Former FTX Chief Regulatory Officer Daniel Friedberg challenged the holding of law firm Sullivan & Cromwell (S&C) in the exchange’s bankruptcy suit on Jan. 19.
Friedberg also served as Chief Compliance Officer for FTX.US.
Friedberg alleges the unethical conduct of FTX US General Counsel Ryne Miller. Friedberg claimed Miller turned the business to his former partner, S&C. Friedberg said in his manifesto:
“Mr. Miller told me that after his stint at Debtors, he would like to return to S&C as a partner, so it is very important that he personally direct more of his business to S&C.”
This “troubled” Friedberg advised Miller to hire only the “best” outside lawyers. Friedberg informed his Miller that, according to court filings, his allegiance is now to FTX US and not to S&C.
However, Miller has been involved with S&C in several legal matters regarding FTX.US, the filing said. S&C has often acted as lead counsel for FTX US and FTX Derivatives. The firm also served as personal counsel to FTX founder Sam Bankman-Fried (SBF) and his former FTX engineering chief Nishad Singh.
“Mr. Miller was often reminded that his mentors at S&C were his partners Andrew G. Dietderich and Mitchell Eitel, and that he would do anything to help these partners.
The Declaration further states that S&C represents different FTX entities simultaneously and has not properly disclaimed conflicts of interest. Friedberg said it is important that attorneys in FTX bankruptcy cases “are independent and do not have experience representing all of the different groups and principals at once.”
Additionally, Friedberg said he contacted Miller on November 7 when he learned of an $8 billion client asset deficit. At the time, Miller was busy reaching out to “every billionaire he knew” to help the SBF raise emergency funds to cover the deficit.
Friedberg claims he told Miller to “reaffirm his ethical obligations” before continuing to represent FTX.US, but Miller has “dismissed” Friedberg’s concerns.
A few days later, Friedberg told Miller that all the law firms FTX held suggested that FTX International and Alameda Research should file for bankruptcy outside the United States, but Miller said S&C He argued that he should file a bankruptcy suit in the United States so he could represent the company. .
Friedberg also told Miller that FTX.US has sufficient resources and should not file for bankruptcy. But Miller said he was forced to become part of the bankruptcy suit because FTX’s U.S. operations “had cash to pay S&C.”
Miller added that he is transferring $200 million from FTX Derivatives to S&C to cover bankruptcy litigation costs.
According to the declaration, Friedberg was “horrified” and tried to remind Miller that “he was stealing more money from his clients,” but Miller hung up.
Allegations of Misconduct Against Sullivan & Cromwell
According to Friedberg, an attorney for S&C made a false statement to him, violating the New York Code of Ethics. He in question S&C attorneys informed Friedberg that S&C represents all his FTX entities and all assets are consolidated.
Friedberg told S&C’s attorneys that there was an “irreconcilable conflict.” But S&C’s attorneys said the dispute rules don’t apply in the context of bankruptcy — Friedberg’s allegations are false.
In addition, Friedberg alleged that S&C violated its “ethical obligations” and overbilled on behalf of Alameda in its credit bid in Voyager’s bankruptcy. S&C is said to have sent a $6.5 million bill on behalf of Voyager in the bankruptcy case. Friedberg asked Miller to work out the matter, but Miller later authorized him to pay $2.5 million, the statement said.
Friedberg also alleged that S&C, while acting as BlockFi’s SEC counsel, had aided and encouraged BlockFi to violate securities laws. He further claimed that S&C made several false statements and broke ethical boundaries on multiple occasions.
what happens next
The FTX bankruptcy case will go to a public hearing on Jan. 20 to discuss retaining S&C as its attorney. Former SEC Internet Enforcement Director John Reid Stark said:
“If the allegations set forth in Friedberg’s filings are even partially true (despite Friedberg’s apparent credibility issues), then the FTX Trustees will be involved with Sullivan & Cromwell for any purpose. I can’t imagine a situation where that would be allowed.”
Stark Added If the claim is confirmed to be true:
“Certain Sullivan & Cromwell attorneys may be called on behalf of DOJ providers and, in some cases, may even face civil, regulatory, or criminal liability.”
Financial Services Attorney James Murphy Said If Mr. Friedberg does not attend the hearing, S&C will likely discard the declaration as hearsay, they said. He added that if Friedberg appeared in court, “we might see a cross-examination showdown.”