The founder of the once-No. 2 crypto exchange blamed Sullivan & Cromwell for "strong-arming and threatening" him, and said FTX could have been saved.
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Sam Bankman-Fried said that the law firm helping guide crypto exchange FTX through bankruptcy "strong-armed" him into declaring bankruptcy prematurely, possibly damaging attempts to save the firm.
His comments came in a long blog post Bankman-Fried made on Substack on Thursday, primarily arguing that "I didn't steal funds, and I certainly didn't stash billions away."
Beyond that, he gave a long explanation of how and why FTX became insolvent — none of which involved him illegally transferring FTX customers funds to shore up losses by his private trading firm Alameda Research. He has been charged with eight counts including fraud and conspiracy charges for allegedly doing just that.
Blame the Lawyers
But he began by attacking Sullivan & Cromwell, which he said "was one of FTX International's two primary law firms prior to bankruptcy, and were FTX US's primary law firm."
Noting that FTX's general counsel, Ryne Miller, was a former Sullivan & Cromwell partner, Bankman-Fried said:
"S&C and the GC were the primary parties strong-arming and threatening me into naming the candidate they themselves chose as CEO of FTX — including for a solvent entity in FTX US — who then filed for Chapter 11 and chose S&C as counsel to the debtor entities."
Sullivan & Cromwell is the primary law firm working with FTX Group's current management, led by restructuring expert John Ray III as CEO, on the FTX bankruptcy and attempt to find and recover funds owed to some nine million customers of FTX International — which did not service U.S. customers.
Bankman-Fried's comments came shortly after Sullivan & Cromwell reportedly said it "had a limited and largely transactional relationship with FTX and certain affiliates prior to the bankruptcy."
The law firm's comments were made following the release of an open letter by a bipartisan group of four U.S. Senators attacking the firm. The group included one of the Senate's strongest crypto skeptics, Massachusetts Democrat Elizabeth Warren, and one of its biggest crypto proponents, long-time Bitcoin investor Cynthia Lummis.
Senatorial Criticism
The senators asked bankruptcy court Judge John Dorsey to appoint a third-party examiner to represent customers' interests, saying that Sullivan & Cromwell could not be trusted to advocate for FTX customers as it had done so much work for FTX under Bankman-Fried. They said:
"Given their long-standing legal work for FTX, they may well bear a measure of responsibility for the damage wrecked on the company's victims. The firm is simply not in a position to uncover the information needed to ensure confidence in any investigation or findings."
The judge called the letter "inappropriate" and said he would not allow it to influence him.
Bankman-Fried supported the senators — who have been highly critical of him — in this matter. Sullivan & Cromwell, he said:
"...worked with FTX US in its most important regulatory application, they worked with FTX International on some of its most important regulatory concerns, and they worked with FTX US on its most important transaction. When I would visit NYC, I would sometimes work out of S&C's office."
Sullivan & Cromwell did not respond to a request for comment.
'Came to Me Crying'
Separately, in a leaked version of the testimony he intended to give the House Financial Services Committee on Dec. 13, Bankman-Fried detailed what he said was the pressure put on him by the law firm. He said:
"I have 19 pages of screenshots of Sullivan & Cromwell, Mr. Miller, and others I believe were influenced by them, all sent over a two day period, pressuring me to quickly file for Chapter 11. They range from adamant to mentally unbalanced. They also called many of my friends, coworkers, 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."
Bankman-Fried never gave that testimony as he was arrested in The Bahamas a day earlier, at the request of the U.S. Department of Justice. The timing was criticized by a number of members of Congress, including the chairwoman of the House Financial Services Committee.
He also said in the prepared testimony that the Chapter 11 filing was made without his permission and that he'd tried to rescind the appointment of Ray.
