by Pam Martens and Russ Martens at Wall Street on Parade
On December 21, Big Law firm Sullivan & Cromwell filed a conflict disclosure with the U.S. Bankruptcy Court in Delaware, where it was hoping to be officially appointed as lead counsel for the bankruptcy estate of Sam Bankman-Fried’s collapsed crypto house of cards – FTX, Alameda Research and its more than 100 opaque affiliates. Judge John Dorsey signed the order making Sullivan & Cromwell lead counsel on January 20, despite a mind-numbing list of conflicts of interests, including extensive past legal work for the FTX group and personal legal work for its now indicted kingpin, Sam Bankman-Fried. The disclosure showed that in addition to FTX and Alameda Research, Sullivan & Cromwell had 10 other current crypto clients, including four major crypto competitors to FTX — BlockFi, Coinbase, Gemini, and Kraken.
Damian Williams, the U.S. Attorney for the Southern District of New York, whose office indicted Bankman-Fried on eight criminal counts for looting billions of dollars from customer accounts, called FTX “one of the biggest financial frauds in American history.” Those four crypto competitors that Sullivan & Cromwell named as also being their clients, haven’t fared too well either.
BlockFi is in bankruptcy proceedings in the U.S. Bankruptcy Court for the District of New Jersey with over $1 billion exposure in loans and locked up assets at Bankman-Fried’s related companies. Coinbase is a publicly-traded crypto exchange in the U.S.; its shareholders lost 86 percent of their money if they owned the stock throughout last year. Gemini is a crypto exchange created by the Winklevoss twins, Cameron and Tyler. Its customers have been locked out of their interest-bearing “Earn” accounts to the tune of $900 million since November 16 of last year. Kraken is also a crypto exchange; last Thursday the Securities and Exchange Commission charged it with the “illegal unregistered offer and sale of securities involving the staking of crypto assets.” Kraken agreed to pay $30 million in penalties and disgorgement.
While this litany of crypto disasters does not paint a pretty picture of what is happening in general with Sullivan & Cromwell’s crypto clients, BlockFi is in a league of its own in terms of a viper’s nest of conflicts inside Sullivan & Cromwell and internecine intrigue.
Under Bankruptcy Code Section 327(a), attorneys hired by the bankruptcy estate cannot hold or represent an interest adverse to the estate and must be “disinterested persons.” The December 21 disclosure filed with the FTX bankruptcy court included a declaration from Sullivan & Cromwell partner, Andrew Dietderich, who told the court the following:…
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