Four US senators have questioned whether Wall Street law firm Sullivan & Cromwell could properly investigate possible wrongdoing by FTX as bankruptcy counsel for its past work on cryptocurrency exchanges.
A bipartisan group of senators said that Sullivan & Cromwell’s legal work for FTX before it filed for bankruptcy means it will not now be entrusted with investigating the events that led to the collapse of Sam Bankman-Fried’s crypto empire, which included allegations of fraud and abuse. customer money.
Two Democratic senators, John Hickenlooper and Elizabeth Warren, along with Republicans Thom Tillis and Cynthia Lummis, wrote in a letter on January 9 that Sullivan & Cromwell “is not in a position to disclose the information necessary to ensure confidence in any investigation or findings.” .
The US bankruptcy court in Delaware will consider this month whether to allow Sullivan & Cromwell to continue representing FTX and more than 100 companies previously managed by Bankman-Fried in the Chapter 11 process. The senators asked Judge John Dorsey to appoint an independent examiner to examine the collapse of FTX.
“Since legal counsel is often at the center of major financial scandals, due to its role in creating financial agreements, risk management compliance practices, and corporate controls, it is reasonable to have concerns about the impartiality and manner in which Sullivan & Cromwell will conduct any investigation. FTX with ,” the senators wrote.
In the statement, Sullivan said that John Ray, who took over as chief executive of FTX as the company filed for bankruptcy, could adequately supervise the company’s counsel and that FTX would have a separate attorney to handle conflicts.
“S&C has never been the primary outside counsel for any FTX entity. The company has had a limited relationship and most transactions with FTX and certain affiliates before bankruptcy, as is common, and is not interested as required by the Bankruptcy Code,” the company said in a statement.
FTX did not immediately respond to a request for comment.
Earlier this month, the owner of the FTX account, Warren Winter, filed an objection to Sullivan’s arrest with the bankruptcy court, writing in court papers that the attempt to represent the bankruptcy is “the biggest attempt by the fox to keep the hen house in recent memory.”.
FTX paid the company more than $20.5m in fees and retainers before filing for bankruptcy, according to the motion. Sullivan’s former partner, Ryne Miller, is general counsel for FTX US.
The law firm wrote in its December fee application that it works with FTX “on acquisition transactions and specific regulatory inquiries relating to certain US lines of business”. The company advised FTX on its canceled acquisition of Voyager Digital, a cryptocurrency exchange it had agreed to buy from bankruptcy in 2022.
“Important questions about the company’s involvement in FTX operations remain unanswered, including how long Sullivan & Cromwell’s lawyers had questions or suspected fraud or lacked appropriate legal controls, [and] the actual scope of Sullivan & Cromwell’s representation of FTX and otherwise Sullivan & Cromwell,” the senators wrote.
Sullivan & Cromwell disclosed in a previous court filing that it had been paid $8.6m by FTX between July 2021 and the bankruptcy filing in November 2022. FTX’s affiliate, West Realm Shires, also funded $12m in retainer fees for Sullivan before the bankruptcy.
US bankruptcy law allows professional fees to be reimbursed by bankrupt companies but counsel must first demonstrate to the court that the company seeking payment does not have a significant conflict of interest.
In a December fee application, Sullivan said top partners can charge more than $2,000 an hour for their work.