Senators voice concerns over law firm's role in FTX bankruptcy

Four lawmakers lambasted a prominent law firm’s role in FTX’s bankruptcy proceedings and called for an independent examiner to oversee the investigation into the crypto exchange’s collapse. 

Sens. Cynthia Lummis, R-Wyo., Elizabeth Warren, D-Mass. Thom Tillis, R-N.C. and John Hickenlooper, D-Colo., criticized law firm Sullivan & Cromwell in a letter to Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware, after they say the firm advised the now failed cryptocurrency exchange for years leading up to its collapse.  

“As legal counsel is often central to major financial scandals, given their role in drafting financial agreements, risk management compliance practices, and corporate controls, it is perfectly reasonable to have concerns about the impartiality and manner that Sullivan & Cromwell will approach any investigation of FTX with,” the lawmakers said. 

Punchbowl News first reported the letter, which was sent Monday. 

Sullivan & Cromwell is representing FTX in its bankruptcy proceedings. The law firm received $8.5 million from non-bankruptcy work from FTX from July 2021 through to the November filing, according to Bloomberg Law.  

Lawmakers questioned whether the “firm’s lawyers be able to effectively investigate their current and former partners who were central in FTX’s conduct.” 

“Additionally, given their longstanding legal work for FTX, they may well bear a measure of responsibility for the damage wrecked on the company’s victims. Put bluntly, the firm is simply not in a position to uncover the information needed to ensure confidence in any investigation or findings,” they said. 

FTX filed for bankruptcy in November, and U.S. authorities brought charges against its former CEO Sam Bankman-Fried soon after. The Justice Department said Bankman-Fried used billions in customer funds of FTX customer funds for his personal use, to go towards political contributions and to repay billions of dollars in loans owed by a crypto hedge fund founded by Bankman-Fried called Alameda Research. The Securities and Exchange Commission and the Commodity Futures Trading Commission also brought their own charges.

Former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang are cooperating with prosecutors, with the former submitting written testimony asserting that Alameda misled lenders as to the financial status of the firm. 

Sullivan & Cromwell did not immediately respond to a request for comment.  

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.