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Sullivan & Cromwell’s Legal Work for Sam Bankman-Fried’s Crypto House of Fraud Is Getting a Closer Look in Two Federal Court Cases
by Gunnar Larson 31 Jul '24

31 Jul '24

https://wallstreetonparade.com/2024/06/sullivan-cromwells-legal-work-for-sa… By Pam Martens and Russ Martens: June 17, 2024 ~ Ryne Miller, Former Sullivan & Cromwell Partner; Now General Counsel of FTX.US Ryne Miller, Former Sullivan & Cromwell Partner Who Became General Counsel of FTX.US Last Monday, Robert J. Cleary of law firm Patterson Belknap filed a motion in the bankruptcy proceeding of Sam Bankman-Fried’s collapsed fraud, the FTX crypto exchange, seeking to launch three new investigations into legal work done by Sullivan & Cromwell for Bankman-Fried and FTX prior to the collapse of the fraud. Cleary is the independent examiner appointed by the U.S. Department of Justice’s U.S. Trustee, which acts as a watchdog in federal bankruptcy cases. Adding to the embarrassment for Sullivan & Cromwell with the announcement of the new investigations is the fact that Sullivan & Cromwell fought against allowing the U.S. Trustee to appoint an independent examiner after it had maneuvered itself into the position of lead counsel to the FTX bankruptcy proceeding, despite its multitude of conflicts with FTX. The presiding judge in the bankruptcy case, John Dorsey, had sided with Sullivan & Cromwell in the matter. The U.S. Trustee was forced to take the issue to the Third Circuit Court of Appeals. On January 19, a sharp rebuke to Sullivan & Cromwell and the judge was handed down. The court wrote in its decision: “Under the Bankruptcy Court’s interpretation, the appointment of an examiner under either subsection of Section 1104(c) would be subject to a court’s discretion and a judge would have the final say as to whether an investigation was warranted. But this interpretation runs counter to the statute’s plain language and established canons of construction.” The court added this: “First, an examiner must be ‘disinterested’… This requirement of disinterest is particularly salient here, where issues of potential conflicts of interest arising from debtor’s counsel serving as pre-petition advisors to FTX have been raised repeatedly….” The independent examiner’s June 10 motion explains the three new areas it wants to investigate as follows: “The first recommendation concerns S&C’s representation of Sam Bankman-Fried… in connection with his purchase of the Robinhood Shares…This inquiry would focus on (1) the scope and contours of that representation, and (2) based on that representation, what, if anything, S&C knew or should have known about the FTX Group’s misconduct and/or fraud… “The second recommendation concerns potential claims against the former shareholders of Ledger Holdings, Inc [parent of LedgerX]…that sold their interests prepetition to West Realm Shires Inc. [a/k/a FTX.US]…This inquiry would (1) seek to determine whether an avoidance action(s) is warranted with respect to unreleased shareholders, and (2) enable the Examiner to report on the underlying details of the prepetition sale of LHI to WRS, which report and findings would be in the public interest… “The third recommendation concerns the ‘holes’ or balance sheet shortfalls at FTX.US…This inquiry would center on (1) the existence of and the reasons these holes arose at FTX.US, (2) whether the balance sheet holes were the result of commingling of customer or corporate assets, (3) the frequency and magnitude of the holes, and (4) how they were resolved and by whom….” The independent examiner is asking for 10 weeks and $3 million to conduct the three new investigations. A hearing on the matter is scheduled for today in the federal bankruptcy court in Delaware before Judge John Dorsey. The independent examiner had released a preliminary report on May 23, which found no wrongdoing on the part of Sullivan & Cromwell. That report, however, indicated that further investigations would be requested by the independent examiner. Adding pressure on the independent examiner is the fact that powerful sleuthing into Sullivan & Cromwell’s work on behalf of FTX is being done by law firms representing plaintiffs who are suing Sullivan & Cromwell (S&C) in federal district court in Florida. The plaintiffs write in their complaint: “For its part, S&C facilitated the scheme to defraud and RICO enterprise by agreeing to provide and providing legal services to FTX US and FTX Trading Ltd…S&C did so knowingly, recklessly, or with willful blindness to the nature of the RICO enterprise but within the scope of the S&C’s employment and in furtherance of the firm’s business. In fact, in exchange for S&C’s counsel in these matters, FTX paid S&C significant fees.” There is no question that Sullivan & Cromwell’s ties to FTX were significant. One of Sullivan & Cromwell’s law partners, Ryne Miller, moved to FTX.US and became its General Counsel. Another former Sullivan & Cromwell lawyer, Tim Wilson, became General Counsel for FTX Ventures, the venture capital arm of FTX. Sullivan & Cromwell had previously represented the kingpin of the fraud, Sam Bankman-Fried, who was convicted in November 2023 on seven counts of fraud and conspiracy. The law firm had also previously represented the Head of Engineering at FTX, Nishad Singh, who pled guilty to fraud charges. According to Sullivan & Cromwell’s own bankruptcy court declaration, it had been involved in more than 20 legal engagements for FTX before it filed for bankruptcy on November 11, 2022. According to the declaration, the law firm’s legal work began 15 months prior to the collapse of the firm. Among the three areas that the independent examiner is asking to investigate, the LedgerX deal may prove to be particularly problematic. The plaintiffs in the case in federal court in Florida allege the following: “According to some FTX Insiders, S&C decided to intentionally keep FTX US Derivatives (formerly LedgerX) out of the FTX bankruptcy proceedings, with knowledge that it was in possession of approximately a quarter billion dollars of diverted FTX customer funds from which it could (and has) extracted significant revenue. In fact, from November 2022 to mid-January 2024, S&C’s income from matters just related to FTX has surged, exceeding $180 million—or 10% of the total revenue the 900-lawyer firm publicly stated it collected in all of 2022—with paralegals billing $595/hr. and partners billing up to $2,165/hr.” The Florida complaint also raises the following bombshell allegation regarding the LedgerX deal: “Through its work on the LedgerX acquisition and work in connection with LedgerX (d/b/a FTX US Derivatives) thereafter, S&C was privy to a software audit of the FTX systems, which Mr. Miller and then-CEO of LedgerX, Zach Dexter, oversaw. According to FTX Insiders, Mr. Miller became aware through that audit of the ‘back door’ in the FTX Platform code that allowed SBF [Sam Bankman-Fried] and his inner circle to embezzle FTX customer funds by funneling them to Alameda [Sam Bankman-Fried’s hedge fund], and communicated that fact to his mentors, Messrs. Dietderich and Eitel [lawyers at S&C], and others at S&C.” The Florida case is Edwin Garrison, et al., v. Sullivan & Cromwell LLP. It has been filed in the U.S. District Court for the Southern District of Florida. The case number is 1:24-cv-20630. It is part of Multi-District Litigation (MDL) involving FTX. Sullivan & Cromwell ranks among the oldest law firms in America. It was founded 145 years ago by Algernon Sydney Sullivan and William Nelson Cromwell in the financial district of lower Manhattan. During the Wall Street crisis of the 1930s, Sullivan & Cromwell built a reputation for defending Wall Street firms against shareholder lawsuits and antitrust actions. Sullivan & Cromwell also played a pivotal role in the 2008 financial crisis, the worst since the Great Depression. As Wall Street On Parade previously detailed, the firm’s Senior Chair, Rodge Cohen, paved the way for the Fed’s unprecedented $29 trillion bailout of Wall Street banks after their corrupt activities collapsed the U.S. economy in 2008. Related Articles: No One Trusts the FTX Bankruptcy Case: News Outlets Intervene; Justice Department Trustee Demands Independent Examiner; SEC Orders Disclosures A Sam Bankman-Fried Company Loaned or Invested More than $1 Billion in Clients of its Law Firm, Sullivan & Cromwell Sullivan & Cromwell, FTX Lead Counsel in Bankruptcy, Says It Has No Adverse Relationships, Despite Representing Four of FTX’s Crypto Exchange Competitors Bombshell Emails Raise Questions about What Sullivan & Cromwell Knew about Fraud at Sam Bankman-Fried’s Crypto Firms

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FTX Users Say Sullivan & Cromwell Must Face Abetting Claims
by Gunnar Larson 31 Jul '24

31 Jul '24

FTX Users Say Sullivan & Cromwell Must Face Abetting Claims <https://www.law360.com/fintech/articles/1863606?nl_pk=d2b3e7ef-ab62-4a62-80…> By Aislinn Keely FTX customers told a Florida federal judge on Tuesday that Sullivan & Cromwell LLP can't dismiss customer claims it aided and abetted the defunct cryptocurrency exchange's fraud as "speculative allegations" when the customers' complaint "paints a much more detailed and nefarious picture." 2 documents attached | Read full article » <https://www.law360.com/fintech/articles/1863606?nl_pk=d2b3e7ef-ab62-4a62-80…> | Save to favorites » <https://www.law360.com/fintech/articles/1863606?nl_pk=d2b3e7ef-ab62-4a62-80…>

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SF Fed Tells 9th Circ. Banks Not Entitled To Master Accounts
by Gunnar Larson 31 Jul '24

31 Jul '24

SF Fed Tells 9th Circ. Banks Not Entitled To Master Accounts <https://www.law360.com/fintech/articles/1863604?nl_pk=d2b3e7ef-ab62-4a62-80…> By Sydney Price The San Francisco Federal Reserve Bank told the Ninth Circuit that it was not obligated to give a master account to an Idaho trade finance fintech, arguing federal law does not make these payment system gateways available to everyone regardless of risk. Brief attached | Read full article » <https://www.law360.com/fintech/articles/1863604?nl_pk=d2b3e7ef-ab62-4a62-80…> | Save to favorites » <https://www.law360.com/fintech/articles/1863604?nl_pk=d2b3e7ef-ab62-4a62-80…>

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FDIC Moves To Revamp Brokered Deposit Regs In Policy Push
by Gunnar Larson 31 Jul '24

31 Jul '24

FDIC Moves To Revamp Brokered Deposit Regs In Policy Push <https://www.law360.com/fintech/articles/1863615?nl_pk=d2b3e7ef-ab62-4a62-80…> By Jon Hill The Federal Deposit Insurance Corp. on Tuesday unveiled a proposal that would subject more bank deposits to heightened regulation as "brokered" funds, outlining new rules that the agency pitched as addressing risks highlighted by failures of firms like First Republic Bank and Voyager, a crypto lender. 6 documents attached | Read full article » <https://www.law360.com/fintech/articles/1863615?nl_pk=d2b3e7ef-ab62-4a62-80…> | Save to favorites » <https://www.law360.com/fintech/articles/1863615?nl_pk=d2b3e7ef-ab62-4a62-80…>

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Delta Hires Boies Schiller To Recoup Outage-Related Damages
by Gunnar Larson 31 Jul '24

31 Jul '24

Delta Hires Boies Schiller To Recoup Outage-Related Damages <https://www.law360.com/newyork/articles/1863550?nl_pk=ac5a3855-e47c-4403-be…> By Bonnie Eslinger Delta Air Lines has retained Boies Schiller Flexner LLP to help it pursue potential damages from cybersecurity firm CrowdStrike and Microsoft in the wake of the mid-July global tech outage that left passengers stranded, a person familiar with the matter confirmed to Law360 on Tuesday. Read full article » <https://www.law360.com/newyork/articles/1863550?nl_pk=ac5a3855-e47c-4403-be…> | Save to favorites » <https://www.law360.com/newyork/articles/1863550?nl_pk=ac5a3855-e47c-4403-be…>

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NY Ruling Offers A Foreclosure Road Map For Lenders
by Gunnar Larson 31 Jul '24

31 Jul '24

NY Ruling Offers A Foreclosure Road Map For Lenders <https://www.law360.com/newyork/articles/1859389?nl_pk=ac5a3855-e47c-4403-be…> A New York appellate court recently upheld a summary judgment ruling in favor of a commercial lender's foreclosure in U.S. Bank v. 1226 Evergreen Bapaz, illustrating the proofs lenders will need to prosecute a foreclosure action, especially where the plaintiff is an assignee of the originating lender, say attorneys at Sherman Atlas. Read full article » <https://www.law360.com/newyork/articles/1859389?nl_pk=ac5a3855-e47c-4403-be…> | Save to favorites » <https://www.law360.com/newyork/articles/1859389?nl_pk=ac5a3855-e47c-4403-be…>

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FTX Exec Gets Prison Report Date Delayed After Dog Attack
by Gunnar Larson 31 Jul '24

31 Jul '24

FTX Exec Gets Prison Report Date Delayed After Dog Attack <https://www.law360.com/newyork/articles/1863740?nl_pk=ac5a3855-e47c-4403-be…> By Gina Kim A New York federal judge on Tuesday allowed ex-FTX executive Ryan Salame to delay his surrender date to begin his prison term from August to October, as he was forced to undergo medical treatment and surgery after being mauled by a German shepherd while visiting a friend's house last month. Order attached | Read full article » <https://www.law360.com/newyork/articles/1863740?nl_pk=ac5a3855-e47c-4403-be…> | Save to favorites » <https://www.law360.com/newyork/articles/1863740?nl_pk=ac5a3855-e47c-4403-be…>

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Feds, SEC Say Creator Of Crypto Co. BitClout Misled Investors
by Gunnar Larson 31 Jul '24

31 Jul '24

Feds, SEC Say Creator Of Crypto Co. BitClout Misled Investors <https://www.law360.com/newyork/articles/1863678?nl_pk=ac5a3855-e47c-4403-be…> By Aislinn Keely Federal prosecutors and the U.S. Securities and Exchange Commission announced parallel actions Tuesday against the founder of crypto project BitClout for allegedly duping investors and spending millions of proceeds for his own benefit. 2 documents attached | Read full article » <https://www.law360.com/newyork/articles/1863678?nl_pk=ac5a3855-e47c-4403-be…> | Save to favorites » <https://www.law360.com/newyork/articles/1863678?nl_pk=ac5a3855-e47c-4403-be…>

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Legalization Foes Mount New Challenge To NY Pot Program
by Gunnar Larson 31 Jul '24

31 Jul '24

Legalization Foes Mount New Challenge To NY Pot Program <https://www.law360.com/newyork/articles/1863846?nl_pk=ac5a3855-e47c-4403-be…> By Sam Reisman A group of anti-cannabis activists renewed their challenge to New York's proposal to use public funds to help marijuana retailers launch their businesses, alleging in a new state court lawsuit that the policy violates federal law. Complaint attached | Read full article » <https://www.law360.com/newyork/articles/1863846?nl_pk=ac5a3855-e47c-4403-be…> | Save to favorites » <https://www.law360.com/newyork/articles/1863846?nl_pk=ac5a3855-e47c-4403-be…>

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Meta, TikTok Challenge 'Subway Surfing' Death Claims
by Gunnar Larson 31 Jul '24

31 Jul '24

Meta, TikTok Challenge 'Subway Surfing' Death Claims <https://www.law360.com/newyork/articles/1863787?nl_pk=ac5a3855-e47c-4403-be…> By Y. Peter Kang TikTok and Meta Platforms have asked a New York court to separate claims against them in a suit over the death of a teen who allegedly took part in a "subway surfing" social media challenge, saying the claims against them are totally different from claims against a state transportation agency. Memorandum attached | Read full article » <https://www.law360.com/newyork/articles/1863787?nl_pk=ac5a3855-e47c-4403-be…> | Save to favorites » <https://www.law360.com/newyork/articles/1863787?nl_pk=ac5a3855-e47c-4403-be…>

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