FTX’s former chief regulatory workplace Daniel Friedberg submitted an objection to the retention of regulation agency Sullivan & Cromwell (S&C) within the trade’s chapter case on Jan. 19.
Friedberg additionally served as FTX.US’ chief compliance officer.
Friedberg alleged unethical conduct on the a part of FTX US normal counsel Ryne Miller. Friedberg alleged that Miller channeled enterprise to S&C, the place Miller was previously a companion. Friedberg stated within the declaration:
“Mr. Miller knowledgeable me that it was essential for him personally to channel plenty of enterprise to S&C as he wished to return there as a companion after his stint on the Debtors.”
This “bothered” Friedberg who suggested Miller to solely rent the “greatest” exterior counsel. Friedberg knowledgeable Miller that his allegiance was now to FTX US and never S&C, as per the courtroom submitting.
Nonetheless, Miller engaged S&C in a number of authorized issues regarding FTX.US, the submitting stated. S&C served as the first counsel for FTX US, and FTX Derivatives, in lots of instances. The regulation agency additionally served as private counsel to FTX founder Sam Bankman-Fried (SBF) and former FTX engineering chief Nishad Singh.
Friedberg added:
“Mr. Miller usually reminisced that his mentors at S&C have been companions Andrew G. Dietderich and Mitchell Eitel, and that he would do something to assist these companions.”
The declaration additional said that S&C represented completely different FTX entities concurrently, with out correctly waiving battle of curiosity. It is vital that the attorneys within the FTX chapter case are “impartial and never have a historical past of representing all the varied teams and the principals at one time,” Friedberg famous.
Moreover, Friedberg stated that when he discovered of the $8 billion buyer asset deficit on Nov. 7, he approached Miller. On the time, Miller was busy contacting “all of the billionaires that he knew” to assist SBF elevate emergency funds to fill the deficit.
Friedberg stated he informed Miller to “evaluate his moral obligations” earlier than persevering with to characterize FTX.US however Miller allegedly “dismissed” Friedberg’s issues, the submitting famous.
A few days later, Friedberg knowledgeable Miller that every one FTX retained regulation corporations have instructed that FTX Worldwide and Alameda Analysis ought to file for chapter exterior the U.S. Nonetheless, Miller insisted that the chapter instances be filed within the U.S. in order that S&C might characterize the corporations.
Friedberg additional informed Miller that FTX.US shouldn’t file for chapter because it had ample assets. Nonetheless, Miller stated that FTX’s U.S. enterprise needed to be a part of the chapter case because it “had the money to pay S&C its retainer.”
Miller added that he was transferring $200 million from FTX Derivatives to S&C which might maintain the authorized prices of the chapter.
As per the declaration, Friedberg was “horrified” and tried to remind Miller that “he was stealing additional funds from prospects” however Miller hung up the cellphone.
Allegations of misconduct in opposition to Sullivan & Cromwell
In accordance with Friedberg, a lawyer from S&C made a false assertion to him and violated the New York code of ethics. The S&C lawyer in query knowledgeable Friedberg that S&C was representing all FTX entities and all property have been being mixed.
Friedberg knowledgeable the S&C lawyer that there have been “unwaivable conflicts.” Nonetheless, the S&C lawyer stated the battle guidelines didn’t apply within the chapter context — which Friedberg claims is fake.
Moreover, Friedberg alleged that S&C breached “moral obligations” and overbilled whereas representing Alameda in its credit score bid within the Voyager chapter. S&C allegedly despatched a invoice of $6.5 million for its illustration within the Voyager chapter case. Friedberg requested Miller to repair the issue however Miller later licensed a cost of $2.5 million, the declaration famous.
Friedberg additionally alleged that S&C was aiding and abetting BlockFi to violate the Securities Act whereas appearing as BlockFi’s SEC counsel. He additional claimed that S&C made a number of false statements and breached moral boundaries a number of instances.
What occurs subsequent
The FTX chapter case can be up for listening to on Jan. 20 to debate the retention of S&C as counsel. The SEC’s former chief of the Workplace of Web Enforcement John Reed Stark stated:
“If the allegations set forth within the Friedberg submitting are even partially true (regardless of Friedberg’s apparent credibility points), I can not think about any circumstance the place the FTX Trustee can be allowed to have interaction Sullivan & Cromwell for any objective.”
Stark added that if the allegations are confirmed to be true then:
“Sure attorneys from Sullivan & Cromwell could also be referred to as in for DOJ proffers or, if applicable, might even face civil, regulatory or felony legal responsibility.”
Monetary providers lawyer James Murphy stated that if Friedberg just isn’t current on the listening to, S&C will doubtless transfer to strike the declaration as rumour. He added that if Friedberg exhibits up at courtroom, “we might see one heck of a cross-examination confrontation.”
