DOJ Opposes Law Firm Tasked With FTX Investigation for Conflict of Interest

The US Department of Justice has opposed FTX hiring Sullivan & Cromwell, the law firm currently tasked with the exchange’s investigation, citing potential conflicts of interest.  

In a recent legal filing, the US Trustee said it is objecting to the FTX decision due to two “overarching” reasons. In the first place, the law firm’s disclosures are not wholly sufficient to “evaluate whether S&C satisfies the Bankruptcy Code’s conflict-free and disinterestedness standards,” the DOJ said.

Furthermore, there might be a conflict of interest given that Ryne Miller, general counsel of FTX US, previously worked at S&C for eight years. The DOJ said the investigation would place the law firm “in the conflicted position of investigating itself and its former partner.”

“Second, the scope of S&C’s retention cannot be allowed as proposed,” the complaint added, detailing that bankruptcy rules “specifically preclude debtors in possession from investigating themselves.” The DOJ asked the Court to deny S&C’s application. 

The DOJ complaint comes just days after a bipartisan group of four United States senators, including John Hickenlooper, Thom Tillis, Elizabeth Warren, and Cynthia Lummis, lashed out at S&C for almost the same reasons. 

The four senators wrote a letter to Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware on January 9, calling on him to approve a motion appointing an independent examiner into FTX’s activities prior to its collapse in November. They wrote:

“We believe it is critical that a strong, objective, and disinterested examiner is appointed in this case to conduct a searching investigation of FTX, FTX US and its related entities in order to uncover the facts needed to assure FTX’s customers – and the broader public – that justice is served and to inform Congress’ consideration of future digital asset legislation.” 

FTX and its group of crypto companies filed for Chapter 11 bankruptcy in early November. Sam Bankman-Fried, the disgraced founder of FTX, was later arrested in The Bahamas after US prosecutors formally filed criminal charges against him. He was eventually extradited to the US where he was released from jail after posting a $250m bond in a New York court.

The Southern District of New York has charged SBF with eight criminal charges including wire fraud and conspiracy by misusing customer funds. Separately, the SEC has charged SBF with “orchestrating a scheme to defraud equity investors in FTX.”

As per the latest updates, FTX has managed to recover over $5 billion in cash and liquid assets that may be used to repay creditors. However, it is still “not yet clear” how large the settlement fund for FTX creditors will be, an FTX advisor has said.