The U.S. Trustee has raised objections to the cryptocurrency exchange FTX’s plan to hire the New York law firm. Sullivan and Cromwell, citing potential conflicts of interest from the firm’s previous activity. The complaint mirrors those made by a group of U.S. senators. And FTX’s founder, Sam Bankman-Fried, also expressed concerns that the firm may interfere with the work of an independent examiner.
In the legal filing on Jan. 13, the Trustee stated that the disclosures made by Sullivan and Cromwell were “wholly insufficient”. They were unable to determine if the firm meets the “conflict-free and disinterestedness standards” required by the Bankruptcy Code. The Trustee, Andrew Vara, a Department of Justice official responsible for bankruptcy cases, believes that the incomplete disclosures are sufficient. And independent reason to deny the application.
Duplication of Effort
The Trustee also expressed concerns that any investigation led by the firm would be redundant and a waste of estate resources if an independent examiner is appointed. He states that “Any investigation led by S&C would be duplicative and wasteful of estate resources if the Court were to grant the U.S. Trustee’s pending motion to appoint an examiner with a comprehensive investigative mandate.”
Conflict of Interest
FTX’s General Counsel Ryne Miller previously worked at S&C for eight years, which may create a conflict of interest for the law firm in investigating both itself and its former employee. This is also noted by the Trustee in the legal filing.
FTX’s CEO, John Ray, has stated that retaining the law firm is “necessary and in the best interests of the Debtors and their derivatives and stakeholders.” He believes that S&C is one of the leading law firms in the world in all of the key practice areas.
It is ultimately up to the court to decide whether to approve the hiring of Sullivan and Cromwell as FTX’s legal counsel. The Trustee’s objections raise valid concerns about conflicts of interest and the potential for duplication of effort, but FTX’s CEO believes that the firm is necessary for the best interests of the debtors and stakeholders.
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