By Pam Martens and Russ Martens: January 11, 2023 ~
In what is likely a first of its kind effort, four sitting U.S. Senators, including former Harvard Law Professor Elizabeth Warren, who is a bankruptcy law expert, have asked the Judge overseeing the bankruptcy proceedings of collapsed crypto exchange, FTX, to dump the Big Law firm of Sullivan & Cromwell as the lead law firm in the case because of its conflicts of interest in the matter. The case has garnered international media attention because more than $8 billion of customers’ money is said to be missing and the fact that high profile U.S. sports figures and celebrities promoted the company.
On Monday, Senator Warren (D-MA) joined Senator John Hickenlooper (D-CO) along with Republican Senators Thom Tillis (R-NC) and Cynthia Lummis (R-WY) in a letter outlining the conflicts to Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware.
The political news website, Punchbowl News, broke the story of the Senators’ letter yesterday morning. Hickenlooper then gave the story more momentum by Tweeting a link with the comment: “Get this: FTX’s legal advisors *pre-collapse* want to be appointed to oversee investigations INTO the collapse.”
The Senators’ letter includes this blunt assessment of Sullivan & Cromwell’s conflicted role:
“To name just one challenge: will the firm’s lawyers be able to effectively investigate their current and former partners who were central in FTX’s conduct? Additionally, given their longstanding legal work for FTX, they may well bear a measure of responsibility for the damage wrecked on the company’s victims. Put bluntly, the firm is simply not in a position to uncover the information needed to ensure confidence in any investigation or findings.”
Yesterday, another objector to Sullivan & Cromwell serving as lead law firm in the bankruptcy proceedings filed an amended objection with a scathing assessment of the law firm’s conduct. The objector is Warren Winter, a man described by his attorneys as “a United States citizen residing abroad” who had “several hundred thousand dollars of assets in his FTX account when the exchange collapsed, which he has since been unable to access.”
The amended objection made the following points, among numerous others, to the bankruptcy court:
“Sullivan & Cromwell is not only an inappropriate candidate for appointment as the FTX Group’s bankruptcy counsel—it is a target for investigation with its own potential liability. Its appointment as counsel would endanger the estate and create a rigged game, undermining creditors’ and the public’s faith in the bankruptcy process. The Court should therefore reject Sullivan & Cromwell’s application and disqualify it from appointment as Debtors’ counsel.”
“Two former Sullivan & Cromwell lawyers are General Counsel to FTX Group entities. Sullivan & Cromwell did not disclose these connections in its Application and therefore violated Federal Rule of Bankruptcy Procedure 2014, which requires a statement ‘all of [the firm’s] connections with the debtor … [and the debtor’s] attorneys.’ What’s more, disclosed or not, these connections create a conflict of interest and are disqualifying. FTX US General Counsel Ryne Miller is a former partner at Sullivan & Cromwell…Miller is alleged to have played a key role— perhaps the key role—in wresting control of the FTX Group from Sam BankmanFried and directing this extremely valuable bankruptcy matter to his former firm. According to Bankman-Fried, and supported by what appears to be genuine evidence, Miller proclaimed to have usurped control of the FTX Group by November 8th. He immediately secured a $12 million retainer for his former firm and allegedly mounted an ‘extreme pressure’ campaign to put the FTX Group into bankruptcy with Sullivan & Cromwell and its hand-picked CEO at the helm.
“FTX Ventures General Counsel Tim Wilson is another former Sullivan & Cromwell lawyer. The Securities and Exchange Commission has alleged that FTX Ventures made at least $200 million in venture-capital investments using customer funds that had been misappropriated through Alameda Research….”
A hearing in the FTX bankruptcy case is scheduled for 8:55 a.m. this morning. It is unclear as to what issues will be discussed today. A live stream of the hearing is available on YouTube at this link.
Wall Street On Parade has been pointing out the myriad conflicts with Sullivan & Cromwell since two days after the bankruptcy petition was filed for FTX on November 11 of last year. Yesterday, we reported that Sullivan & Cromwell was also currently serving as legal counsel to four of the largest crypto exchange competitors to FTX. (See Related Articles below.)