FTX creditors file class action against bankruptcy lawyers over ties to FTX prior to its collapse

The bankruptcy law firm Sullivan and Cromwell (S&C) is facing a class action lawsuit that accuses it of being too closely involved with the exchange FTX before its collapse, making it partially responsible for its actions.

The class action focuses on the numerous times S&C acted as outside counsel for FTX before its collapse. As a result of these dealings, the law firm gained knowledge of the exchange's operations and ultimately supported it in its fraudulent activities.

"While FTX customers, Class Members, lost everything, S&C managed to earn millions from the FTX fraud. S&C served as primary legal counsel to FTX for the 16 months preceding FTX's collapse, during which time S&C billed around $8.5 million in fees," the lawsuit states.

The lawsuit alleges that after lawyer Ryne Miller left S&C and joined FTX as General Counsel in 2021, he encouraged sending business to S&C as outside counsel. This led to 20 engagements, including FTX's bid for the assets of crypto exchange Voyager and its acquisition of crypto exchange LedgerX.

The lawsuit also claims that S&C represented a special purpose vehicle called Emergent, which was used to purchase Robinhood stock using FTX customer funds, while also representing former FTX CEO Sam Bankman-Fried himself.

The class action alleges, citing FTX insiders, that Miller became aware of the "back door" in FTX's platform that allowed it to divert FTX customer funds to Alameda and that he shared this information with multiple individuals at S&C.

The lawsuit also notes the amount S&C has earned by overseeing the FTX bankruptcy proceedings.

"Since taking a leading role, S&C's income from matters related to FTX has skyrocketed, exceeding $180 million – or 10% of the total revenue the 900-lawyer firm publicly stated it collected in all of 2022 – with paralegals billing $595/hour and partners billing up to $2,165/hour," it says, citing Bloomberg.