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Highlights
- FTX creditors sue Sullivan and Cromwell for conflict of interest in handling the exchange's bankruptcy.
- Lawsuit claims the law firm's prior FTX ties compromise its bankruptcy role impartiality.
- Sullivan and Cromwell's $180M earnings from FTX proceedings spark creditor concerns.
A class action lawsuit has been filed against Sullivan and Cromwell, the law firm that is in charge of the bankruptcy proceedings of the troubled cryptocurrency exchange, FTX. FTX creditors accuse the company of having been too involved with the exchange before its fall, thus casting multiple questions regarding its objectivity in the bankruptcy procedure.
The lawsuit points out the long-standing relationships and previous business deals between Sullivan and Cromwell and FTX, thereby raising doubt about the impartiality of the bankruptcy hearing.
Legal Entanglements and Allegations
The lawsuit focuses on Sullivan and Cromwell’s role as outside attorneys for FTX 16 months preceding its failure. At this time, the firm was said to have made $8.5 million through legal fees, making people wonder about its heavy monetary connection to the exchange. The role played by Ryne Miller, who used to work for Sullivan and Cromwell and engaged with FTX as General Counsel in 2021, receives a lot of attention.
The move of Miller to FTX and then the company’s later decision to involve Sullivan and Cromwell in various legal matters, including important acquisitions and bids, are referred to as evidence of the law firm’s incestuous relationship with the exchange.
In addition, the suit claims that Sullivan and Cromwell obtained proprietary information about FTX’s operations and backed the company’s deceitful acts. It indicates the firm’s representation of closely associated entities of FTX and its controversial financial moves, such as the acquisition of Robinhood stock via a special purpose vehicle that FTX customer funds funded.
Gains In Midst Of FTX Bankruptcy
The financial benefits that Sullivan and Cromwell got from its relation with FTX are now being investigated as the exchange is on the verge of bankruptcy. Only the fees that the law firm has earned from the bankruptcy proceedings have exceeded $180 million, which is above average and has caused criticism from the FTX creditors.
Such earnings, together with the scaling of charge rates through the firm’s history, constitute the financial gains from the firm’s relationship with FTX and, therefore, endorse the allegations of conflict of interest.
Regulatory and Legal Concerns
The class action lawsuit is just one of several instances in which Sullivan and Cromwell’s part in FTX’s bankruptcy has been criticized. Prior reservations about this were noted by U.S. senators and other interested parties who questioned the company’s ability to conduct an independent investigation into FTX’s collapse.
Nevertheless, the said law firm was selected to take charge of the bankruptcy proceedings, a situation that the court has contested. The call for an independent examiner by the Third Circuit Court of Appeals in Philadelphia, citing the need for a non-biased investigation, highlights the ongoing debate over the law firm’s suitability to represent FTX in its bankruptcy.
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