On Friday, bankruptcy judge John Dorsey approved the appointment of the law firm Sullivan & Cromwell (S&C) as counsel for the FTX debtors, despite the objection of Daniel Friedberg, a former FTX US compliance officer. During a Zoom presentation, Friedberg claimed there was a conflict of interest between former and current FTX executives and FTX US general counsel, as Ryne Miller once worked for S&C. Justice Dorsey, however, was not swayed by Friedberg’s 17-page objection and named S&C, stating that “there is no evidence of a real conflict here.”
FTX bankruptcy raises issues of conflict of interest and strange decisions
The day before bankruptcy judge John Dorsey approved Sullivan & Cromwell (S&C) to represent debtors as legal counsel, James “Metalawman” Murphy posted a twitter thread explaining that it was strange that S&C was likely to be chosen to represent FTX. “Something is wrong with the bankruptcy of FTX,” Murphy insisted in his post. Murphy, a lawyer who specializes in metaverse, Web3 and digital asset issues, questioned the involvement of John J. Ray III, FTX’s new CEO and restructuring director, in the process.
Attorney Murphy notes that when Ray worked with Enron as director of restructuring, Ray did an excellent job aggressively pursuing recoveries on behalf of Enron’s creditors. However, Murphy saying that Ray is acting very differently from the hard bargaining CEO of Enron and questioned this change in attitude. For example, the metaverse lawyer detailed that when he was restructuring Enron, Ray never for a moment suggested that one of Enron’s major outside law firms should serve as counsel for the debtor.
“Inexplicably, Mr. Ray now supports S&C’s decision to serve as counsel for the debtors,” Murphy indicated. The lawyer further said this is despite S&C handling “20 engagements for FTX in just 16 months”, receiving “$8.5 million in fee payments” and “representing key figures (Sam Bankman-Fried) and (Nishad Singh ) personally”. Murphy commented that at Enron, Ray “aggressively filed lawsuits against Enron’s outside law firms.” Lawyer continued:
Vinson & Elkins paid $30 million to settle and Andrews Kurth paid $18.5 million. According to an independent report, these companies did not respond to red flags suggesting possible misconduct.
Murphy too opined that the ultimate irony of this situation is that the huge fees will be paid by the victims of the FTX fraud: the customers. “My prediction: the unified front of Mr. Ray, the Official Committee of Creditors and S&C will prevail, and the judge will appoint counsel for the Sullivan & Cromwell debtors… This is not normal,” Murphy concluded. During the next day’s hearing, Daniel Friedberg, a former FTX US compliance officer, object to S&C being appointed and filed a 17-page objection for the bankruptcy judge to review. In the filing, the former FTX US compliance officer said that Ryne Miller, general counsel for FTX US, was once employed by S&C.
“Mr. Miller informed me that it is very important for him personally to channel a large amount of business to S&C, as he wanted to return there as a partner after his time with the debtors,” Friedberg’s complaint details. Despite the objection, Bankruptcy Judge Dorsey told court participants that “there is no evidence of an actual conflict here,” adding that it was “hearsay, innuendo, speculation, and certainly not something I would allow to be presented as evidence.”
After S&C was appointed as counsel for the debtors, James “Metalawman” Murphy added his two cents on the decision. “As expected, the judge approves Sullivan & Cromwell as counsel for the debtors. The judge says, in the record before him, that he is not concerned about S&C’s conflicts of interest”, Murphy wrote. “Any suspense over this decision was removed when the US trustee reversed position to favor the S&C appointment.” On the same day, US federal prosecutors seized nearly $700 million in assets from disgraced FTX co-founder Bankman-Fried.
What do you think about the appointment of Sullivan & Cromwell as counsel for the FTX debtors and the conflict of interest allegations raised by former FTX US compliance officer Daniel Friedberg and James “Metalawman” Murphy? Share your thoughts in the comments below.
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