Class Action Lawsuit Targets Sullivan & Cromwell in FTX Fraud Case
A new class action lawsuit has been filed against the New York-based law firm Sullivan & Cromwell (S&C), alleging that the firm played a significant role in the multi-billion dollar fraud scheme carried out by FTX. The lawsuit, spearheaded by named plaintiffs Edwin Garrison and others, claims that S&C acted as an accessory to the devastation suffered by countless investors involved in the FTX downfall.
The extensive 75-page complaint provides detailed allegations of collusion and deliberate oversight, implicating both S&C and FTX insiders. The plaintiffs assert that S&C disregarded legal and ethical standards and actively perpetuated the deception that led to the FTX crisis.
Allegations of Aiding and Abetting Fraud
The heart of the allegations revolves around S&C’s alleged disregard for legal and ethical standards, leading to their active participation in perpetuating the fraud committed by FTX. The plaintiffs have accused S&C of aiding and abetting fraud and violating RICO statutes, indicating their determination to uncover any potential involvement of legal advisers in this notorious financial debacle.
Garrison and his co-litigants have identified specific instances of illicit activities, such as financial transactions and internal communication, which they believe S&C must have been aware of due to their close advisory relationship with FTX leadership. The plaintiffs also highlight S&C’s substantial financial gain from their engagement with FTX, claiming that the law firm earned approximately $8.5 million in fees during the 16 months leading up to FTX’s collapse.
Sullivan & Cromwell’s Windfall from FTX Downfall
According to Garrison, S&C has generated over $180 million since taking charge of the FTX bankruptcy proceedings. This figure represents about 10% of S&C’s total reported revenue for 2022. Additionally, reports suggest that S&C invoiced more than $153 million for their services in the FTX bankruptcy case between November 2022 and November 2023, with an average monthly revenue of nearly $11.8 million.
The allegations become even more damning with accusations that former S&C attorney Ryne Miller, after joining FTX as general counsel, funneled significant legal business back to his former firm. The lawsuit also questions Miller’s potential knowledge of questionable financial transactions involving FTX customer funds, including an alleged “back door” leading to the controversial transfer of funds to sister trading house Alameda Research.
Conflict of Interest Concerns
Concerns regarding conflicts of interest have been raised throughout the industry and even reached the Senate, where calls for an independent examiner were previously made. In January 2024, the Third Circuit Court of Appeals mandated an investigation into FTX by an independent examiner, aiming to bring transparency and potentially reshape industry norms.
The creditors’ legal maneuver seeks jury trials for all triable claims, indicating a deliberate move towards a complex and potentially high-stakes courtroom battle.
Sullivan & Cromwell’s Involvement with Binance?
News of this class action lawsuit emerges alongside reports suggesting that Sullivan & Cromwell may soon play a critical role in overseeing Binance Holdings Ltd. The firm is reportedly being considered as an independent monitor, surpassing numerous competitors in the legal and consulting fields. Insider sources hint at Sharon Cohen Levine leading the oversight team; however, official confirmation is pending as the Justice Department nears a final decision.
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