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FTX Looks to Sullivan & Cromwell Veteran Team to Untangle Mess

Nov. 15, 2022, 9:53 PM

FTX has turned to Sullivan & Cromwell veterans who aided major restructurings, including Eastman Kodak Co., to sort out the crypto exchange’s affairs in Chapter 11.

Andrew Dietderich, co-head of restructuring for the white-shoe firm who helped guide Kodak’s 125-country reorganization, is leading a legal team at the firm advising FTX.

He’s aided at the Wall Street firm by partners James L. Bromley, who led Nortel Networks US Chapter 11, and Brian Glueckstein, who represented Fiat Chrysler in matters including the insolvency and restructuring of Takata Corp.

The FTX debacle sets up an “all-hands-on-deck situation” requiring dozens of attorneys working around-the-clock, said Daniel Besikof, a restructuring partner at Loeb & Loeb.

“The task they have cut out for them is to figure out where the assets are, where the claims are, and what portion of the business, if any, is viable,” Besikof said.

FTX’s Nov. 11 bankruptcy filing came at the end of a week that rocked the crypto world, including a 23% drop in Bitcoin as investors wondered how widely the collapse of the exchange would be felt.

FTX did not immediately return a request for comment on its outside and in-house legal representation. A Sullivan & Cromwell representative did not immediately return a request for comment.

‘Increasingly Dire’

The crypto exchange engaged with Sullivan and Alvarez & Marsal, a consulting and restructuring firm that advised Lehman Brothers in its 2008 bankruptcy, as issues relating to its array of businesses and assets became “increasingly dire,” according to a court filing late Monday.

FTX US general counsel Ryne Miller is a former Sullivan partner who joined the exchange affiliate in 2021.

The two firms’ first actions included responding to a Friday cyberattack and moving customer assets into so-called cold-wallets.

Court records indicate Sullivan is working on FTX matters relating to restructuring, cybercrime and investigations. FTX is facing inquiries from dozens of state, federal and international agencies, according to Monday’s filing.

Sullivan & Cromwell special counsel Alexa J. Kranzley is also part of the firm’s team working on the FTX bankruptcy, according to court records.

Jay Clayton, a former US Securities and Exchange Commission chair who serves as an adviser at Sullivan, said in an email Tuesday he is not on the team representing FTX.

Landis Rath & Cobb, a Delaware boutique specializing in bankruptcy, has also worked on FTX’s behalf. Alvarez & Marsal is working “on the ground” as a proposed financial adviser and reviewing books and records, court records show.

No ‘First Day’

In filings in Delaware bankrutpcy court, FTX listed more than 130 affiliated entities, including trading firm Alameda Research Ltd., which disclosed assets and liabilities of at least $10 billion each.

Lawyers for FTX have yet to file what’s known as a “first-day” declaration spelling out the reasons for opening bankruptcy proceedings. The absence of that filing is likely due to the swift downfall of the exchange, Besikof said.

“What I suspect is they filed Chapter 11 bankruptcy just to get the benefit of the automatic stay,” he said. That enables the team “to use the few days they were given to take a breath and figure out where to go.”

The lawyers may rely on the general playbook utilized in the bankruptcy stemming from the Bernie Madoff Ponzi scheme, according to James Cox, a Duke University law professor.

“All of this has the same ring to me of the collapse of Madoff, a broker who misused client funds,” Cox said. “The first question for FTX is exactly what assets does the firm have.”

Beyond Sullivan & Cromwell, the exchange’s collapse has drawn in a host of prominent attorneys and law firms.

On Nov. 11, FTX announced that co-founder Sam Bankman-Fried would step down as CEO and be replaced by John J. Ray, a restructuring expert who once oversaw the liquidation of Enron Corp. amid a massive accounting scandal.

Ray has appointed former District Judge Joseph J. Farnan Jr. as a lead independent director of FTX Trading Ltd.

Bankman-Fried, meanwhile, is being advised by Paul Weiss, among the 20 largest law firms in the U.S. Litigator Martin Flumenbaum, who is advising Ripple Labs chairman Christian Larsen in a separate Securities and Exchange enforcement action, is reportedlyleading that representation.

Ray said in a Friday statement after the exchange filed for Chapter 11 protection that more information will be divulged through court filings in the “coming days.”

To contact the reporter on this story: Justin Wise at jwise@bloombergindustry.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com