Class Action Filed Against FTX Bankruptcy Law Firm Alleges Involvement in Exchange's Fraud
The lawsuit alleges that Miller facilitated numerous engagements between FTX and S&C, including high-profile transactions such as FTX's bid for crypto exchange Voyager and its acquisition of LedgerX.
Creditors of the defunct cryptocurrency exchange FTX have taken legal action against the law firm overseeing its bankruptcy proceedings, alleging complicity in the exchange's fraudulent activities. The class action targets Sullivan and Cromwell (S&C), claiming that the firm's close ties to FTX prior to its collapse warrant scrutiny and potential liability, according to The Block news report.
The lawsuit contends that S&C's extensive involvement with FTX, including serving as its primary legal counsel for 16 months leading up to its demise, indicates a conflict of interest and suggests knowledge of the exchange's fraudulent behavior. According to the filing, S&C billed approximately $8.5 million in fees during its tenure as FTX's legal advisor.
A key focus of the class action is the role of lawyer Ryne Miller, who transitioned from S&C to FTX as General Counsel in 2021. The lawsuit alleges that Miller facilitated numerous engagements between FTX and S&C, including high-profile transactions such as FTX's bid for crypto exchange Voyager and its acquisition of LedgerX. Furthermore, it accuses Miller of disclosing sensitive information about FTX's operations, including a purported "back door" in the platform used to funnel customer funds, to individuals at S&C.
The plaintiffs also highlight S&C's substantial financial gains from overseeing FTX's bankruptcy proceedings, totaling over $180 million, raising concerns about the firm's impartiality and potential conflict of interest.
These allegations come amidst longstanding concerns about S&C's relationship with FTX, with previous objections raised by U.S. Senators and FTX's former CEO, Sam Bankman-Fried. Despite objections and calls for an independent examiner, the law firm was retained for the bankruptcy proceedings, prompting further legal challenges.
The recent ruling by the Third Circuit Court of Appeals in Philadelphia, mandating an independent investigation into FTX, underscores the significance of these allegations. The outcome of this class action lawsuit and the broader investigation may shed new light on industry practices within the cryptocurrency sector and hold accountable those implicated in fraudulent activities.
