Investors in FTX Take Legal Action Against Sullivan & Cromwell, Alleging Firm’s Assistance in Fraudulent Activities.

FTX investors have taken legal action against Sullivan & Cromwell, leveling accusations that the prestigious law firm played a role in facilitating illicit activities that propelled a multi-billion dollar fraud preceding the collapse of the cryptocurrency exchange.

According to the complaint filed by investors on February 16, Sullivan & Cromwell allegedly provided services that exceeded the scope expected of a typical law firm. The complaint asserts that the firm’s lawyers were not only complicit in but actively contributed to deceptive strategies that furthered FTX’s misconduct.

This lawsuit, representing a proposed class of FTX customers, intensifies the scrutiny directed at the elite Wall Street law firm. Sullivan & Cromwell has acknowledged its involvement in 20 legal matters for FTX and its founder, Sam Bankman-Fried, in the 16 months leading up to the exchange’s demise in 2022 amid reports of a liquidity crisis.

Despite these allegations, Sullivan & Cromwell has refrained from commenting on the matter. Previously, the firm had stated that its relationship with FTX was “limited” and that it promptly alerted federal law enforcement upon learning of issues within the exchange.

The legal action, brought forth by The Moskowitz Law Firm in Miami federal court, accuses Sullivan & Cromwell of actively participating in FTX’s fraudulent activities through legal maneuvers that provided deep insight into the exchange’s operations. Investors allege that the firm was privy to the whereabouts of customer funds and the deceptive practices surrounding their use.

This lawsuit marks the second instance of a law firm facing investor litigation over alleged complicity in the FTX fraud. Fenwick & West, a prominent Silicon Valley law firm that served as FTX’s primary corporate counsel, is also embroiled in a separate legal action alongside venture and private equity firms.

Sam Bankman-Fried, the founder of FTX, was convicted in November on charges of fraud and conspiracy related to diverting customer funds for personal and speculative investments.

Sullivan & Cromwell, established in 1879, is one of the largest law firms in the United States. Despite its longstanding reputation, it finds itself entangled in controversies surrounding its dealings with digital asset entities. The firm’s involvement with Coinbase and its impending role as an independent monitor for Binance Holdings Ltd. following a significant settlement underscores its deep engagement with the cryptocurrency landscape.

The lawsuit also sheds light on Sullivan & Cromwell’s relationship with FTX, which began in 2021 when FTX.US appointed Ryne Miller, a former Sullivan & Cromwell attorney, as its general counsel. Miller allegedly prioritized directing business to his former firm upon assuming his new role.

The legal matters handled by Sullivan & Cromwell for FTX ranged from proposed acquisitions to regulatory representations before governmental bodies. Furthermore, the firm represented Bankman-Fried personally in matters pertaining to his involvement with Robinhood Markets Inc.

Amid ongoing bankruptcy proceedings, Sullivan & Cromwell’s restructuring group has assumed the role of FTX’s primary bankruptcy counsel. Despite assurances of full customer repayment, a federal appeals court has ordered an independent examination of the FTX case due to potential conflicts of interest arising from Sullivan & Cromwell’s prior involvement with the exchange.