June 20, 2024

Image for article titled FTX's bankruptcy lawyers weren't involved in Sam Bankman-Fried's crypto fraud, probe finds

Photo: Marco Bello (Reuters)

FTX’s bankruptcy lawyers were not involved in the fraud that led to the crypto exchange’s collapse, though the outside law firm sometimes provided inaccurate information to other parties as they were not aware that those claims were false at the time, a court-appointed examiner said.

Former crypto billionaire and disgraced FTX chief Sam Bankman-Fried was convicted last year for stealing $10 billion from customers and received a 25-year prison sentence earlier this year. A number of FTX creditors and investors alleged that Sullivan & Cromwell, the company’s law firm, failed to prevent the fraud while positioning itself for a lucrative bankruptcy role. A class action lawsuit was filed based on Sullivan & Cromwell’s frequent role as FTX’s external legal counsel before its collapse. The lawsuit alleged that the firm acquired insights into the exchange’s operations and ultimately aided it in its fraudulent activities.

But an independent investigation by former prosecutor Robert Cleary, conducted for bankruptcy court, found no evidence that the law firm was aware of the fraud, Reuters reports. And the investigation, released late Thursday, found that the law firm did not miss any warning signs while carrying out pre-bankruptcy tasks, such as helping FTX with regulatory filings and an unsuccessful attempt to acquire crypto lender Voyager Digital.

Cleary said Sullivan & Cromwell attorneys made false claims to outside parties while doing this work, but that they were not aware those claims were false at the time.

For example, a few days before FTX’s collapse, a Sullivan & Cromwell partner assured Voyager Digital that FTX’s finances were strong. He dismissed any concern about FTX’s ability to close s deal as rumors spread by a rival company, Binance. But on the same day, Bankman-Fried urgently sought emergency financing, and FTX collapsed a few days later.

Read more: The rise and fall of Sam Bankman-Fried, from cryptocurrency fame to prison sentence

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