Four US senators have questioned whether leading Wall Street law firm Sullivan & Cromwell could properly investigate possible wrongdoing at FTX as bankruptcy counsel, given its previous work for the cryptocurrency exchange.
The bipartisan group of senators said Sullivan & Cromwell’s legal work for FTX before it filed for bankruptcy meant it should not now be tasked with investigating the events leading to the collapse of Sam Bankman’s crypto empire. Fried have led what involves allegations of fraud and embezzling clients’ money.
Two Democratic senators, John Hickenlooper and Elizabeth Warren, along with Republicans Thom Tillis and Cynthia Lummis, wrote in the Jan. 9 letter that Sullivan & Cromwell “simply is unable to uncover the information needed to do that.” to ensure confidence in investigations or results”.
The US bankruptcy court in Delaware will consider this month whether to allow Sullivan & Cromwell to continue representing FTX and more than 100 companies formerly controlled by Bankman-Fried in Chapter 11 proceedings. Senators asked Judge John Dorsey to appoint an independent auditor to investigate FTX’s collapse.
“As counsel is often at the center of major financial scandals, given their role in drafting financial agreements, risk management compliance practices and corporate controls, it is reasonable to have concerns about the impartiality and manner in which Sullivan & Cromwell conducts any investigation FTX will tackle this,” the senators wrote.
In a statement, Sullivan said that John Ray, who took over as FTX’s chief executive when the company filed for bankruptcy, could adequately oversee the company’s advisers and that FTX would have separate counsel to deal with any disputes.
“S&C has never served as the primary external advisor to an FTX company. The company had a limited and largely transactional relationship with FTX and certain affiliates prior to the bankruptcy, as is customary, and has a disinterest under the bankruptcy law,” the company said in a statement.
FTX did not immediately respond to a request for comment.
Earlier this month, an FTX account holder, Warren Winter, filed an appeal in bankruptcy court against Sullivan’s retention, writing in court filings that his attempt to represent it in bankruptcy was “the most blatant attempt by a fox to guard a chicken coop in recent memory” .
According to the filing, FTX paid the company more than $20.5 million in fees and advances before filing for bankruptcy. A former partner of Sullivan, Ryne Miller, became General Counsel of FTX US.
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The law firm wrote in a December fee statement that it was working with FTX “in relation to acquisition transactions and specific regulatory inquiries related to certain U.S. businesses.” The company had advised FTX on the aborted acquisition of Voyager Digital, the cryptocurrency exchange that was agreed to be bought out of bankruptcy in 2022.
“Significant questions about the firm’s involvement in the operation of FTX remain unanswered, including the extent to which Sullivan & Cromwell’s attorneys had questions or suspected fraud or the lack of adequate legal controls, [and] the actual extent of representation of FTX by Sullivan & Cromwell and if not Sullivan & Cromwell,” the senators wrote.
Sullivan & Cromwell disclosed in earlier court filings that FTX had paid $8.6 million between July 2021 and the November 2022 bankruptcy filing. An FTX affiliate, West Realm Shires, had also paid a $12 million advance fee for Sullivan shortly before the bankruptcy.
US bankruptcy law allows fees to be reimbursed by the bankrupt company, but consultants must first demonstrate to the court that the companies requesting payment have no significant conflicts of interest.
In the December fee filing, Sullivan said his top partners could charge more than $2,000 an hour for their work.