By Pam Martens and Russ Martens: February 21, 2024 ~
Ryne Miller, Former Sullivan & Cromwell Partner, Became General Counsel of FTX.US
The 144-year old Wall Street go-to law firm, Sullivan & Cromwell, may be getting rich on the FTX bankruptcy legal fees, but it’s also doing a helluva job destroying its reputation as a prudent law firm. Last Friday, a federal lawsuit was filed against the law firm alleging civil conspiracy, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and violations of civil federal racketeering law in regard to its work for the collapsed crypto exchange, FTX, which looted customer funds to the tune of billions of dollars.
We’ll get to the stunning allegations in the lawsuit in a moment, but first some necessary background.
Last year, Wall Street On Parade wrote more than 20 articles documenting the labyrinthine and deeply conflicted ways that Sullivan & Cromwell had enmeshed itself in the FTX crypto exchange before the house of cards collapsed. (See a small sampling of our work in “Related Articles” at the end of this article.)
One of Sullivan & Cromwell’s law partners, Ryne Miller, moved to FTX.US and became its General Counsel. Another former Sullivan & Cromwell lawyer, Tim Wilson, became General Counsel for FTX Ventures, the venture capital arm of FTX. Sullivan & Cromwell had previously represented the kingpin of the fraud, Sam Bankman-Fried, who was convicted in November 2023 on seven counts of fraud and conspiracy. The law firm had also previously represented the Head of Engineering at FTX, Nishad Singh, who has pled guilty to fraud charges. According to Sullivan & Cromwell’s own bankruptcy court declaration, it had been involved in more than 20 legal engagements for FTX before it filed for bankruptcy on November 11, 2022. According to the declaration, the law firm’s legal work began 15 months prior to the collapse of the firm.
Notwithstanding these conflicts, Sullivan & Cromwell steamrolled its way into becoming lead counsel of the FTX bankruptcy and then argued against allowing the U.S. Department of Justice’s U.S. Trustee to appoint an independent examiner – a legally mandated position for bankruptcy cases exceeding $5 million. Equally troubling, the FTX bankruptcy judge, John Dorsey, of the U.S. Bankruptcy Court for the District of Delaware, bought into Sullivan & Cromwell’s arguments and declined to allow the U.S. Trustee to appoint an independent examiner. The Third Circuit Court of Appeals overruled the Judge last month.
Sullivan & Cromwell’s conflicts with FTX and its demand to be appointed lead counsel in the bankruptcy were so over the top that in January of 2023 four sitting U.S. Senators (Elizabeth Warren (D-MA), John Hickenlooper (D-CO), Thom Tillis (R-NC) and Cynthia Lummis (R-WY)) sent a letter to Judge Dorsey. Senator Hickenlooper Tweeted a link to the letter with the comment: “Get this: FTX’s legal advisors *pre-collapse* want to be appointed to oversee investigations INTO the collapse.”
The Senators’ letter included 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.”
That assessment was clearly an understatement according to the federal lawsuit filed last Friday against Sullivan & Cromwell by the Moskowitz Law Firm on behalf of 16 customers of the FTX crypto platform.
Among the allegations in the lawsuit are the following:
“…from November 2022 to mid-January 2024, S&C’s income from matters just related to FTX has surged, exceeding $180 million — or 10% of the total revenue the 900-lawyer firm publicly stated it collected in all of 2022 — with paralegals billing $595/hr. and partners billing up to $2,165/hr.”
“S&C attorneys served as the primary legal services providers for the RICO enterprise, assisting in the structuring of the enterprise operations.”
“When the FTX fraud was revealed in November 2022, Mr. Miller and S&C moved to consolidate power over the FTX Group without delay, quickly ousting SBF [Sam Bankman-Fried] and his lieutenants and appointing in their stead hand-picked successors to navigate FTX through the bankruptcy process. S&C’s post-collapse maneuvering seems particularly calculated, given that S&C was well positioned to see the collapse coming, via knowledge gleaned from prior engagements.”
“Mr. Miller and S&C moved to divert the $250 million FTX Guaranty Fund from LedgerX, one of the few entities S&C specifically chose not to include among the over 100 FTX entities it forced into bankruptcy, in order to secure receipt of a multi-million-dollar retainer to S&C before the FTX Group filed for bankruptcy, presumably to improve the Firm’s revenues throughout the extensive FTX bankruptcy process. With S&C’s assistance, SBF and FTX caused billions in losses to Plaintiffs through at least two separate schemes, both of which contributed to the downfall of the FTX Group.”
“S&C was one of FTX US’s principal outside law firms and its conduct mirrors that of the other MDL [Multi-District Litigation] Defendants. This conduct violates numerous laws, including laws related to the sale of unregistered securities, consumer protection, professional malpractice, aiding and abetting fraud, negligence, breach of fiduciary duties, and violations of the Racketeer Influenced and Corrupt Organizations Act (‘RICO’). S&C provided services to the FTX Group entities that went well beyond those a law firm should and ordinarily provides. As the evidence will reveal, S&C lawyers were eager to craft not only creative, but misleading strategies that furthered FTX’s misconduct. As several members of Congress recently remarked, these and other services are ‘often central to major financial scandals, given [legal counsel’s] role in drafting financial agreements, risk management compliance practices, and corporate controls.’ S&C is no different, and the services and strategies it provided to the FTX Group were important to the eventual FTX Group’s fraud.”
The case is Edwin Garrison, et al., v. Sullivan & Cromwell LLP. It has been filed in the U.S. District Court for the Southern District of Florida. The case number is 1:24-cv-20630. It is part of Multi-District Litigation (MDL) and was stayed by the Judge in an order yesterday while claims proceed in a related case, In Re: FTX Cryptocurrency Exchange Collapse Litigation.
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