The US Department of Justice has rejected FTX’s hiring of Sullivan & Cromwell, the law firm now in charge of the exchange’s inquiry because of potential conflicts of interest.
The US Trustee stated in a recent legal filing that it is contesting the FTX ruling for two “overarching” reasons. First of all, the DOJ said that the disclosures made by the law firm are insufficient to assess whether S&C satisfies the Bankruptcy Code’s conflict-free and disinterestedness standards.
Ryne Miller, general counsel of FTX US, formerly spent eight years working at S&C, so there might also be a conflict of interest there. According to the DOJ, the inquiry would put the law firm in the awkward position of having to look into itself and its former partner.
US Department of Justice take on FTX proposed lawyers
The complaint continued,
“Secondly, the breadth of S&C’s detention cannot be approved as suggested particular bankruptcy regulations prohibit debtors in possession from conducting their own investigations.”
A bipartisan group of four US senators, including John Hickenlooper, Thom Tillis, Elizabeth Warren, and Cynthia Lummis, attacked S&C for essentially the same reasons just days before the DOJ complaint.
On January 9, the four senators sent a letter to Judge John Dorsey of the United States Bankruptcy Court for the District of Delaware requesting that he grant a motion to appoint an impartial examiner to look into FTX’s operations before its collapse in November.
Early in November, FTX and its collection of cryptocurrency businesses filed for Chapter 11 bankruptcy. Sam Bankman-Fried, the former founder of FTX, was later detained in the Bahamas after formal criminal charges were officially brought against him by US prosecutors. He was later extradited to the US, where a $250 million bond was posted in a New York court, and he was freed from custody.
SBF has been charged with eight criminal offenses by the Southern District of New York, including conspiracy to commit wire fraud and misappropriation of customer funds. SBF has additionally been accused by the SEC of “orchestrating a conspiracy to defraud stock investors in FTX.”