A law firm involved in FTX's bankruptcy is under fire from 4 senators after an ex-customer noted that it earned $20 million from the crypto giant
Pete Syme
Wed, January 11, 2023
Elizabeth Warren and Sam Bankman-Fried, the FTX founder, leaving Manhattan Federal Court in January.
Tom Williams-Pool/Getty Images; Fatih Aktas/Anadolu Agency via Getty Images
An FTX customer filed an objection to law firm Sullivan & Cromwell acting as the crypto exchange's counsel.
The objection notes that FTX had already done business with the law firm to the tune of $20.5 million.
Now four senators including Elizabeth Warren have written to the judge with concerns about S&C.
Four US senators have raised concerns about the law firm handling FTX's bankruptcy case, Sullivan & Cromwell, due to the two companies' past relationship.
The bipartisan letter was sent on Monday by Democrats Elizabeth Warren and John Hickenlooper, and Republicans Thom Tillis and Cynthia Lummis, in response to a motion filed in the Delaware bankruptcy court on January 4.
An FTX customer called Warren Winter called on the court to disqualify Sullivan & Cromwell as the debtors' counsel, or otherwise "provide robust disclosures." According to his motion, which Insider has seen, FTX paid the law firm $20.5 million in fees and retainers before it filed for bankruptcy on November 11 last year.
That court filing also pointed out that FTX US's general counsel, Ryne Miller, was a partner at the same law firm which is now investigating possible wrongdoing at FTX.
Winter called Sullivan & Cromwell's appointment as FTX's counsel: "The most flagrant attempt by a fox to guard a henhouse in recent memory."
And now four senators have raised concerns about the law firm too, saying Sullivan & Cromwell "may well bear a measure of responsibility for the damage wrecked on the company's victims."
"Put bluntly, the firm is simply not in a position to uncover the information needed to ensure confidence in any investigation or findings," the letter added.
After FTX's collapse, Senator Warren wrote an op-ed for the Wall Street Journal, calling for regulation "before the next crypto catastrophe takes down our economy."
A spokesperson for Sullivan & Cromwell said that John J. Ray III, the former Enron CEO who is now in charge of FTX, has "decades of experience and success in matters similar to the current FTX situation and is supervising a broad team of sophisticated professionals, including conflicts counsel."
"S&C never served as primary outside counsel to any FTX entity. The firm had a limited and largely transactional relationship with FTX and certain affiliates prior to the bankruptcy, as is common, and is disinterested as required by the Bankruptcy Code."
FTX did not immediately respond to Insider's request for comment.
Letter From US Senators 'Inappropriate,' Won’t Sway Me, FTX Bankruptcy Judge Says
An FTX customer filed an objection to law firm Sullivan & Cromwell acting as the crypto exchange's counsel.
The objection notes that FTX had already done business with the law firm to the tune of $20.5 million.
Now four senators including Elizabeth Warren have written to the judge with concerns about S&C.
Four US senators have raised concerns about the law firm handling FTX's bankruptcy case, Sullivan & Cromwell, due to the two companies' past relationship.
The bipartisan letter was sent on Monday by Democrats Elizabeth Warren and John Hickenlooper, and Republicans Thom Tillis and Cynthia Lummis, in response to a motion filed in the Delaware bankruptcy court on January 4.
An FTX customer called Warren Winter called on the court to disqualify Sullivan & Cromwell as the debtors' counsel, or otherwise "provide robust disclosures." According to his motion, which Insider has seen, FTX paid the law firm $20.5 million in fees and retainers before it filed for bankruptcy on November 11 last year.
That court filing also pointed out that FTX US's general counsel, Ryne Miller, was a partner at the same law firm which is now investigating possible wrongdoing at FTX.
Winter called Sullivan & Cromwell's appointment as FTX's counsel: "The most flagrant attempt by a fox to guard a henhouse in recent memory."
And now four senators have raised concerns about the law firm too, saying Sullivan & Cromwell "may well bear a measure of responsibility for the damage wrecked on the company's victims."
"Put bluntly, the firm is simply not in a position to uncover the information needed to ensure confidence in any investigation or findings," the letter added.
After FTX's collapse, Senator Warren wrote an op-ed for the Wall Street Journal, calling for regulation "before the next crypto catastrophe takes down our economy."
A spokesperson for Sullivan & Cromwell said that John J. Ray III, the former Enron CEO who is now in charge of FTX, has "decades of experience and success in matters similar to the current FTX situation and is supervising a broad team of sophisticated professionals, including conflicts counsel."
"S&C never served as primary outside counsel to any FTX entity. The firm had a limited and largely transactional relationship with FTX and certain affiliates prior to the bankruptcy, as is common, and is disinterested as required by the Bankruptcy Code."
FTX did not immediately respond to Insider's request for comment.
Letter From US Senators 'Inappropriate,' Won’t Sway Me, FTX Bankruptcy Judge Says
Jack Schickler
COINDESK
Wed, January 11, 2023
A bipartisan letter from four U.S. senators is an “inappropriate” intervention in bankruptcy proceedings that won’t sway judicial decisions, Delaware Judge John Dorsey told a court hearing Wednesday.
The letter, from John Hickenlooper (D-Colo.), Thom Tillis (R-N.C.), Elizabeth Warren (D-Mass.) and Cynthia Lummis (R-Wyo.) called for an independent examiner to be appointed to investigate the collapse of the crypto exchange.
The letter is an “inappropriate ex parte communication,” Dorsey said, using a legal term for court interventions that don't give all parties the chance to be represented.
“I will make my decisions on the matters referred to in the letter based only upon admissible evidence and the arguments of parties and interest presented in open court,” Dorsey said. The bankruptcy court judge added that the letter “will have no impact whatsoever on my decisions in this case which will only be based upon the facts and law presented by the parties."
The senators’ letter raised questions about the ability of law firm Sullivan & Cromwell to impartially represent the crypto company's new executives. FTX filed for bankruptcy Nov. 11.
Alexis Keenan and David Hollerith
Wed, January 11, 2023
A lawyer for FTX said Wednesday in a Federal bankruptcy hearing in Delaware that lawyers have located over $5 billion of cash, liquid cryptocurrency, and other liquid investments belonging to the company measured as of November 11, the date FTX filed for bankruptcy protection.
In a ruling from the bench, federal bankruptcy Judge John T. Dorsey granted FTX's motion to keep its customer's names under seal.
The $5 billion in newfound assets do not include crypto in custody with the Securities Commission of the Bahamas valued at approximately $425 million as of the company's petition date, the attorney added. "That position was valued at about $170 million at the end of 2022. It contains a large amount of FTT and is highly volatile," said Andrew Dietderich a partner at law firm Sullivan & Cromwell advising FTX.
FTX's total located assets were previously said to be around $1 billion on December 20, according to reporting from CoinDesk on what FTX's legal counsel said in a closed meeting with creditors.
The attorney said the FTX’s bankruptcy team is also, "underway on plans to monetize 300 other non-strategic investments with a book value of $4.6 billion."
The total amount of the shortfall between FTX's assets and the amount it owes customers and other creditors, however, is still "not yet clear," Dietderich added.
"We know what Alameda did with the money," Dietderich told the court about FTX's associated hedge fund that prosecutors have alleged illegally used FTX customer funds to carry out risky investments.
Dietderich also said the debtor bankruptcy team knows Bankman-Fried instructed FTX CTO Gary Wang to create the "Alameda backdoor." Previously mentioned in court filings, this secret feature allowed Alameda to borrow from customers on the exchange without their permission.
According to Dietderich, the size of Alameda's line of credit with FTX was $65 billion.
"It bought planes, houses, threw parties, made political donations, made personal loans to its founders. It sponsored the FTX Arena in Miami, a Formula One team, the League of Legends, Coachella, and many other businesses, events, and personalities. It gambled on cryptocurrency investments, often unsuccessfully."
Redacted creditor names
Also at issue during Wednesday's hearing was whether names and personally identifying information of FTX’s 9 million customers should be kept confidential while the company works to reorganize or sell the troubled firm.
"I'm going to overrule the objections and allow [the names] to remain sealed at this point," Judge Dorsey said following arguments from several parties. "But I'm not going to leave it open for [six months]. I'm going to...approve an order that extended it for three months."
In court, Dietderich revealed the company had identified more than 9 million customer accounts with about 120 billion associated transactions.
Kevin Cofsky of Perella Weinberg Partners testified that FTX's customer lists, including both names and contact information, are a key company asset.
"A significant component of the business is the customers themselves," Cofsky told Judge Dorsey, reasoning that the company would maintain more value it could pass on to creditors and prospective buyers if customers are protected from poaching by industry competitors.
“That will give buyers confidence that…what they are buying has value,” Cofsky told Judge Dorsey.
In a declaration filed in the proceedings, Cofsky added that customers would not have anticipated their private information being disclosed, explaining that "a hallmark feature of cryptocurrency is a holder's ability to remain anonymous to the public."
In early December, a group of media organizations including Bloomberg L.P., Dow Jones, The New York Times Company, and The Financial Times filed a motion to intervene in the bankruptcy proceedings to reject the request of the debtors to keep FTX creditor names private. Media companies indicated in their arguments the public's right to access the names.
The U.S. Trustee joined in the news organizations' arguments that FTX's customer names should be made public, given that bankruptcy proceedings usually require disclosure of creditor names and addresses.
Wednesday's hearing follows a Tuesday court filing in the bankruptcy of crypto lender BlockFi in which creditors asked their personal information remain under seal. The U.S. Trustee has objected to the motion, arguing that "disclosure is the basic premise of bankruptcy." The issue will be covered in a January 17 hearing.
Customers of bankrupt crypto lender Celsius, which includes hundreds of thousands of retail investors, had their information published in a publicly available court record at the beginning of October.
The court will have a status hearing Jan. 20 on the matter.
Sam Bankman-Fried's trading firm borrowed $65 billion from FTX via a 'secret backdoor' to fund donations and a luxury lifestyle, bankruptcy court hears
Pete Syme
Thu, January 12, 2023
Sam Bankman-Fried arrives at Manhattan federal court on January 3.
Wed, January 11, 2023
A bipartisan letter from four U.S. senators is an “inappropriate” intervention in bankruptcy proceedings that won’t sway judicial decisions, Delaware Judge John Dorsey told a court hearing Wednesday.
The letter, from John Hickenlooper (D-Colo.), Thom Tillis (R-N.C.), Elizabeth Warren (D-Mass.) and Cynthia Lummis (R-Wyo.) called for an independent examiner to be appointed to investigate the collapse of the crypto exchange.
The letter is an “inappropriate ex parte communication,” Dorsey said, using a legal term for court interventions that don't give all parties the chance to be represented.
“I will make my decisions on the matters referred to in the letter based only upon admissible evidence and the arguments of parties and interest presented in open court,” Dorsey said. The bankruptcy court judge added that the letter “will have no impact whatsoever on my decisions in this case which will only be based upon the facts and law presented by the parties."
The senators’ letter raised questions about the ability of law firm Sullivan & Cromwell to impartially represent the crypto company's new executives. FTX filed for bankruptcy Nov. 11.
FTX finds over $5 billion in liquid assets, judge extends ruling keeping creditor names secret
Alexis Keenan and David Hollerith
Wed, January 11, 2023
A lawyer for FTX said Wednesday in a Federal bankruptcy hearing in Delaware that lawyers have located over $5 billion of cash, liquid cryptocurrency, and other liquid investments belonging to the company measured as of November 11, the date FTX filed for bankruptcy protection.
In a ruling from the bench, federal bankruptcy Judge John T. Dorsey granted FTX's motion to keep its customer's names under seal.
The $5 billion in newfound assets do not include crypto in custody with the Securities Commission of the Bahamas valued at approximately $425 million as of the company's petition date, the attorney added. "That position was valued at about $170 million at the end of 2022. It contains a large amount of FTT and is highly volatile," said Andrew Dietderich a partner at law firm Sullivan & Cromwell advising FTX.
FTX's total located assets were previously said to be around $1 billion on December 20, according to reporting from CoinDesk on what FTX's legal counsel said in a closed meeting with creditors.
The attorney said the FTX’s bankruptcy team is also, "underway on plans to monetize 300 other non-strategic investments with a book value of $4.6 billion."
The total amount of the shortfall between FTX's assets and the amount it owes customers and other creditors, however, is still "not yet clear," Dietderich added.
"We know what Alameda did with the money," Dietderich told the court about FTX's associated hedge fund that prosecutors have alleged illegally used FTX customer funds to carry out risky investments.
Dietderich also said the debtor bankruptcy team knows Bankman-Fried instructed FTX CTO Gary Wang to create the "Alameda backdoor." Previously mentioned in court filings, this secret feature allowed Alameda to borrow from customers on the exchange without their permission.
According to Dietderich, the size of Alameda's line of credit with FTX was $65 billion.
"It bought planes, houses, threw parties, made political donations, made personal loans to its founders. It sponsored the FTX Arena in Miami, a Formula One team, the League of Legends, Coachella, and many other businesses, events, and personalities. It gambled on cryptocurrency investments, often unsuccessfully."
Redacted creditor names
Also at issue during Wednesday's hearing was whether names and personally identifying information of FTX’s 9 million customers should be kept confidential while the company works to reorganize or sell the troubled firm.
"I'm going to overrule the objections and allow [the names] to remain sealed at this point," Judge Dorsey said following arguments from several parties. "But I'm not going to leave it open for [six months]. I'm going to...approve an order that extended it for three months."
In court, Dietderich revealed the company had identified more than 9 million customer accounts with about 120 billion associated transactions.
Kevin Cofsky of Perella Weinberg Partners testified that FTX's customer lists, including both names and contact information, are a key company asset.
"A significant component of the business is the customers themselves," Cofsky told Judge Dorsey, reasoning that the company would maintain more value it could pass on to creditors and prospective buyers if customers are protected from poaching by industry competitors.
“That will give buyers confidence that…what they are buying has value,” Cofsky told Judge Dorsey.
In a declaration filed in the proceedings, Cofsky added that customers would not have anticipated their private information being disclosed, explaining that "a hallmark feature of cryptocurrency is a holder's ability to remain anonymous to the public."
In early December, a group of media organizations including Bloomberg L.P., Dow Jones, The New York Times Company, and The Financial Times filed a motion to intervene in the bankruptcy proceedings to reject the request of the debtors to keep FTX creditor names private. Media companies indicated in their arguments the public's right to access the names.
The U.S. Trustee joined in the news organizations' arguments that FTX's customer names should be made public, given that bankruptcy proceedings usually require disclosure of creditor names and addresses.
Wednesday's hearing follows a Tuesday court filing in the bankruptcy of crypto lender BlockFi in which creditors asked their personal information remain under seal. The U.S. Trustee has objected to the motion, arguing that "disclosure is the basic premise of bankruptcy." The issue will be covered in a January 17 hearing.
Customers of bankrupt crypto lender Celsius, which includes hundreds of thousands of retail investors, had their information published in a publicly available court record at the beginning of October.
The court will have a status hearing Jan. 20 on the matter.
Sam Bankman-Fried's trading firm borrowed $65 billion from FTX via a 'secret backdoor' to fund donations and a luxury lifestyle, bankruptcy court hears
Pete Syme
Thu, January 12, 2023
Sam Bankman-Fried arrives at Manhattan federal court on January 3.
Gotham/GC Images
Bankruptcy lawyers revealed Sam Bankman-Fried's Alameda had access to $65 billion from FTX.
The customer loans were made available via a backdoor created by FTX cofounder Gary Wang, they said.
The money was used for luxury purchases like planes, parties, and political donations.
Sam Bankman-Fried instructed his FTX cofounder Gary Wang to create a "secret" backdoor to enable his trading firm Alameda to borrow $65 billion of clients' money from the exchange without their permission, the Delaware bankruptcy court was told Wednesday.
Wang was told to create a "backdoor, a secret way for Alameda to borrow from customers on the exchange without permission," according to FTX's lawyer, Andrew Dietderich.
"Mr Wang created this back door by inserting a single number into millions of lines of code for the exchange, creating a line of credit from FTX to Alameda, to which customers did not consent," he added. "And we know the size of that line of credit. It was $65 billion."
The CFTC made similar allegations when it brought charges against Wang in December. But the value of that line of credit hasn't been revealed before now. The CFTC then described it as "virtually unlimited."
And in November, Reuters reported that SBF had moved $10 billion between the two companies, with a further $2 billion still unaccounted for.
Dietderich told the court that with the $65 billion back door, Alameda "bought planes, houses, threw parties, made political donations."
Sam Bankman-Fried is the second-highest donor to Democratic causes, but says he donated just as much to Republicans using "dark" money.
$256.3 million of Bahamian real estate was also registered in FTX's name – including 15 condos in the same building. Other court filings say FTX spent $6.9 million on "meals and entertainment" in just nine months.
The rest of the money went towards personal loans, sponsorships, and investments, according to Dietderich.
"We know that all this has left a shortfall, in value to repay customers and creditors," he added. That amount "will depend on the size of the claims pool and our recovery efforts."
The court heard how FTX had so far recovered $5 billion of cash, crypto, and securities, with "plans to monetize over 300 other non-strategic investments" worth $4.6 billion.
Bankman-Fried's attorney did not immediately respond to Insider's request for comment, sent outside normal working hours.
Sam Bankman-Fried launches Substack: ‘I didn’t steal funds, and I certainly didn’t stash billions away’
Mary Ann Azevedo
Thu, January 12, 2023
FTX founder and former CEO Sam Bankman-Fried launched his own Substack newsletter today, in a very unusual move for someone who was recently arrested and is facing eight counts of U.S. criminal charges.
In a post titled “FTX Pre-Mortem Overview,” Bankman-Fried maintains his innocence surrounding the collapse and bankruptcy of FTX, a cryptocurrency exchange he founded in 2019 that went on to raise $2 billion in funding and achieve a valuation of a staggering $32 billion.
He wrote:
Bankruptcy lawyers revealed Sam Bankman-Fried's Alameda had access to $65 billion from FTX.
The customer loans were made available via a backdoor created by FTX cofounder Gary Wang, they said.
The money was used for luxury purchases like planes, parties, and political donations.
Sam Bankman-Fried instructed his FTX cofounder Gary Wang to create a "secret" backdoor to enable his trading firm Alameda to borrow $65 billion of clients' money from the exchange without their permission, the Delaware bankruptcy court was told Wednesday.
Wang was told to create a "backdoor, a secret way for Alameda to borrow from customers on the exchange without permission," according to FTX's lawyer, Andrew Dietderich.
"Mr Wang created this back door by inserting a single number into millions of lines of code for the exchange, creating a line of credit from FTX to Alameda, to which customers did not consent," he added. "And we know the size of that line of credit. It was $65 billion."
The CFTC made similar allegations when it brought charges against Wang in December. But the value of that line of credit hasn't been revealed before now. The CFTC then described it as "virtually unlimited."
And in November, Reuters reported that SBF had moved $10 billion between the two companies, with a further $2 billion still unaccounted for.
Dietderich told the court that with the $65 billion back door, Alameda "bought planes, houses, threw parties, made political donations."
Sam Bankman-Fried is the second-highest donor to Democratic causes, but says he donated just as much to Republicans using "dark" money.
$256.3 million of Bahamian real estate was also registered in FTX's name – including 15 condos in the same building. Other court filings say FTX spent $6.9 million on "meals and entertainment" in just nine months.
The rest of the money went towards personal loans, sponsorships, and investments, according to Dietderich.
"We know that all this has left a shortfall, in value to repay customers and creditors," he added. That amount "will depend on the size of the claims pool and our recovery efforts."
The court heard how FTX had so far recovered $5 billion of cash, crypto, and securities, with "plans to monetize over 300 other non-strategic investments" worth $4.6 billion.
Bankman-Fried's attorney did not immediately respond to Insider's request for comment, sent outside normal working hours.
Sam Bankman-Fried launches Substack: ‘I didn’t steal funds, and I certainly didn’t stash billions away’
Mary Ann Azevedo
Thu, January 12, 2023
FTX founder and former CEO Sam Bankman-Fried launched his own Substack newsletter today, in a very unusual move for someone who was recently arrested and is facing eight counts of U.S. criminal charges.
In a post titled “FTX Pre-Mortem Overview,” Bankman-Fried maintains his innocence surrounding the collapse and bankruptcy of FTX, a cryptocurrency exchange he founded in 2019 that went on to raise $2 billion in funding and achieve a valuation of a staggering $32 billion.
He wrote:
I didn’t steal funds, and I certainly didn’t stash billions away. Nearly all of my assets were and still are utilizable to backstop FTX customers. I have, for instance, offered to contribute nearly all of my personal shares in Robinhood to customers–or 100%, if the Chapter 11 team would honor my D&O legal expense indemnification.
When Bankman-Fried stepped down from FTX in November, Enron turnaround veteran John J. Ray III was appointed as the new CEO.
The 30-year-old former billionaire continues to insist that if he were not “forced” to declare bankruptcy that the company would have been able to repay all its customers. He wrote: “There were numerous potential funding offers–including signed LOIs post chapter 11 filing totaling over $4b. I believe that, had FTX International been given a few weeks, it could likely have utilized its illiquid assets and equity to raise enough financing to make customers substantially whole.”
On January 3, Bankman-Fried pled not guilty to all eight counts of criminal charges, which included wire fraud, conspiracy to commit money laundering and conspiracy to misuse customer funds, among others. Bankman-Fried could face up to 115 years in jail if convicted on all charges. His trial date has been set for October 2, 2023.
Last month, a U.S. judge released Bankman-Fried on a $250 million bail bond after he was extradited to America from the Bahamas. The bail package allowed Bankman-Fried to remain under house arrest at his parents’ home in Palo Alto, California.
In the Substack, Bankman-Fried went on to share what he described as “a record of FTX US’s balance sheet as of when I handed it off.”
Image Credits: SBF Substack
He went on to say:
If FTX had been given a few weeks to raise the necessary liquidity, I believe it would have been able to make customers substantially whole. I didn’t realize at the time that Sullivan & Cromwell—via pressure to instate Mr. Ray and file Chapter 11, including for solvent companies like FTX US–would potentially quash those efforts. I still think that, if FTX International were to reboot today, there would be a real possibility of making customers substantially whole. And even without that, there are significant assets available for customers.
I’ve been, regrettably, slow to respond to public misperceptions and material misstatements. It took me some time to piece together what I could–I don’t have access to much of the relevant data, much of which is for a company (Alameda) I wasn’t running at the time.
This is not the first time the disgraced founder has taken to airing his thoughts publicly. In November, he said in a series of tweets that FTX International was looking to raise liquidity and was in talks with a “number of players.” Then in December, he talked from an undisclosed location in the Bahamas with reporter Andrew Ross Sorkin for a DealBook event, a discussion that his legal team “very much” did not approve of, he told Sorkin with a boyish grin.
Former FTX CEO SBF pleads not guilty to US criminal charges
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