DOJ Objects to FTX’s Choice of Lawyers, Citing Conflict of Interest

The U.S. Trustee has voiced objections to FTX hiring New York law firm Sullivan and Cromwell, claiming potential conflicts of interest from its previous activity, in a Jan. 13 legal filing.

The complaint echoes those made by a bipartisan grouping of U.S. Senators and by the crypto exchange’s founder Sam Bankman-Fried, and expresses concern the firm might tread on the toes of future work by an independent examiner.

“S&C’s disclosures as filed are wholly insufficient to evaluate whether S&C satisfies the Bankruptcy Code’s conflict-free and disinterestedness standards,” said Trustee Andrew Vara, a Department of Justice official responsible for bankruptcy cases. “The incomplete disclosures are a sufficient and independent reason to deny the application.”

“Any investigation led by S&C would be duplicative and wasteful of estate resources if the Court were to grant the U.S. Trustee’s pending motion to appoint an examiner with a comprehensive investigative mandate,” Vara added.

FTX’s General Counsel Ryne Miller previously worked at S&C for eight years, Vara noted, and the law firm might find itself in the “conflicted position” of investigating both itself and its former staffer.

Retaining the law firm is “necessary and in the best interests of the Debtors and their estates and stakeholders,” John Ray, appointed FTX chief executive officer on Nov. 11, said in a Dec. 21 deposition. “S&C is one of the leading law firms in the world in all of the key practice areas.”

In a blog published Thursday, Bankman-Fried said S&C’s relations with FTX prior to its downfall had been more than purely transactional, and that its staff had pressured him into filing for bankruptcy on Nov. 11 – echoing concerns over the law firm’s independent made by Senators in a Jan. 10 letter.

Judge John Dorsey said at a Jan. 11 hearing that the letter, calling for the appointment of an independent examiner into the case, was an inappropriate intervention.

S&C lawyers did not immediately respond to a request for comment.