In a significant development, a group of investors in FTX announced on Wednesday that they are voluntarily dismissing their proposed class action lawsuit against the esteemed law firm Sullivan & Cromwell. The lawsuit accused the firm of complicity in the multibillion-dollar fraud associated with the now-defunct cryptocurrency exchange and claimed that Sullivan & Cromwell enriched itself while serving as FTX’s lead bankruptcy counsel. The firm had represented FTX in approximately 20 legal matters prior to its collapse.
Adam Moskowitz, the lead counsel for the plaintiffs, explained to Reuters that there is currently “no claim at this stage” against the New York-based law firm. This determination was influenced by findings from the bankruptcy examiner, Robert Cleary of Patterson Belknap Webb & Tyler, whose reports in May and September concluded that Sullivan & Cromwell was not involved in the fraudulent activities leading to FTX’s downfall and did not overlook any significant warning signs during its legal representation of former FTX CEO Sam Bankman-Fried.
“Bob Cleary’s second report provided us with sufficient evidence that there was no claim there,” Moskowitz stated, highlighting the thoroughness of the examination.
In response to the withdrawal of the lawsuit, a spokesperson for Sullivan & Cromwell expressed satisfaction, noting that the firm is “pleased that the plaintiffs have withdrawn their meritless claims unconditionally” and reaffirming its commitment to returning billions of dollars in recovered assets to FTX’s creditors.
The initial lawsuit alleged that Sullivan & Cromwell had a unique understanding of FTX’s “convoluted organizational structure, abject lack of internal controls, and dubious business practices.” Furthermore, it accused the firm’s attorneys of crafting “creative, but misleading strategies” that enabled FTX’s misconduct.
Sullivan & Cromwell countered these allegations in a May filing, asserting that the claims contained “numerous legal defects” and relied on “threadbare allegations, unwarranted assumptions, and legal conclusions” that should not be accepted at the pleading stage.
FTX filed for bankruptcy in November 2022 after revelations surfaced that the company had misappropriated and lost billions of dollars in customer crypto deposits. In November 2023, Bankman-Fried was convicted of defrauding FTX customers by diverting their funds to support his risky investments.
In a related development, plaintiffs’ attorneys recently reached a settlement with the FTX bankruptcy estate regarding the rights to sue on behalf of FTX customers. Moskowitz clarified that this agreement was reached independently of the decision to withdraw the lawsuit against Sullivan & Cromwell.
On Monday, FTX received court approval for its bankruptcy plan, allowing the company to fully repay customers using up to $16.5 billion in assets that have been recovered since the exchange’s collapse.
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