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No conflicts by Sullivan & Cromwell in representation of Samuel Bankman-Fried, report finds

By Debra Cassens Weiss

September 30, 2024, 2:05 pm CDT

Sullivan & Cromwell did not ignore “red flags” that would have alerted it to misconduct when it represented Samuel Bankman-Fried, the founder of cryptocurrency exchange FTX, in the purchase of shares in a mobile trading platform, according to a second report by a court-appointed bankruptcy examiner.

Sullivan & Cromwell’s representation of Bankman-Fried as regulatory counsel in the purchase of $500 million in shares of the trading platform Robinhood posed no conflict of interest in its current work as bankruptcy counsel for FTX, according to the examiner, Robert J. Cleary, a former Unabomber prosecutor. Cleary is currently of counsel with Patterson Belknap Webb & Tyler.

Law.com and Law360 covered the Sept. 20 report, which was entered on the docket Sept. 25.

Bankman-Fried was convicted of fraud and conspiracy in November 2023, a year after the collapse of FTX. Prosecutors said Bankman-Fried touted FTX as a safe platform for crypto asset trading while diverting billions of dollars in customer assets to his privately held hedge fund.

FTX employees had told lawyers at Sullivan & Cromwell that Bankman-Fried was using his money to fund the Robinhood investment, the examiner said.

“S&C did not know and had no reason to believe that the Robinhood shares were actually purchased with customer funds or that customer funds were being misappropriated for this purpose,” Cleary wrote.

Sullivan & Cromwell’s work for Bankman-Fried primarily consisted of four regulatory filings, the report said.

An initial report said there was no evidence that Sullivan & Cromwell was aware of fraud in its representation of FTX before the bankruptcy, and there was no error in the bankruptcy judge’s decision to approve Sullivan & Cromwell as FTX’s bankruptcy counsel. The report recommended further investigation, however, into Sullivan & Cromwell’s work for Bankman-Fried as an individual in connection with the purchase of the Robinhood shares.

“Sullivan & Cromwell is pleased that the examiner has again found no truth to allegations about our prepetition work for FTX,” a Sullivan & Cromwell spokesperson said in an emailed statement to the ABA Journal. “Our focus remains fully on achieving plan confirmation to facilitate the return of recovered assets to creditors.”