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Suit accuses Sullivan & Cromwell of employing ‘creative but misleading strategies’ that aided FTX fraud

By Debra Cassens Weiss

February 20, 2024, 4:00 pm CST

A proposed class action lawsuit filed by investors in cryptocurrency exchange FTX accuses Sullivan & Cromwell of aiding and abetting fraud by providing legal services that went “well beyond” usual legal work.

“As the evidence will reveal, S&C lawyers were eager to craft not only creative but misleading strategies that furthered FTX’s misconduct,” according to the Feb. 16 suit, filed in the U.S. District Court for the Southern District of Florida.

Law.com, Bloomberg Law and Reuters have coverage.

FTX founder Samuel Bankman-Fried was convicted in November 2023 on seven counts of fraud and conspiracy a year after the collapse of his company. Another law firm, Fenwick & West, is also facing a suit for its legal work for FTX.

The new suit that alleges Sullivan & Cromwell formed a close relationship with FTX U.S. as its outside counsel after the company hired firm partner Ryne Miller as its general counsel in 2021. The relationship between FTX and Sullivan & Cromwell was so close that Bankman-Fried often worked out of the firm’s New York office, the suit says.

While working as primary legal counsel over a 16-month period, Sullivan & Cromwell billed about $8 million in fees, the suit says. The firm was also hired to manage FTX’s bankruptcy and has since earned more than $180 million for FTX legal matters.

FTX was able to avoid the scrutiny of regulators such as the U.S. Commodity Futures Trading Commission by buying companies that already had the necessary licenses, the suit says. The firm also generated for FTX entities “the appearance of legitimate operations; strict adherence to regulatory obligations; and esteem for legal compliance, which permitted the scheme to grow in scale and persist in duration,” the suit alleges.

The suit alleges civil conspiracy, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and violation of the civil federal racketeering law.

The alleged RICO enterprise aimed to persuade customers to entrust FTX U.S. and FTX Trading Ltd. with their assets and to conceal misappropriation of customer funds, the suit says. The firm offered legal advice “knowingly, recklessly or with willful blindness to the nature of the RICO enterprise,” the suit says.

Sullivan & Cromwell has previously said its relationship with FTX was limited, and it reported concerns when it learned of problems. It did not respond to requests for comment by Reuters, Law.com and Bloomberg Law. Nor did it immediately respond to an email request for comment by the ABA Journal.

The case is Garrison v. Sullivan & Cromwell.

The investors are represented by the Moskowitz Law Firm.

An 18-year-old man in Texas has been arrested and charged with a felony for allegedly helping his 17-year-old girlfriend kill herself by drowning in a local pond last year. Zander Tashman was taken into custody over the weekend and charged with one count of aiding the suicide of another individual, Ellyse Suarez, authorities announced.

According to a news release from the Frisco Police Department, officers on Nov. 20, 2023, responded to a call regarding “suspicious activity” at Frisco Commons Park, which is in the 8000 block of McKinney Road in Frisco, Texas. Frisco is about 30 miles north of Dallas.

Upon arriving at the scene, first responders said they found the body of a 17-year-old girl — later identified as Suarez — in the pond. She was pronounced dead on the scene in what appeared to be a suicide.

Suarez’s cause of death was ultimately determined to be drowning.

“After an exhaustive investigation, evidence collected in the case indicated that 18-year-old Zander Tashman of Frisco aided the deceased, his 17-year-old girlfriend, in committing suicide,” police wrote in the release. “Subsequently, Detectives obtained a warrant for his arrest, and Tashman was taken into custody on February 18, 2024.”