On Friday, bankruptcy judge John Dorsey approved the appointment of law firm Sullivan & Cromwell (S&C) as debtor counsel for FTX, despite an objection from Daniel Friedberg, a former U.S. compliance officer for FTX. During a Zoom presentation, Friedberg claimed there was a conflict of interest between former and current FTX executives and the general counsel of FTX US, as Ryne Miller once worked for S&C. However, Judge Dorsey was undeterred by Friedberg's 17-page objection and appointed S&C, finding that "there is no evidence of an actual conflict here." FTX bankruptcy raises questions about conflicts of interest and strange decisions The day before, bankruptcy judges approved...
On Friday, bankruptcy judge John Dorsey approved the appointment of law firm Sullivan & Cromwell (S&C) as debtor counsel for FTX, despite an objection from Daniel Friedberg, a former U.S. compliance officer for FTX. During a Zoom presentation, Friedberg claimed there was a conflict of interest between former and current FTX executives and the general counsel of FTX US, as Ryne Miller once worked for S&C. However, Judge Dorsey was undeterred by Friedberg's 17-page objection and appointed S&C, finding that "there is no evidence of an actual conflict here."
The day before, bankruptcy judge John Dorsey approved Sullivan & Cromwell (S&C) to represent the debtors as counsel, James “Metalawman” Murphy posted a Twitter thread explain that it was strange that S&C would likely be chosen for FTX representation. “There is something wrong with the FTX bankruptcy,” Murphy insisted in his post. Murphy, an attorney who specializes in Metaverse, Web3 and digital asset issues, questioned the involvement of John J. Ray III the new FTX CEO and Chief Restructuring Officer.
Attorney Murphy points out that when Ray worked with Enron as chief restructuring officer, he did an excellent job aggressively pursuing recoveries on behalf of Enron's creditors. But Murphy said that Ray was behaving very differently than the tough-talking CEO he was known as at Enron and questioned this change in attitude. For example, the Metaverse lawyer explained that during Enron's restructuring, Ray never for a moment suggested that one of Enron's key outside law firms serve as debtor counsel.
“Inexplicably, Mr. Ray now supports S&C’s move to serve as debtor counsel,” Murphy said noted. The lawyer went on to say that this was the case even though S&C “executed 20 engagements for FTX in just 16 months,” “paid $8.5 million in fees,” and “represented key players.” [Sam Bankman-Fried] and [Nishad Singh] personally.” Murphy noted that at Enron, Ray "aggressively pursued claims against Enron's outside law firms." The lawyer continued:
Vinson & Elkins paid $30 million in the settlement and Andrews Kurth paid $18.5 million. According to an independent report, these companies failed to respond to warning signs of possible wrongdoing.
Murphy too said that the ultimate irony of this situation is that the huge fees are paid by the victims of the FTX scam – the customers. "My prediction: The united front of Mr. Ray, the official creditors' committee and S&C will prevail, and the judge will appoint debtor counsel from Sullivan & Cromwell... This is not normal," Murphy concluded. During the hearing the next day, Daniel Friedberg, a former FTX US compliance officer, said objected to against the appointment of S&C and submitted a 17-page objection for consideration by the bankruptcy judge. In the filing, FTX US's former compliance officer said it was FTX US General Counsel Ryne Miller once employed by S&C.
"Mr. Miller informed me that it was very important to him personally to direct a lot of business to S&C because he wanted to return there as a partner after his time with the Debtors," Friedberg's complaint explains. Despite the objection, Bankruptcy Judge Dorsey told court attendees that "there is no evidence of an actual conflict here," adding that it was "hearsay, innuendo, speculation, rumor and certainly not something I would use as evidence."
After S&C was appointed debtor counsel, James “Metalawman” Murphy added his two cents on the decision. "As expected, the judge approves Sullivan & Cromwell as debtor counsel. The judge says, based on the files before him, he has no concerns about S&C conflicts of interest," Murphy wrote. “Any uncertainty about this decision was removed when the U.S. Trustee changed its position in favor of appointing S&C.” On the same day, the U.S. Attorney's Office confiscated nearly $700 million in assets belonging to disgraced FTX co-founder Bankman-Fried.
What do you think about the appointment of Sullivan & Cromwell as debt counsel for FTX and the conflict of interest allegations made by Daniel Friedberg, FTX's former U.S. compliance officer, and James "Metalawman" Murphy? Share your thoughts in the comments below.
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