily provides,” the investor complaint said. “Lawyers were eager to craft not only creative but misleading strategies that furthered FTX’s misconduct.”

PYMNTS has contacted S&C for comment but has not yet gotten a reply.

According to the suit, S&C has served since 2021, when the crypto exchange hired a former S&C attorney as its general counsel, who then made it a priority to send business to his former colleagues, the suit says.

This includes work on FTX’s plans to acquire fellow crypto exchange Voyager’s assets after it went bankrupt, as well as dealing with the Commodity Futures Trading Commission. The firm’s restructuring arm has also served as FTX’s chief bankruptcy counsel.

The suit is the latest example of the way FTX’s collapse continues to reverberate 15 months after the company went under.

Last month, a federal appeals court ordered an investigation into the collapse, agreeing with a government watchdog’s contention that appointing an independent bankruptcy examiner was needed because of the alleged misappropriation of $10 billion of customer assets and the size of FTX’s case.

The U.S. Trustee, a Department of Justice bankruptcy watchdog, argued that an independent examiner should investigate fraud and mismanagement that happened at FTX prior to its collapse, saying this probe was too crucial to be left to creditors and current management.

Meanwhile, FTX said last month that it has no plans to resurrect the exchange.

“The costs and risks of creating a viable exchange from what Mr. [Sam] Bankman-Fried left in the dumpster were simply too high,” lawyer Andrew Dietderich said during a hearing, but added the company does aim to repay its investors.

“I would like the court and stakeholders to understand this not as a guarantee, but as an objective,” Dietderich said. “There is still a great amount of work, and risk, between us and that result. But we believe the objective is within reach and we have a strategy to achieve it.”