Challenges Raised For FTX Debtors’ Legal Representation Selection of Sullivan & Cromwell
On Friday, bankruptcy judge John Dorsey approved the appointment of the law firm Sullivan & Cromwell (S&C) to serve as counsel for the FTX creditors, despite objections from Daniel Friedberg, a former FTX USA Compliance Officer. During a Zoom session, Friedberg argued that, according to FTX US General Counsel, there was a conflict of interest between former and current FTX executives, as Ryne Miller had previously worked at S&C. Nevertheless, Justice Dorsey was not convinced. Friedberg’s 17-page objection to S&C stated that “there is no evidence of a real conflict here.”
The bankruptcy of FTX raises questions about conflicts of interest and strange decisions. The day before the bankruptcy judge John Dorsey approved Sullivan & Cromwell (S&C) to serve as counsel for the debtors, James “Metalawman” Murphy tweeted a thread on Twitter explaining why it was rare for S&C to have chosen to represent FTX. “Something is wrong with the bankruptcy of FTX,” Murphy insisted. Murphy, a lawyer specializing in metaverse, Web3 issues, or digital asset topics, asked about the involvement of John J. Ray III, FTX’s new CEO and restructuring director.
The attorney pointed out that Ray had worked with the Enron restructuring director and had done an excellent job of aggressively seeking recovery for the Enron creditors. However, Murphy said that Ray was acting very differently from the hard-negotiating CEO of Enron, and the change in attitude was questioned. For example, the metaverse lawyer said that when he was restructuring Enron, Ray would never propose that one of the Enron’s creditors would recommend outside law firms.
“Inexplicably, Mr. Ray now supports S&C’s decision to serve as counsel for the debtors,” Murphy noted. The lawyer added that S&C had handled “20 engagements for FTX in just 16 months,” received “$8.5 million in fee payments” and “represented key figures.” [Sam Bankman-Fried] Y [Nishad Singh] personally. Murphy commented that at Enron, Ray “proactively filed lawsuits on behalf of Enron against extraordinary law firms” and that “Vinson & Elkins received a settlement payment of $30 million and Andrews Kurth earned $18.5 million.” He said that these companies had failed to respond to red flags indicating possible misconduct, according to an independent report.
Murphy also commented that, ironically, customers will be required to pay enormous fees to FTX victims. “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. The hearing took place the next day, and Daniel Friedberg, former FTX USA Compliance Officer, who objected to S&C’s appointment and submitted a 17-page objection to the bankruptcy judge for review.
In the filing, the former FTX US Compliance Officer said that Ryne Miller, FTX USA’s general counsel, had once been an S&C employee. “Mr. Miller informed me that it was very important for him
