In an attention-grabbing growth, FTX collectors have launched a category motion lawsuit in opposition to the legislation agency Sullivan and Cromwell (S&C), which is at the moment dealing with the chapter proceedings of the failed trade. In a petition filed on February 16 within the U.S. District Court docket for the Southern District of Florida, S&C is accused of aiding and abetting the cryptocurrency trade’s alleged fraud and serving as shut authorized counsel.
FTX’s reference to S&C
In accordance with particulars within the lawsuit, the connection between the defunct trade and S&C started in August 2021, when FTX appointed Ryne Miller, a former worker of the legislation agency, as its normal counsel. Miller, a former lawyer on the U.S. Commodity Futures Buying and selling Fee (CFTC), was reportedly employed particularly to assist the trade resolve its licensing points with the fee and different regulatory hurdles.
Whereas serving as normal counsel, Miller helped set up and strengthen the connection between the cryptocurrency buying and selling platform and S&C as he was believed to have ulterior motives in returning to the legislation agency as a accomplice. S&C, by way of Miller, acted as outdoors counsel to FTX and regarded not less than 20 completely different issues for the trade, three of which attracted charges in extra of $1 million.
Particularly, S&C advises FTX on regulatory points in addition to mergers and acquisitions and third-party insolvency issues. Notably, the legislation agency suggested the trade on the acquisition of futures buying and selling platform LedgerX, a transaction that was allegedly accomplished utilizing shopper deposits. S&C additionally represents FTX in its proposed $1.42 billion acquisition of Voyager Digital crypto belongings.
Potential Issues at S&C
Based mostly on the character of the events’ transactions, FTX’s collectors’ petition states that S&C had full information of suspicious exercise on the cryptocurrency trade and its subsidiaries. For instance, the acquisition of LegderX is believed to have knowledgeable the S&C of a “backdoor” that allowed FTX to direct shopper funds to its buying and selling arm, Alameda Analysis. Moreover, the legislation agency is claimed to have gained information of the code base that allowed Alameda to keep away from automated liquidation even within the occasion of a destructive steadiness.
Nonetheless, regardless of its information of the scenario, S&C acted as FTX’s consultant in that transaction and in future transactions, vouching for the trade’s “company governance, good standing, compliance with legal guidelines and acquisition funding sources.” On these grounds, the legislation agency at the moment faces prices of civil conspiracy, aiding and abetting fraud, and aiding and abetting fiduciary fraud.
The plaintiffs requested a jury trial and sought damages ensuing from the legislation agency’s alleged involvement within the FTX fraud. Moreover, the lawsuit now attracts elevated scrutiny of S&C’s place as the present handler of FTX’s chapter proceedings, a task that requires a level of independence and impartiality.
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