FTX class action lawyers move to block Sullivan & Cromwell’s dismissal motion

FTX class action lawyers have filed a motion opposing Sullivan & Cromwell’s effort to dismiss the lawsuit against them. The plaintiffs claim that Sullivan & Cromwell went beyond standard legal practices to actively facilitate FTX’s fraudulent activities. 

The law firm, also known as S&C, is overseeing the FTX bankruptcy proceedings and served as outside counsel to the exchange in several deals.

According to court documents filed on July 29, S&C lawyers “were eager to craft not only creative, but misleading strategies that furthered FTX’s misconduct.” The plaintiffs requested the court to deny S&C’s motion to dismiss, allowing the case to proceed to discovery and trial.

The lawsuit against S&C, filed in February, seeks damages for several counts, including civil conspiracy, aiding and abetting fraud, and aiding and abetting fiduciary breaches.

S&C’s motion to dismiss argues that the suit is based on speculative allegations and lacks factual basis. The law firm cited its role in the FTX bankruptcy proceedings, noting that the Delaware Bankruptcy Court found S&C was a “disinterested party” in the bankruptcy case and asserting that FTX victims will be “paid in full.”

According to the motion opposing the dismissal, “neither of those reasons have anything to do with whether the MDL Plaintiffs state sufficient facts and allegations in the Complaint.”

In a previous statement to Cointelegraph, a spokesperson for S&C said it had “never served as primary outside counsel to any FTX entity” and had a “limited and largely transactional relationship with FTX and certain affiliates prior to the bankruptcy.”

An earlier independent investigation concluded that S&C was unaware of the severe financial issues and underlying fraud that caused the exchange’s collapse.

The FTX-S&C relationship

According to the plaintiffs, the relationship between FTX and S&C was initiated by Ryne Miller, a former S&C partner who became FTX’s general counsel in August 2021.

In a January court filing, former FTX chief regulatory officer Daniel Friedberg said the exchange funneled at least 20 cases to S&C under Miller’s command. As he stated:

“Mr. Miller told me that it was very important for him to direct a lot of business to S&C because he wanted to rejoin them as a partner after his time with the Debtors.”

The complaint also mentions that Sam Bankman-Fried, the former CEO of FTX, often operated out of S&C’s New York offices.

S&C was directly involved in FTX’s acquisition of LedgerX and Voyager Digital. In November 2022, the exchange filed for bankruptcy protection following a bank run.

“S&C involvement with FTX has drawn scrutiny from Senators, FTX Insiders and the US Bankruptcy Trustee, Professor Lipson and FTX customers,” told Cointelegraph FTX creditor Sunil Kavuri. “There are pending lawsuits that S&C filed the bankruptcy without proper authority,” he added.