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FTX CEO Fights to Keep Lawyers as Calls for Removal Intensify

Several parties have protested to Sullivan & Cromwell’s employment as principal counsel to FTX, citing conflicts of interest and inadequate disclosures.

The CEO of cryptocurrency exchange FTX has rebuffed calls to replace its legal firm as primary counsel in its bankruptcy case.

On Jan. 17, John J. Ray III, who was selected as the new FTX CEO on Nov. 11, filed a court motion claiming that Sullivan & Cromwell was instrumental in him seizing control of the “dumpster fire” that was entrusted to him.

Ray argued that keeping their services is in the best interests of FTX creditors.

“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.”

On January 14, U.S. Trustee Andrew R. Vara filed an objection to the law firm’s retention, claiming two separate difficulties.

He argued that Sullivan & Cromwell failed to adequately disclose its ties to FTX and earlier work for them. He further stated that, according to publicly accessible information, a former partner of the law firm became a counsel to FTX 14 months before the bankruptcy filing.

Meanwhile, lawyer James A. Murphy, also known as MetaLawMan on Twitter, suggested on Jan. 14 that the law firm’s earlier work for FTX was not the only conflict of interest in the case.

He alleged that Apollo Global, a private equity firm, has been buying up creditor claims from FTX customers for a fraction of their value. Murphy points out that Apollo’s chairman, Jay Clayton, also works for Sullivan & Cromwell, which has access to sensitive financial data.

The United States Trustee also considered that the present application to retain Sullivan & Cromwell was faulty because it would “usurp” the work of an independent examiner and the parties would be duplicating their services at the expense of the FTX estate.

On December 1, the Trustee requested the appointment of an independent examiner, citing a section of the bankruptcy statute that requires the appointment of an examiner when certain debts surpass $5 million.

On January 10, a bipartisan group of four U.S. representatives wrote to Delaware bankruptcy judge John Dorsey, requesting that he grant the application to employ an independent examiner and expressing their surprise that the legal firm might be branded as a “disinterested” party.

Dorsey, on the other hand, described the letter as “improper ex parte communication” and stated that he would not consider it when deciding whether to appoint an independent examiner or support the retention of Sullivan & Cromwell.

However, Dorsey intends to consider an FTX creditor’s objection submitted on Jan. 10 when considering whether to retain Sullivan & Cromwell, with the creditor also claiming that the law firm’s earlier work for FTX constituted a conflict of interest.

 

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