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Creditors and investors accused Sullivan & Cromwell of not raising warnings and of positioning for a profitable role as FTX’s main bankruptcy counsel.
A recent court report has cleared the law firm Sullivan & Cromwell of any involvement in the fraudulent activities that led to the collapse of the crypto exchange FTX, according to Reuters. However, the investigation also found that the firm’s representatives sometimes gave inaccurate information to external parties.
Former CEO Sam Bankman-Fried was convicted in November 2023 for stealing $8 billion from FTX customers. Creditors and investors then accused Sullivan & Cromwell of not raising warnings and of positioning itself for a profitable role as FTX’s main bankruptcy counsel.
FTX Misinformation Concerns
An independent investigation led by former prosecutor Robert Cleary found no evidence that Sullivan & Cromwell knowingly participated in the fraud. The probe examined the firm’s pre-bankruptcy work for FTX, including regulatory filings and the failed acquisition of crypto lender Voyager Digital.
“Sullivan & Cromwell remains confident in our pre-petition work for FTX and the commencement of the Chapter 11 cases,” stated Sullivan & Cromwell in a press release. “We welcome the examiner’s findings to date rejecting various baseless allegations about our work for FTX.”
The U.S. Trustee, a Department of Justice watchdog overseeing bankruptcy proceedings, had initially pushed for the independent investigation, citing the importance of uncovering potential mismanagement within FTX.
Although the investigation found no intentional wrongdoing, Cleary’s report revealed that Sullivan & Cromwell unknowingly provided wrong information. For example, a partner assured Voyager Digital on November 7, 2023, that FTX’s finances were “rock solid.” This was false, as FTX CEO Sam Bankman-Fried was seeking emergency funding at the same time. Four days later, FTX filed for bankruptcy.
This revelation raises concerns about misinformation in the legal representation of struggling companies. While Sullivan & Cromwell claim they were unaware of the inaccuracies at the time. The incident highlights the importance of thorough checks and clear communication during tough economic times.
The Road Ahead
The FTX collapse and the subsequent legal battle reveal how financial transparency and regulation in the crypto industry are needed. While the court acquitted Sullivan & Cromwell of intentional misconduct, the whole scenario shows misinformation is possible and raises concerns about legal representation in financial crises.
As the bankruptcy proceedings of FTX continue, it remains to be seen how this chapter will have an impact on the future of crypto regulation. The incident strengthens the argument for the implementation of strong safeguards in order to protect investors and bring stability to the crypto market.
