Daniel Friedberg, a former top attorney for FTX, has claimed that the Futures exchange (FTX) U.S. general counsel has allegedly been steering business to Sullivan & Cromwell (S&C), the organization currently acting as FTX’s bankruptcy counsel.
Moves to remove S&C from representing FTX continues
The accusations were submitted in a court document on January 19 by Daniel Friedberg, who served as FTX’s chief regulatory officer until his resignation on November 8. According to Friedberg’s filing, Ryne Miller, the lead attorney for FTX US and a former partner at Sullivan & Cromwell (S&C), steered business to his old company in a number of cases. To quote Friedberg:
“Mr. Miller informed me that it was very important for him personally to channel a lot of business to S&C as he wanted to return there as a partner after his stint at the Debtors.”
Sullivan & Cromwell
In a tweet made on January 20, attorney and former head of the Securities and Exchange Commission Office of Internet Enforcement John Reed Stark emphasized the seriousness of the accusation.
A scathing objection to Sullivan & Cromwell serving as FTX counsel from the former FTX Chief Regulatory Officer, who’s likely cooperating w/DOJ. This explosive filing alleges colossal S&C conflicts & 4 big claims against S&C relating to the FTX bankruptcy.https://t.co/EPmuf90arF pic.twitter.com/0daIcj9WJi
— John Reed Stark (@JohnReedStark) January 20, 2023
Friedberg notes in his petition that he tried to remind Miller of where his loyalty lies, which is to the debtors of FTX and not to Sullivan & Cromwell. And despite that, it “continued to be a problem throughout his work” at FTX. Friedberg claimed that shortly after Miller’s employment in early 2020, he inquired about hiring his former legal firm, to which Friedberg responded that Miller should “only hire the best outside counsel for the job.”
In the end, Miller hired S&C, according to Friedberg, to serve as the lead counsel for these three entities—FTX Derivatives, formerly known as LedgerX, FTX US, and Sam Bankman-Fried’s holding firm, Emergent.
“There was over $200 million cash in LedgerX and that he was going to send these funds to S&C, and that bankruptcy legal costs were therefore not a problem.”
Additionally, Friedberg alleged that Miller had allocated $200 million from FTX derivatives, formerly LedgerX funds, for S&C to cover its legal costs. In as much as the petition is just a declaration in support of an FTX creditors’ objection to the retention of FTX attorneys Sullivan & Cromwell LLP, makes a number of previously unreported charges.
The bankruptcy court
Better known as MetaLawMan on Twitter, James A. Murphy, an attorney, acknowledged reading Friedberg’s declaration. He tweeted:
Well, I just finished reading the Declaration of Daniel Friedberg.
It is fair to say that this is one of the more shocking sworn statements I have read in a good long while.
If half of what Mr. Friedberg says is true, he has just blown the top off of this bankruptcy case.
— MetaLawMan (@MetaLawMan) January 19, 2023
MetaLawMan noted that those were serious allegations and that he didn’t know the authenticity of Friedberg’s claims, but that if they were to be true, Friedberg has just sworn to:
“FTX has claims for malpractice against Sullivan & Cromwell worth hundreds of millions of dollars. Former S&C partner Ryne Miller acted unethically in steering business (including the bankruptcy cases) to S&C. FTX US was solvent and should not have filed for bankruptcy. A sworn declaration filed by an S&C partner contains false statements. and finally, Contrary to their statements, S&C was, in fact, primary outside counsel to FTX US, Ledger X and Emergent.”
Friedberg apologized for his last-minute filing, stating that if he’s required to testify, he would “testify competently to the facts set out in this Declaration”. On January 20, a hearing is set in bankruptcy court, where the judge will hear arguments from all parties concerned and make a determination regarding FTXs ability to retain S&C as its main legal counsel.