Sullivan Hits Back Against FTX Investors’ ‘Dubious’ Fraud Claims

FTX law firm Sullivan & Cromwell is slamming the “dubious” claim by some of the failed crypto exchange’s investors that its lawyers were complicit in a billion-dollar fraud.

A federal lawsuit against the firm by FTX investors is based on “innuendo masquerading as facts,” Sullivan Cromwell said Monday in a court filing. Defrauded FTX customers are set to get all of their money back from the failed exchange in bankruptcy proceedings, according to the firm.

“Plaintiffs in this action, a handful of alleged FTX customers, purport to bring claims against Sullivan & Cromwell to recover the same damages for which they are already being compensated through the bankruptcy process,” the firm said, asking a federal judge in Florida to dismiss the lawsuit.

Sullivan & Cromwell worked for FTX in the 16 months leading up to its November 2022 crash. The firm has come under a spotlight over its ties to the exchange once led by Sam Bankman-Fried, who in March was sentenced to 25 years in prison for stealing billions from customers.

A proposed class of investors represented by The Moskowitz Law Firm in February sued the firm for allegedly aiding and abetting the fraudulent activity that happened at the exchange. The firm is also facing a court-mandated review into whether it has any conflicts of interest that should have been addressed as it leads FTX through bankruptcy proceedings.

Controversy over the powerful Wall Street firm’s work for FTX ultimately caused it to lose out on a high-profile outside monitor assignment overseeing crypto exchange Binance Holdings Ltd, Bloomberg News reported.

Sullivan & Cromwell has billed more than $180 million over the last 18 months for work guiding FTX through Chapter 11 restructuring proceedings in Delaware.

In Monday’s filing in the US District Court for the Southern District of Florida, the firm said FTX investors have still made no accusation that Sullivan & Cromwell had knowledge of any fraud while performing certain legal services. Courts have held that “lawful legal services to a fraudster does not impute knowledge of the fraud,” said the firm’s counsel, lawyers from Hunton Andrews Kurth.

Sullivan & Cromwell also touted its work on the FTX bankruptcy, calling it a “tremendous success” that will compensate the injured customers through the bankruptcy process.

The exchange on May 8 revealed that it has collected billions more than it needs to cover what customers lost. It sets creditors up to receive full recoveries based on the price of their crypto assets at the time of the bankruptcy, plus interest.

Sullivan & Cromwell is among several third-party advisers and celebrity endorsers, including former NFL star Tom Brady, facing investor claims of enabling FTX’s fraud in Miami federal court. Bankman-Fried in April agreed to cooperate in exchange for the plaintiffs dropping civil claims against him.

The case is Re: FTX Cryptocurrency Exchange Collapse Litigation, S.D. Fla., 1:23-md-03076, 5/13/24 S.D. Fla., 23-md-03076, 05/13/2024