Yahoo Finance Judge approves FTX to hire Sullivan & Cromwell over customer objection
The judge overseeing FTX's U.S. bankruptcy overruled customers' objections Friday that argued the collapsed firm should be blocked from using the lawyers of its choice, white shoe law firm Sullivan & Cromwell.
"There's no evidence of any conflict here," Judge John Dorsey said, noting that even potential conflicts don’t disqualify Sullivan & Cromwell and, if they did, FTX had hedged against the risk by detaining another firm as conflict counsel.
The decision followed a hearing on objections raised by two customers of the fallen crypto exchange based on Sullivan & Cromwell's pre-bankruptcy representation of FTX, and its failure to disclose that some of FTX's former highest ranking legal officers previously worked for the firm.
In opposing Sullivan & Cromwell's representation, Marshal Hoda, also argued on behalf of the two customers — Warren Winter and Richard Brummond — that Sullivan & Cromwell was ill-equipped to serve as bankruptcy counsel because it was advising the company during its allegedly illegal "spending binge," which its current CEO John Ray said contributed to its collapse.
The request came on the heels of a Thursday court filing from the company's former compliance lawyer, Daniel Friedberg, who characterized New York-based Sullivan & Cromwell as embroiled with conflicts that should bar it from continued work for FTX and its related entities.
One of those conflicts was also raised by an attorney for the Office of the U.S. Trustee, who advised the court that FTX.US' general counsel Ryne Miller had previously worked for Sullivan & Cromwell, though the law firm had omitted his connection from court filings, as required under the U.S. Bankruptcy Code. Another FTX Ventures employee, Tim Willson, was similarly omitted from the firm's original court filings.
Sullivan & Cromwell advised FTX entities both before and after the crypto empire filed for bankruptcy protection.
"I've read [Friedberg's] declaration and frankly it's full of hearsay, innuendo, speculation, rumors," Dorsey said in denying the customers' request to permit Friedberg to testify. As the judge spoke, Friedberg appeared on Zoom waving his hands.
In his court declaration, Friedberg alleged FTX’s relationship with Sullivan & Cromwell was on shaky ethical ground before and after FTX’s implosion.
“There are conflicting claims that arise between each of these entities,” Friedberg wrote, explaining other law firms had advised that bankruptcies for FTX International Group and Alameda Research should occur outside the U.S., while the company's U.S. entity should hold off on bankruptcy until confirming it was insolvent.
"[E]ach of these groups deserve separate independent counsel," Friedberg said.
For one, Friedberg said, Miller, a former Sullivan & Cromwell partner, once asked him for permission to retain the pricy law firm, stating it was "important for him personally to channel a lot of business" to the firm so that some day he could return as a partner.
FTX’s indicted founder Sam Bankman-Fried also has repeatedly disagreed with the new team's claims, stating earlier this week that "FTX US remains fully solvent" and accusing Sullivan & Cromwell of being "extremely misleading."
"One of the things that the debtors [FTX] have been facing, is assault by Twitter," FTX attorney James Bromley told the judge. Bankman-Fried can't be cross examined as he is under criminal indictment and his travel is restricted.
"We, the debtors, and Sullivan & Cromwell, are fighting a ghost when we have these accusations being made and no opportunity to cross examine Mr. Bankman-Fried," Bromley added.
Redacted names
Also at issue during Friday's hearing was the topic of the bankruptcy’s creditor list and whether names and personally identifying information of FTX’s 9.7 million customers should be kept confidential.
Bromley confirmed fully identifying information for "institutions who are not customers" (non-individual, non-GDPR, non-customer creditors) will be unredacted and fully provided to the court.
The lawyers also said FTX has the ability to identify some but not all of those non-customer, individual creditors who are protected by the GDPR.
The U.S. Trustee had no further questions beyond whether the debtor counsel's plans to enter such a sizable creditor list into the court docket would satisfy the court.
Read the latest financial and business news from Yahoo Finance
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
