U.S. Trustee Disagrees With FTX’s Selected Lawyers

Key Points:

• Due to S&C’s prior associations with the defunct cryptocurrency exchange, potential conflicts of interest were raised in the filing by U.S. Trustee Andrew Vara.
• Ryne Miller, general counsel for FTX, spent eight years as an employee of S&C, as stated in the filing.
• It also pointed out that the S&C application to represent FTX makes no mention of the kinds of services S&C had previously rendered to the exchange, particularly when it was on the verge of collapse.

The U.S. Trustee has objected to FTX engaging the New York legal firm Sullivan & Cromwell on the grounds that there might be conflicts of interest arising from the firm’s prior work.

Due to S&C’s prior associations with the defunct cryptocurrency exchange, potential conflicts of interest were raised in the filing by U.S. Trustee Andrew Vara, dated January 13.

The filing expresses fear that the company would trample on future work by an independent examiner and is similar to those made by a bipartisan group of U.S. Senators and Sam Bankman-Fried, the creator of the cryptocurrency exchange.

“S&C’s disclosures as filed are wholly insufficient to evaluate whether S&C satisfies the Bankruptcy Code’s conflict-free and disinterestedness standards. The incomplete disclosures are a sufficient and independent reason to deny the application.”

Vara pointed out that FTX’s General Counsel Ryne Miller spent eight years as an employee of S&C, and the law firm might find itself in the conflicted position of looking into both itself and its former employee.

It also pointed out that the S&C application to represent FTX makes no mention of the kinds of services S&C had previously rendered to the exchange, particularly when it was on the verge of collapse.

“The S&C Application is virtually silent as to both its connections to the Debtors and the work it did for the Debtors. For example, the S&C Application omits the fact that the General Counsel of certain of the Debtors, Mr. Ryne Miller, was a partner at S&C until about 14 months before the filing,” said Vara.

As a U.S. Trustee, Vara works for the Department of Justice, which oversees bankruptcy cases in the country. Vara is responsible for making sure that bankrupt corporations are not acting in a way that might harm creditors or other parties involved in the case.

“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.

Previously, Vara had expressed opposition to the planned sales of LedgerX, FTX Europe, and FTX Japan, three of its subsidiaries.

However, John Ray, who became the new CEO of FTX on November 11, stated in a deposition on December 21:

“S&C is one of the leading law firms in the world in all of the key practice areas.”

Bankman-Fried claimed in a blog post on Thursday that S&C’s relationships with FTX before the company’s demise had been more than merely transactional and that its employees had coerced him into declaring bankruptcy on November 11.

At a hearing on January 11, Judge John Dorsey ruled that the letter requesting the appointment of an impartial examiner into the matter constituted an improper intrusion.

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Harold

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