FTX Group Sued By Creditors For Alleged Fraud Billions Of Dollars

JAKARTA - FTX Group, the parent company of the crypto exchange FTX, is facing group lawsuits from its creditors who feel aggrieved by the fraudulent acts committed by the company. The lawsuit also dragged law firm Sullivan & Cromwell (S&C) who was allegedly involved and benefited from the FTX scandal.

FTX Creditors Demand Compensation

According to court documents received by CNBC on February 16, 2024, FTX creditors alleged that S&C had colluded with FTX Group to commit billions of dollars (tens of trillions of rupiah) fraud and misuse of funds belonging to class members.

The creditors claim that S&C knows and approves fraudulent acts committed by FTX US and FTX Trading Ltd., two entities under FTX Group. The fraudulent acts include mixing customer funds with company funds, transferring assets to affiliated firm Alameda Research, and embezzlement of revenue from FTX token sales.

"Despite knowing this, S&C has the potential to benefit financially from the behavior of the FTX group and agree, at least implicitly, to help crack the law for its own benefit," the filing reads.

The group's lawsuit demands compensation for several charges, including civil conspiracy, helping and encouraging fraud, and encouraging breach of trust. Creditors have also requested that S&C be banned from being an independent monitor for Binance Holdings, one of FTX's competitors, which is being investigated by US authorities.

S&C Relations With FTX Full Of Conflict Of Interest

S&C is a one-century law firm that has overseen the bankruptcy process of FTX since November 2023. FTX filed for bankruptcy protection Chapter 11 after experiencing a liquidity crisis due to the withdrawal of mass funds by its customers.

However, it turns out that S&C had close employment with FTX before bankruptcy. The legal firm has acted as an outside advisor to FTX in various deals, such as offering FTX assets to Voyager Digital Holdings and acquisition of LedgerX. The legal firm also accepts significant payments for its services, which are estimated at hundreds of millions of US dollars.

The connection between FTX and S&C was established through Ryne Miller, a former partner at S&C who joined FTX Group as a general advisor in August 2021. It is suspected Miller shifted at least 20 cases from FTX to his old law firm. Former FTX regulatory chief FTX officer, Daniel Friedberg, stated in a court filing that Miller stressed the importance of directing the business to S&C as he intends to return there as a partner after his time at FTX.

The lawsuit also highlights the close relationship between former FTX CEO Sam Bankman-Fried and S&C, noting that Bankman-Fried often works at the law office in New York. "S&C gained detailed knowledge of Mr. BankmanFried's own finances through, as further suspected, his representation of him in his personal capacity for the purchase of complicated shares related to Robinhood," the filing reads.