Risk Update

Contentious Conflicts — Law Professors Point Fresh Fingers at Continuing Crypto Conflicts Concern, Miami Mayor Reverses “My Client” Under Oath Contention

Law firm conflicts ‘permeated FTX’s bankruptcy’, professors allege” —

  • “Two law professors have claimed that Sullivan & Cromwell put its own interests before that of FTX’s stakeholders, reviving criticism over the law firm’s role in the bankrupt cryptocurrency exchange’s rise, collapse and unwinding.”
  • “The firm’s ‘apparent conflicts of interest permeated FTX’s bankruptcy filing and every aspect of the case,’ Jonathan Lipson of Temple University and David Skeel of the University of Pennsylvania wrote in a paper published online earlier this month.”
  • “The two academics focused on the 20 M&A and regulatory assignments that S&C worked on for FTX, for which it earned just under $10mn in the months leading up to the exchange’s November 2022 bankruptcy filing. “
  • “Through that work, ‘S&C knew, or was in a position to know, that FTX was co-mingling customer assets,’ the professors contended, referring to FTX founder Sam Bankman-Fried’s misuse of account holder funds. “
  • “John Ray, the chief executive appointed to oversee FTX, said in a statement on behalf of the company and its advisers: ‘The paper is simply not research but uninformed and unsupported allegations’ that ‘grossly mischaracterises the facts.'”
  • “The office of the US Trustee, a part of the Department of Justice that represents the public interest in bankruptcy cases, initially objected to S&C’s retention, arguing that the law firm had failed to properly disclose the full extent of its connections to FTX. Several US senators also voiced concern.
  • “But the trustee eventually lifted its objection after the law firm provided more details of its previous work, and the court approved S&C’s hiring. According to court filings, S&C has reaped $184mn in fees, including billings and reimbursements, between November 2022 and January 2024.”
  • “The professors further contended that ‘S&C may have violated ethical duties of confidentiality, candour, and loyalty by reporting allegations of these crimes to prosecutors . . . by duping Bankman-Fried into giving control of FTX to Ray.'”
  • “‘For well over a year, S&C and Ray had free rein to marshal and manage conflicting claims about the public and private interests at stake as they saw fit,’” the professors wrote. ‘These conflicts appear to have reduced recoveries, even as they have enriched S&C.'”
  • “People close to S&C and FTX noted that all the company’s actions had to be approved by the bankruptcy court with the consent of the US Trustee and creditors, and pointed out that Bankman-Fried had several lawyers personally representing him in November 2022. Moreover, they said account holders could potentially receive the full amount of their claims by the time the bankruptcy was finished.”
  • “Lipson and Skeel said they ran into each other last autumn during oral arguments before an appeals court over the examiner’s appointment. They decided afterwards to collaborate on the article about the duties of lawyers, which is to be published in the Stanford Law Review.”
  • “They said there was a ‘firewall’ in place so Bankman-Fried’s parents, who are Stanford law professors, had no knowledge of the article prior to submission. Skeel said he had no interaction with the Bankman-Frieds and handled all interactions with the Stanford publication. The pair did not call S&C or FTX prior to publication but said they welcomed any feedback. “

In public, Suarez says he’s not Ken Griffin’s attorney. Under oath, he said differently” —

  • “Miami Mayor Francis Suarez has long said that he has no conflict of interest when it comes to his public support for billionaire hedge funder Ken Griffin, a major client of the law firm where Suarez is employed.”
  • “But in an interview conducted under oath in December, Suarez contradicted previous public statements and said he is one of Griffin’s attorneys — a potential violation of ethics laws prohibiting elected officials from working for anyone who has business before their government.”
  • “In his sworn statement to a state ethics investigator, Suarez said Griffin was not just a client of the law firm where he works, but his own personal client. The mayor made that point as part of a successful effort to get the Florida Commission on Ethics to dismiss an unrelated complaint against him.”
  • “But in calling Griffin “my client,” Suarez also raised a possible conflict of interest under Florida law, given that Griffin is lobbying the city for various permissions as he moves his personal residence and company headquarters to South Florida.”
  • “While Florida laws governing outside employment would not prevent the mayor from working for a firm whose clients have official business with the city of Miami, the law prohibits Suarez from doing legal work for those clients, according to a formal ethics opinion issued to Suarez in 2021.”
  • “And Suarez would be in violation of state ethics laws, the letter warned, if ‘any client for whom he is performing legal services is conducting business with [not just the City Commission, but] any subordinate city board or staff.’ The restriction would apply, the ethics officials wrote, regardless of whether Suarez recused himself from any related city matters.”
  • “The mayor’s office is now walking back Suarez’s sworn statement. In response to the Herald’s latest questions, the mayor’s director of communications, Stephanie Severino, said Griffin ‘is not and has never been a personal client of Mayor Suarez.’ Nor, she said, is Suarez on Griffin’s account at the law firm where Suarez works.”
  • “When the Herald asked Florida Commission on Ethics spokesperson Lynn Blais about Suarez’s comment and whether it presented a conflict of interest for him if Griffin were in fact his direct client, she wrote by email: ‘We cannot give an opinion about a person’s conduct… a public officer or public employee who is in doubt about the applicability of the standards conduct to himself or herself may seek an advisory opinion from the Commission'”