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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.”

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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.