On Friday, bankruptcy judge John Dorsey approved the law firm Sullivan & Cromwell (S&C) to be appointed as the debtors’ counsel for FTX, despite an objection from Daniel Friedberg, a former FTX US compliance officer. During a Zoom presentation, Friedberg claimed there was a conflict of interest between former and current FTX executives and FTX US’ general counsel, as Ryne Miller once worked for S&C. Judge Dorsey, however, was not swayed by Friedberg’s 17-page objection and appointed S&C, stating that “there’s no evidence of actual conflict here.”
FTX Bankruptcy Raises Questions of Conflict of Interest and Odd Decisions
The day before bankruptcy judge John Dorsey approved Sullivan & Cromwell (S&C) to represent the debtors as legal counsel, James “Metalawman” Murphy published a Twitter thread explaining that it was odd that S&C would likely be chosen for FTX representation. “There’s something off with the FTX bankruptcy,” Murphy insisted in his post. Murphy, an attorney who specializes in metaverse, Web3, and digital asset subjects, questioned the involvement of John J. Ray IIIthe new FTX CEO and chief restructuring officer, in the process.
The attorney Murphy points out that when Ray worked with Enron as the chief restructuring officer, Ray did an excellent job aggressively pursuing recoveries for the benefit of Enron’s creditors. However, Murphy said that Ray is acting very differently from the hard-bargaining CEO he was known as at Enron and questioned this change in attitude. For example, the metaverse lawyer detailed that when he was restructuring Enron, Ray never suggested for a moment that one of Enron’s primary outside law firms should serve as a debtor’s counsel.
“Inexplicably, Mr. Ray now supports S&C’s move to serve as debtors’ counsel,” Murphy noted. The lawyer further said that this is despite S&C handling “20 engagements for FTX in just 16 months,” being “paid $8.5 million in fees,” and “representing key figures [Sam Bankman-Fried] and [Nishad Singh] personally.” Murphy remarked that at Enron, Ray “aggressively pursued claims against Enron’s outside law firms.” The lawyer continued:
Vinson & Elkins paid $30 million to settle and Andrews Kurth paid $18.5 million. According to an independent report, these firms failed to respond to red flags suggesting possible misconduct.
Murphy also opened that the ultimate irony of this situation is that the enormous fees will be paid by the victims of the FTX fraud — the customers. “My prediction: The unified front of Mr. Ray, the Official Creditors Committee, and S&C will prevail, and the judge will appoint Sullivan & Cromwell debtors’ counsel … This is not normal,” Murphy concluded. During the hearing the next day, Daniel Friedberg, a former FTX US compliance officer, objected to S&C being appointed and submitted a 17-page objection for the bankruptcy judge to review. In the filing, the former FTX US compliance officer said that Ryne Miller, FTX US’ general counsel, was once employed by S&C.
“Mr. Miller informed me that it is very important for him personally to channel a lot of business to S&C as he wanted to return there as a partner after his stint with the debtors,” Friedberg’s complaint details. Despite the objection, Bankruptcy Judge Dorsey told court participants that “there’s no evidence of actual conflict here,” adding that it was “hearsay, innuendo, speculation, rumors, and certainly not something I would allow to be introduced into evidence.”
After S&C was appointed as debtors’ counsel, James “Metalawman” Murphy added his two cents about the decision. “As expected, the judge approves Sullivan & Cromwell as debtors’ counsel. Judge says, on the record before him, he has no concern about S&C conflicts of interest,” Murphy wrote. “Any suspense about this decision was eliminated when the US Trustee switched position to favor S&C’s appointment.” The same day, US federal prosecutors seized nearly $700 million in assets from the disgraced FTX co-founder Bankman-Fried.
What do you think about the appointment of Sullivan & Cromwell as debtors’ counsel for FTX and the allegations of conflict of interest raised by former FTX US compliance officer Daniel Friedberg and James “Metalawman” Murphy? Share your thoughts in the comments below.
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