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FTX defends choice of law firm to guide it through bankruptcy

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2023-01-20T11:18:42Z

An FTX logo and a representation of cryptocurrencies are seen through broken glass in this illustration taken December 13, 2022. REUTERS/Dado Ruvic/Illustration

Collapsed crypto exchange FTX will try to convince a judge at a hearing on Friday to sign off on its hiring of lawyers and financial advisers, amid allegations that its chosen law firm’s prior work for FTX creates a conflict of interest.

The U.S. Department of Justice’s bankruptcy watchdog has asked U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware, not to approve FTX’s hiring of Sullivan & Cromwell, arguing that the elite New York law firm has not disclosed sufficient information about its past ties to FTX, including the fact that FTX’s U.S. general counsel, Ryne Miller, is a former partner at the firm.

Former top FTX attorney Daniel Friedberg also opposed Sullivan & Cromwell’s hiring, saying Thursday that the law firm had conflicts of interest stemming from its connections to Miller.

Miller tried to “channel a lot of business to S&C” and “looked forward to returning as a partner to S&C” after his stint at FTX, Friedberg wrote.

Miller could not immediately be reached for comment late Thursday.

FTX pushed back in court filings this week, saying it relies on Sullivan & Cromwell for high-stakes work like securing customer assets and sharing information with U.S. prosecutors and regulators.

FTX said forcing it to find new lawyers would disrupt efforts to clean up the mess left behind by founder Sam Bankman-Fried, who has been accused by U.S. prosecutors of orchestrating an “epic” fraud that may have cost investors, customers and lenders billions of dollars.

Bankman-Fried, who has pleaded not guilty, has repeatedly attacked Sullivan & Cromwell since FTX’s implosion, claiming he was strong-armed by lawyers at the firm into filing for bankruptcy and surrendering control of the company. The firm called those allegations false in court filings this week.

Sullivan & Cromwell has told the court it should not be disqualified simply because it performed some pre-bankruptcy work for FTX. A Sullivan & Cromwell spokesperson has said the firm had a “limited and largely transactional” relationship with FTX prior to the bankruptcy and never served as primary outside counsel to any FTX entity.

FTX filed for bankruptcy protection in November, saying it was unable to completely repay customers who had deposited funds on its exchange. FTX’s new CEO, John Ray, has said his top priority is recovering assets to repay FTX customers.

Serving as primary bankruptcy counsel to FTX would likely allow Sullivan & Cromwell to reap hundreds of millions of dollars in fees, legal experts have said. FTX has sought bankruptcy court permission to pay top Sullivan & Cromwell attorneys more than $2,000 per hour.

Some FTX creditors and a bipartisan group of U.S. senators have separately raised concerns to the Delaware bankruptcy judge about the law firm’s ability to conduct an impartial investigation. Dorsey responded to the senators’ letter at a Jan. 11 hearing, saying that outside pressure “will have no impact on my decisions whatsoever.”

Bankruptcy judges usually allow companies to choose their bankruptcy attorneys, but conflicts of interest can result in attorney disqualification in some rare cases.

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