A Sam Bankman-Fried Company Loaned or Invested More than $1 Billion in Clients of its Law Firm, Sullivan & Cromwell

[Gunnar Larson]

Tim:

Great seeing you yesterday.

What do you think of this article?

Thank you,

Gunnar

https://wallstreetonparade.com/2023/01/a-sam-bankman-fried-company-loaned-or-invested-more-than-1-billion-in-clients-of-its-law-firm-sullivan-cromwell/


By Pam Martens and Russ Martens: January 17, 2023 ~

Sam Bankman-Fried
Sam Bankman-Fried

In a January 12 Substack column penned by Sam Bankman-Fried, the indicted
co-founder and former CEO of collapsed crypto exchange, FTX, he writes that
“When I would visit NYC, I would sometimes work out of S&C’s office.” S&C
is shorthand for the 144-year old Big Law firm, Sullivan & Cromwell, which
has come under withering media attention for attempting to steamroll its
way into the position of lead counsel in the FTX bankruptcy proceedings –
including investigating its own conduct as outside counsel to Sam
Bankman-Fried and his byzantine collection of crypto companies.

Wall Street On Parade has been covering the mushrooming conflicts of
interest held by Sullivan & Cromwell since two days after FTX (and its herd
of more than 100 related companies) filed their Chapter 11 bankruptcy
petition on November 11. Today, we will shine an even brighter light on
those conflicts.

The 8-count criminal indictment against Sam Bankman-Fried by the U.S.
Department of Justice makes it clear that pretty much everything Sam
Bankman-Fried did involving electronic business communications from 2019 to
November 2022 was wire fraud deployed to misappropriate customer deposits
and use “those deposits to pay expenses and debts of Alameda Research,
Bankman-Fried’s proprietary crypto hedge fund, and to make investments” in
other companies, most of which were crypto related. If Bankman-Fried was on
the premises of Sullivan & Cromwell during that span of time, which appears
highly likely since he came to New York for meetings and speaking
engagements, there is also the strong likelihood that he engaged in the
alleged wire fraud from their premises.

Just being on the premises of Sullivan & Cromwell and using their phones or
wi-fi without their knowledge to commit wire fraud might not be a fatal
conflict against the law firm, were it not for the fact that Wall Street On
Parade has discovered that an inordinate amount of Sullivan & Cromwell’s
other current clients appear to have received more than $1 billion of FTX’s
misappropriated customer funds.

On December 21, Sullivan & Cromwell filed a large document with the FTX
bankruptcy court which included (scroll down) a Declaration by S&C partner
Andrew Dietderich. Included in that Declaration was a list of current and
former S&C clients who had relationships with FTX and its related companies.

Dietderich provided no specificity on those relationships other than a
one-word or two-word description, such as “vendor,” “contract
counterparty,” “investments,” “competitor,” etc.

Wall Street On Parade cross-checked those S&C current clients which were
designated by the law firm as “contract counterparty” or “investments” with
public records and an internal FTX document published by the Financial
Times showing investments made by Sam Bankfried-Fried’s hedge fund, Alameda
Research, or its affiliated units. We discovered seven clients of Sullivan
& Cromwell had received loans or investment funds.

Sullivan & Cromwell told the bankruptcy court in a filing that it “is not
aware of any conflict between its representation of the Debtors and its
representations of its Current Clients or Former Clients that would cause
S&C not to be a ‘disinterested person.’ ” But if the funds involved were
looted from FTX customers, the funds may have to be clawed back and S&C is
hardly in a position to be trusted demanding claw backs from its own
customers.

This is what Wall Street On Parade found: (All current client listings are
as of December 21, 2022, according to Sullivan & Cromwell.)

BlockFi

BlockFi is another crypto exchange that is a current client of Sullivan &
Cromwell. It filed for bankruptcy in November and its court filings
indicate that it blames FTX for its own bankruptcy. BlockFi revealed to the
court that FTX and Alameda Research owe BlockFi more than $1 billion,
consisting of $680 million in a loan that Alameda has defaulted on and $355
million in funds frozen on the FTX crypto exchange.

Anchorage:

Sullivan & Cromwell lists Anchorage as a current client. Anchorage provides
infrastructure for institutions to enable crypto custody, exchange, staking
and other services. According to the document obtained by the Financial
Times, Clifton Bay Investments (formerly known as Alameda Research
Ventures) provided $20 million as an equity investment in Anchorage. Public
records put the date of that investment in or around December of 2021 –
well within the timeframe when federal prosecutors say Sam Bankman-Fried
was using customer funds to finance investments by Alameda Research and its
venture fund units.

Aptos:

Aptos, a blockchain startup by former Facebook employees, is also listed as
a current client of Sullivan & Cromwell. The internal document published by
the Financial Times indicates Aptos received $75 million from Clifton Bay
Investments, formerly known as Alameda Research Ventures. News reports put
the date of the investment in or around July 2022.

ConsenSys:

ConsenSys is a blockchain technology company and a current client of
Sullivan & Cromwell. According to a press release from the company, it
received funding from Alameda Research, along with others, in April 2021.
The Financial Times internal document indicates that the funding came in
the form of a $750,000 convertible note. (Wall Street mega banks, JPMorgan
Chase and UBS, also participated in that funding round. Both are listed as
current clients of Sullivan & Cromwell.)

Fanatics:

Fanatics is a sports merchandising and sports trading card company.
Sullivan & Cromwell lists it as a current client. According to the internal
document published by the Financial Times, Fanatics received a $10 million
equity investment from Alameda Research Ventures (a/k/a Clifton Bay
Investments). The date of that investment could not be determined.

Polygon Network:

Polygon Network is an Ethereum blockchain platform for scaling and
infrastructure development. According to TechCrunch, Alameda Research
participated in a funding round that occurred in February 2022. The
Financial Times’ internal document from FTX characterizes the investment as
$50 million invested in a token.

The Polygon Network funding round was led by Sequoia Capital, another
current client of Sullivan & Cromwell, which had itself invested $210
million in Sam Bankman-Fried’s now collapsed FTX crypto exchange. According
to CNBC, Sequoia Capital marked its FTX investment down to zero in November.

Rocket:

There are a number of companies that carry the name “Rocket.” We were
unable to determine which “Rocket” company Sullivan & Cromwell has
indicated is its client. The Financial Times internal document indicates
that “Rocket” received $150,000 from Alameda Ventures (a/k/a Maclaurin
Investments).

As Wall Street On Parade previously reported, Sullivan & Cromwell also
represents four of FTX’s major competitors: BlockFi, Coinbase, Gemini, and
Kraken; a former Sullivan & Cromwell partner, Ryne Miller, was serving as
General Counsel of FTX US at the time it imploded into bankruptcy; and at
least 16 Sullivan & Cromwell attorneys did legal work for FTX and/or
Alameda Research prior to the bankruptcy filing.

Four sitting U.S. Senators have filed a letter with the FTX bankruptcy
court raising alarms about Sullivan & Cromwell’s conflicts; the Justice
Department’s U.S. Trustee overseeing the bankruptcy proceedings has also
raised multiple concerns about Sullivan & Cromwell’s conflicts.

An FTX customer, Warren Winter, has filed a scathing objection with the
court to Sullivan & Cromwell serving as lead counsel. Winter’s attorneys
write as follows:

“Sullivan & Cromwell was one of the FTX Group’s ‘primary external law
firms’ before the FTX Group collapsed. To date, the FTX Group has paid the
firm more than $20.5 million in fees and retainers. Now, in the most
flagrant attempt by a fox to guard a henhouse in recent memory, Sullivan &
Cromwell has applied to be appointed the FTX Group’s bankruptcy counsel
with duties that would include ‘investigating all potential estate causes
of action.’ But it has revealed almost nothing about its prepetition work
for Sam Bankman-Fried’s fraudulent enterprise — and failed to disclose or
elided glaring conflicts of interest.”

Winter goes on to reveal the following to Judge Dorsey:

“Two former Sullivan & Cromwell lawyers are General Counsel to FTX Group
entities. Sullivan & Cromwell did not disclose these connections in its
Application and therefore violated Federal Rule of Bankruptcy Procedure
2014, which requires a statement ‘all of [the firm’s] connections with the
debtor … [and the debtor’s] attorneys.’ What’s more, disclosed or not,
these connections create a conflict of interest and are disqualifying. FTX
US General Counsel Ryne Miller is a former partner at Sullivan &
Cromwell…Miller is alleged to have played a key role— perhaps the key
role—in wresting control of the FTX Group from Sam BankmanFried and
directing this extremely valuable bankruptcy matter to his former firm.
According to Bankman-Fried, and supported by what appears to be genuine
evidence, Miller proclaimed to have usurped control of the FTX Group by
November 8th. He immediately secured a $12 million retainer for his former
firm and allegedly mounted an ‘extreme pressure’ campaign to put the FTX
Group into bankruptcy with Sullivan & Cromwell and its hand-picked CEO at
the helm.

“FTX Ventures General Counsel Tim Wilson is another former Sullivan &
Cromwell lawyer. The Securities and Exchange Commission has alleged that
FTX Ventures made at least $200 million in venture-capital investments
using customer funds that had been misappropriated through Alameda
Research….”

Thus far, the Judge hearing the FTX bankruptcy case, John Dorsey, has
allowed Sullivan & Cromwell to step into the shoes as lead counsel pending
a formal order to be taken up at a future hearing. Judge Dorsey dismissed
the letter from the four U.S. Senators as “inappropriate,” rather than
recognizing it as a siren call that a four-alarm crypto fire is out of
control in his courtroom.
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