Sullivan & Cromwell pressured me to file for FTX bankruptcy, crypto exchange’s founder says
Indicted cryptocurrency exchange FTX founder Samuel Bankman-Fried is accusing Sullivan & Cromwell of pressuring him to seek bankruptcy protection for his company and filing documents nominating a new CEO after he tried to withdraw permission.
Bankman-Fried claims that he obtained potential funding “to help make customers whole” after he agreed to nominate restructuring specialist John Ray as the CEO. He tried to rescind the decision but was told that it was too late, Bankman-Fried said. Ray filed for Chapter 11 bankruptcy protection and appointed Sullivan & Cromwell as the legal counsel.
Bankman-Fried made those allegations in prepared congressional testimony for Dec. 13 that was never delivered because of his arrest the day before. Forbes printed the testimony here (available in searchable form here) and summarized “the 11 juiciest parts” here.
The Wall Street Journal and Law.com followed with stories.
The U.S. government is accusing Bankman-Fried of touting FTX Trading as a safe platform for crypto asset trading while diverting investor money to his privately held hedge fund. FTX filed for bankruptcy Nov. 11 after a run on deposits exposed $8 billion in missing customer funds, according to previous reporting by the New York Times.
Bankman-Fried was charged with fraud and conspiracy affecting customers and lenders.
Bankman-Fried’s testimony said pressure to quickly file for Chapter 11 bankruptcy came from Sullivan & Cromwell, one of FTX’s primary external law firms, and one of its former partners, FTX U.S. general counsel Ryne Miller, according to Bloomberg Law.
Bankman-Fried said he had 19 pages of screenshots showing the pressure to file.
“They range from adamant to mentally unbalanced,” Bankman-Fried said in the testimony. “They also called many of my friends, co-workers and family members, pressuring them to pressure me to file, some of whom were emotionally damaged by the pressure. Some of them came to me crying.”
According to Bankman-Fried, Sullivan & Cromwell chose Ray, who was famous for his work on the Enron bankruptcy estate, to run the Chapter 11 team. In the early-morning hours of Nov. 10, Bankman-Fried said, he clicked on a DocuSign link nominating Ray as the corporate CEO “against my better judgment.”
“Less than 10 minutes later, I received a potential funding offer for billions of dollars to help make
customers whole,” Bankman-Fried claimed. “A few minutes thereafter, I instructed my counsel to rescind the document; it had become clear to me that it was not the best way forward. … My counsel informed me a few minutes later that it was too late,” Bankman-Fried said.
Bankman-Fried said Ray filed for Chapter 11 for all FTX entities, “including a fully solvent U.S. entity, FTX U.S.”
Sullivan & Cromwell’s media relations department did not immediately respond to the ABA Journal’s request for comment, made by email and voicemail.