by Coinstrooper Crypto Articles
Quick Take
  • Total bankruptcy costs are expected to exceed $1 billion, making it one of the most expensive in U.S.
  • By last October, Ray had recovered at least $16 billion, with most creditors expected to receive 100% of their November 2022 account values plus interest.
  • Sullivan & Cromwell had represented FTX on at least 20 occasions since 2021, earning over $8.5 million in fees before the collapse.
  • Days before the bankruptcy filing, Sullivan & Cromwell attorneys consulted with Miller.

What Happened

The senators noted the firm advised FTX for years, leading to its collapse, while claiming to be “disinterested” in conducting the fraud investigation.

Temple University bankruptcy expert Jonathan Lipson filed a court brief supporting the appointment of a special examiner to investigate whether Sullivan & Cromwell violated ethical duties.

An independent examiner was eventually appointed over Sullivan & Cromwell’s objections, though the mandate was limited to compiling and summarizing completed investigations rather than conducting new interviews or reviewing primary documents.

He launched a class-action suit against celebrity spokespeople, including Tom Brady, Shaquille O’Neal, and Shohei Ohtani, with O’Neal settling for $1.8 million in May.

Market Context

Some attorneys from the firm had joined FTX’s in-house legal staff, including Ryne Miller, General Counsel of FTX.US, who was a former staff attorney at the Commodity Futures Trading Commission.

Why It Matters

Total bankruptcy costs are expected to exceed $1 billion, making it one of the most expensive in U.S. history.

By last October, Ray had recovered at least $16 billion, with most creditors expected to receive 100% of their November 2022 account values plus interest.

Details

Sam Bankman-Fried stated in exclusive prison interviews that handing FTX to CEO John Ray III was “the single biggest mistake I made by far,” claiming he signed over control at 4:24 am on November 11, 2022, under extreme pressure from Sullivan & Cromwell and company advisers.

According to a report from Mother Jones, the convicted FTX founder maintains that he never defrauded anyone and that the company was never bankrupt, despite a jury finding him guilty of seven counts of fraud and money laundering in November 2023.

Bankman-Fried is serving a 25-year sentence at Federal Correctional Institution Terminal Island in Los Angeles and has been ordered to pay $11 billion in restitution.

His parents, Stanford law scholars Joe Bankman and Barbara Fried, are preparing to appeal his conviction, arguing that Sullivan & Cromwell wrestled FTX away from him, installed Ray, and profited handsomely while playing a critical role in his imprisonment.

According to the report, the law firm has billed nearly $250 million in legal fees throughout the bankruptcy process, while Ray will receive a $30 million bonus in addition to his $1,575 hourly rate and a $3 million completion fee.

John Ray has called SBF’s claims about FTX’s solvency “categorically, callously, and demonstrably false,” stating he and Sullivan & Cromwell salvaged billions from the wreckage to repay customers.

Sullivan & Cromwell’s Role Draws Scrutiny From Senators and Bankruptcy Experts

Sullivan & Cromwell had represented FTX on at least 20 occasions since 2021, earning over $8.5 million in fees before the collapse.

Days before the bankruptcy filing, Sullivan & Cromwell attorneys consulted with Miller. They reported accounting concerns to the U.S. Attorney’s office for the Southern District of New York, the SEC, and the CFTC.

SBF claims these discussions occurred without his knowledge.

Ray’s team later stated that Sullivan & Cromwell’s pre-bankruptcy outreach was of “critical importance to the speed with which federal prosecutors have been able to charge and arrest Mr. Bankman-Fried.”

Bipartisan senators, including Elizabeth Warren and Thom Tillis, wrote to the bankruptcy judge in January 2023, questioning Ray’s hiring of Sullivan & Cromwell, given its extensive history with FTX.

Lipson questioned whether the firm violated ethics by promising SBF a reorganization role “while simultaneously seeking to induce his prosecution.”

The examiner determined Sullivan & Cromwell’s past work did not disqualify it from representing FTX through Chapter 11.

Creditors Fight Bankruptcy Fees While Bitcoin Holdings Surge 600%

Sunil Kavuri, a former adviser at Deutsche Bank and Morgan Stanley, had $2 million in crypto assets frozen on FTX when the exchange collapsed.

Kavuri became a self-appointed champion for creditors, building an online community that tracks bankruptcy developments.