Bankruptcy court Judge John Dorsey Friday approved Sullivan & Cromwell’s role as FTX debtors’ counsel, brushing aside a weeklong flood of filings, prominent among them an objection filed by Andrew R. Vara, U.S. Trustee. Vara said S&C’s disclosures were “wholly insufficient” to evaluate whether the firm was conflict-free in a case that involves ongoing investigations (In re FTX Trading Ltd., January 20, 2023, Dorsey J.).
FTX filed for Chapter 11 bankruptcy protection on November 11, 2022, and John J. Ray III, an attorney with a history of specializing in bankruptcy restructuring cases, including that of Enron, took over as CEO. Sam Bankman-Fried, the former FTX CEO, is under house arrest in California awaiting trial on various fraud charges.
As previously reported by Securities Regulation Daily, Judge Dorsey earlier dismissed objections to Sullivan & Cromwell’s retention by a bipartisan group of four U.S. senators who sent a letter to the court that argued the law firm had a conflict of interest in the case. They also urged the judge to appoint an independent examiner to investigate the cryptocurrency company’s collapse.
Quinn Emanuel Urquhart & Sullivan, LLP has been approved as special counsel and AlixPartners, LLP as a forensic investigation consultant.
Sparse application details. According to the trustee’s filing, Vara’s concerns included the fact that Ryne Miller, “one of the most senior attorneys within the FTX organization” and identified in some documents as FTX US’s former general counsel, was a partner at Sullivan & Cromwell until about 14 months before the cryptocurrency exchange filed for bankruptcy. Sullivan & Crowell’s application failed to provide any detail about the type of services S&C provided to the debtors, including as the debtors were collapsing, he said. In addition, “S&C’s close connection with an insider of the debtors also renders S&C too conflicted to investigate debtors’ downfall,” he said.
Insider also files objection. On Thursday, former FTX attorney Daniel Friedberg–who had once been the exchange’s chief regulatory officer – weighed in, filing a declaration in support of an amended objection of Warren Winter to an order authorizing the retention and employment of the law firm. His declaration indicated Miller was a partner at Sullivan & Cromwell LLP, with a background in CFTC licensing and SEC matters, when he was hired as general counsel of FTX.US and counsel for Alameda, as well as FTX International. According to Friedberg, Miller’s salary was paid by FTX.US and Alameda, but he also performed services for FTX International.
Objectors Warren Winter and Richard Brummond then filed an emergency ex parte application for adjournment of the Friday hearing on an order authorizing the employment of Sullivan & Cromwell, but the request was denied, and the court proceeded as scheduled.
Current FTX CEO backs S&C. John J. Ray III, took the other side of the argument, Tuesday filing a declaration in support of Sullivan & Cromwell’s hiring, as well as Quinn and Alix.
Under a heading titled “Putting Out a Dumpster Fire–Our First 70 Days,” Ray said the “advisors are not the villains in these cases. The villains are being pursued by the appropriate criminal authorities largely as a result of the information and support they are receiving at my direction from the debtors’ advisors.”
In an interview with the Wall Street Journal published Thursday Ray also said he has set up a task force to explore restarting FTX.com, the company’s international exchange. He told the Journal that some customers like the platform’s technology, which suggests there might be value in reviving it.
Wresting control of a “chaotic” situation. “Given the terrible state of the debtors (when the bankruptcy filing was made) and the challenges left behind by the founders, having immediate access to the entire S&C team has been critical to bringing order to what was quite literally an out of control, chaotic situation,” Rays said in his filing.
“If the retention of any of S&C, Quinn or Alix were to be denied, limited or impaired for any reason, the interest of the Debtors’ customers and creditors, as well as the state and federal regulators and prosecutors with whom these advisors engage on a daily basis, would be severely, if not irreparably harmed,” he said.
Ray said he would directly supervise the work of S&C, Quinn and Alix. As for Ryne Miller, he said Miller is employed by Debtor West Realm Shires, Inc., “but has no day-to-day responsibilities.”
The case is No. 22-11068-JTD Doc 553, January 20, 2023.
The case is No. 22-11068-JTD Doc 548, January 20, 2023.
The case is No. 22-11068-JTD Doc 546, January 20, 2023.
The case is No. 22-11068-JTD Doc 496, January 13, 2023
The case is No. 22-11068-JTD Doc 530, January 19, 2023.
The case is No. 22-11068-JTD Doc 535, January 19, 2023.
The case is No. 22-11068-JTD Doc 511, January 17, 2023.