FTX creditors sue bankruptcy law firm S&C alleging fraud involvement

FTX bankruptcy case has unfolded to a new chapter as the exchange’s creditors have filed a class-action lawsuit against the law firm overseeing the case.

In a court filing on Feb. 16, FTX creditors alleged that law firm Sullivan Cromwell, also known as SC, “actively” participated in the “FTX Group’s multibillion dollar fraud,” asserting that the company benefited financially from FTX’s fraud.

“SC knew of FTX US and FT X Trading Ltd.’s omissions, untruthful and fraudulent conduct, and misappropriation of Class Members’ funds. Despite this knowledge, SC stood to gain financially from the FTX Group’s misconduct and so agreed, at least impliedly, to assist that unlawful conduct for its own gain.”

The lawsuit seeks damages for a number of counts, including civil conspiracy, aiding and abetting fraud, and aiding and abetting fiduciary breaches.

Sullivan Cromwell is the century-old law firm overseeing the FTX bankruptcy proceedings. Previously, the firm reportedly served as outside counsel to the exchange in several deals, including FTX’s bid for the assets of Voyager Digital Holdings and the acquisition of LedgerX, receiving significant payments for its services. In the current bankruptcy case, SC’s fees are estimated to reach hundreds of millions of dollars .

The relationship between FTX and the law firm was forged by Ryne Miller, a former partner at SC who joined the FTX Group as general counsel in August 2021. Miller allegedly channeled at least 20 cases from FTX to his former law firm.

“Mr. Miller informed me that it was very important for him personally to channel a lot of business to SC as he wanted to return there as a partner after his stint at the Debtors,” said former FTX chief regulatory officer Daniel Friedberg in another court filing.

The complaint also notes that former FTX CEO Sam Bankman-Fried would often work in SC’s offices in New York, “so close was the relationship” between the companies.

In a previous statement to Cointelegraph, a spokesperson for the law firm denied any wrongdoing , saying SC had “never served as primary outside counsel to any FTX entity” and had a “limited and largely transactional relationship with FTX and certain affiliates prior to the bankruptcy”.

SC’s potential conflict of interest with the bankruptcy case has been scrutinized before. In January 2023, a bipartisan group of United States senators wrote to the judge calling for an independent examiner , claiming the law firm was “not in a position to uncover the information needed to ensure confidence in any investigation or findings.”

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