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Delaware Judge Allows Sullivan & Cromwell to Litigate in FTX Bankruptcy Case

2 mins
Updated by Ali M.
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In Brief

  • Judge John Dorsey ruled on Jan. 20 that there is not enough evidence to prove that Sullivan & Cromwell have a conflict of interest preventing them from representing FTX.
  • FTX's latest bankruptcy creditor list reveals it owes Genesis over $200 million.
  • Security around Sam Bankman Fried's parents' home was allegedly breached recently, according to lawyers defending the former CEO.
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A Delaware judge presiding over the FTX bankruptcy case ruled today that attorneys Sullivan & Cromwell can represent FTX in its ongoing bankruptcy case.

Judge John Dorsey overruled a claim lodged earlier by FTX customers alleging that the firm’s previous work for FTX presented a conflict of interest in the current case.

FTX Lawyers and Sullivan & Cromwell Save Face

According to court documents, Sullivan & Cromwell had previously represented FTX on 20 occasions. FTX lawyers Ryne Miller and Tim Wilson also had close ties with the firm.

But, despite a late filing from a former FTX compliance head on Jan. 19, 2022, to strengthen the “conflict-of-interest” objection, the judge said he could find no evidence that the Sullivan & Cromwell had no such handicap. 

“Potential conflicts,” cannot, by themselves, prevent a law firm from litigating on behalf of a bankrupt company, judge Dorsey ruled.

Bahamian exchange FTX filed for bankruptcy on Nov. 11, 2022, after it couldn’t honor customer withdrawals after a Coindesk report revealed that a large percentage of the balance sheet of its affiliate Alameda Research consisted of FTX’s relatively illiquid FTT token. At the same time, FTX’s former CEO, Samuel Bankman-Fried, also stepped down. 

Bankman-Fried later alleged that Sullivan & Cromwell pressured him to declare FTX bankrupt.

Insolvency expert John J. Ray III then assumed the CEO role and appointed investment bankers to sell off several FTX entities and venture capital investments to recover customer funds. Additionally, Ray floated the idea of restarting the exchange to return customers’ money sooner than the bankruptcy proceedings could. 

A revised creditor list from the FTX bankruptcy case revealed that the Bahamian company owed more than $200 million to Digital Currency Group-owned Genesis Global Capital, a major lender in the crypto space.

Genesis filed for bankruptcy earlier today, claiming to owe over $3.6 billion to its top 50 unsecured creditors. The lender suffered a liquidity crisis in Nov. 2022 after collapsed crypto hedge fund Three Arrows Capital’s default on a $2.4 billion loan. 

Security of Bankman-Fried’s Parents’ Home Almost Breached

Lawyers defending Bankman-Fried in a separate criminal case today filed a letter to the presiding judge, alleging that three men drove into a metal barricade surrounding Bankman-Fried’s parents’ home in Palo Alto, California.

According to lawyers Mark Cohen and Chris Everdel, the three men in the vehicle told the appointed security guard that they were determined to access the home. The unidentified individuals later drove away.

The attorneys had successfully requested the judge to conceal the names of the unnamed guarantors who cosigned Bankman-Fried’s $250 million recognizance bond earlier this year to ensure their safety. Bankman-Fried’s parents, Joseph Bankman and Barbara Fried, were the two known guarantors.

The terms of the recognizance bond restrict Bankman-Fried’s movements within the United States and force him to wear a monitoring bracelet on his ankle. Additionally, he must receive mental health and substance abuse treatment.

Bankman-Fried, once a multi-billionaire, faces eight criminal charges in the U.S., including conspiracy to commit wire fraud, money laundering, and violating political campaign finance laws. 

The former FTX CEO has pleaded not guilty to all charges and awaits his Oct. 2023 trial date.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...