Lawyers representing the FTX class action lawsuit are pushing back against Sullivan & Cromwell’s (S&C) attempt to dismiss the case, accusing the law firm of actively aiding FTX’s fraudulent activities.
The plaintiffs argue that S&C went beyond typical legal counsel roles and helped FTX engage in deceptive practices.
S&C, which is handling FTX’s bankruptcy proceedings, was also the exchange’s outside counsel in various deals.
In court documents filed on July 29, the plaintiffs claimed that S&C lawyers devised misleading strategies to support FTX’s misconduct.
They have asked the court to reject S&C’s dismissal motion, allowing the lawsuit to move forward to discovery and trial.
The lawsuit, initially filed in February, seeks damages for several charges, including civil conspiracy and aiding and abetting fraud.
S&C’s dismissal motion contends that the allegations are speculative and lack factual support.
The firm highlighted that the Delaware Bankruptcy Court had deemed S&C a “disinterested party” in the bankruptcy case and assured that FTX victims would be fully compensated.
However, the plaintiffs countered that these points are irrelevant to the allegations in their complaint.
S&C maintains that it was not the primary outside counsel for FTX and had a limited, mainly transactional relationship with the exchange before the bankruptcy.
The lawsuit highlights the connection between FTX and S&C, initiated by Ryne Miller, a former S&C partner who became FTX’s general counsel in August 2021.
According to former FTX regulatory officer Daniel Friedberg, Miller directed numerous cases to S&C, aiming to rejoin the firm as a partner after his tenure with FTX.
The plaintiffs also noted that Sam Bankman-Fried, FTX’s former CEO, frequently operated out of S&C’s New York offices. S&C played a significant role in FTX’s acquisitions of LedgerX and Voyager Digital.
Following a bank run, FTX filed for bankruptcy in November 2022.
The involvement of S&C with FTX has raised concerns from various parties, including Senators, FTX insiders, the US Bankruptcy Trustee, and FTX customers.
According to FTX creditor Sunil Kavuri, there are pending lawsuits alleging that S&C improperly filed the bankruptcy without proper authority.
