A group of FTX investors has filed a proposed class action lawsuit against U.S. law firm Sullivan & Cromwell, claiming it participated in the defunct cryptocurrency exchange's multibillion-dollar fraud before further enriching itself as FTX's bankruptcy counsel.
Sullivan & Cromwell, which did legal work for FTX during the company's rise, had unique insight into the exchange's "convoluted organizational structure, abject lack of internal controls, and dubious business practices," the investors said in a 75-page lawsuit filed Friday in Miami federal court.
Lawyers at Sullivan & Cromwell, a prominent New York-founded firm, "were eager to craft not only creative, but misleading strategies that furthered FTX’s misconduct," the lawsuit said.
A spokesperson for Sullivan & Cromwell declined to comment. The firm has previously defended its work relating to FTX, saying it had a "limited and largely transactional" relationship with the exchange before the bankruptcy and had never served as primary outside counsel to any FTX entity.
The investors' lawyers at the Moskowitz Law Firm could not immediately be reached for comment. The same firm is already waging a separate class action investor lawsuit accusing law firm Fenwick & West of aiding fraud at the company. Fenwick denies the allegations.
A federal judge on Tuesday said the lawsuit against Sullivan & Cromwell will proceed as part of multi-district litigation over the FTX collapse that is already pending in Miami federal court.
FTX filed for bankruptcy in November 2022 in the wake of claims that the company misused and lost billions of dollars worth of customers' crypto deposits. FTX founder Sam Bankman-Fried was found guilty a year later of charges that he defrauded FTX customers by using their funds to prop up his own risky investments.
The new lawsuit partly takes aim at Sullivan & Cromwell's work as court-approved counsel advising FTX in its bankruptcy, arguing the firm knew FTX was in financial trouble but "realized it stood to gain hundreds of millions more from their work in bankruptcy."
The firm has earned more than $180 million in fees for its FTX bankruptcy work, equaling about 10% of its 2022 revenue, the lawsuit said.
Some FTX creditors and U.S. lawmakers had unsuccessfully opposed Sullivan & Cromwell's bid to serve as bankruptcy counsel, arguing that the firm's ties to FTX and past work for the company created conflicts of interest. FTX's former U.S. general counsel, Ryne Miller, was a former partner at Sullivan & Cromwell.
The U.S. Trustee, the Justice Department's bankruptcy watchdog, had initially opposed Sullivan & Cromwell's appointment until the firm and FTX provided additional disclosures about Sullivan & Cromwell's pre-bankruptcy work.
The case is Edwin Garrison, et al., v. Sullivan & Cromwell LLP, U.S. District Court for the Southern District of Florida, 1:24-cv-20630.
