The judge overseeing the bankruptcy of FTX Group refused to replace the law firm handling the failed crypto company’s Chapter 11 case, concluding that last-minute attacks on the lawyers were mere “rumors.”
US Bankruptcy Judge John Dorsey approved what is normally a routine request to hire a law firm — in this case, Sullivan & Cromwell, whose lawyers have handled some of the biggest insolvency cases filed in recent years.
Dorsey refused to allow a former top lawyer for FTX, Daniel Friedberg, to testify or to accept his last-minute court filing, which lobbed several conflict-of-interest allegations against the law firm. “There is no evidence of any actual conflict here,” Dorsey said during the hearing in Wilmington, Delaware.
Friedberg filed a declaration Thursday after the deadline that was filled with “hearsay and rumors,” Dorsey said. The document is “certainly not something I’d allow to be submitted into the evidence in any event.”
In the declaration, Friedberg said he asked Sullivan & Cromwell to waive his attorney-client privilege so he could help the Federal Bureau of Investigation, the US Securities and Exchange Commission, the Commodity Futures Trading Commission and other regulators in their investigations.
“S&C has repeatedly refused this request and attempted to muzzle me in an effort to avoid me raising issues adverse to S&C,” Friedberg said. “I think this is totally inappropriate and I should be allowed to freely help law enforcement under these circumstances.”
Friedberg declined to comment.
Stone throwing
Two FTX creditors accused Sullivan & Cromwell of having a conflict of interest in the case because a former partner in the firm was a top in-house lawyer for FTX. Those creditors are represented by a law firm that is suing FTX founder Sam Bankman-Fried and other company officials.
Their lawyer, Marshal J. Hoda, asked Dorsey to allow Friedberg to testify over Zoom. The judge refused, saying witnesses must be present in the courtroom.
Friedberg has a “checkered past” because he was the chief compliance officer at FTX at the time its founder and other top officials were involved in the alleged fraud that brought down the company, said Sullivan & Cromwell attorney James Bromley.
“They can’t throw stones at the US Attorney’s office, but they can throw stones at the debtor’s counsel that’s providing information to the prosecutors and regulators,” he said, referring to Friedberg and Bankman-Fried. “And that’s exactly what’s happening.”
The US Trustee, which monitors corporate bankruptcies, dropped its opposition to Sullivan & Cromwell after the firm filed more details about its pre-bankruptcy connections to FTX.
Law firms in big, Chapter 11 cases like FTX, are rarely removed by the judge unless there is clear evidence that the lawyers have a direct conflict that cannot be resolved.
During the hearing, Bromley also brought up the difficulties of having FTX’s new leadership lambasted on Twitter by Bankman-Fried, saying it was like fighting “a ghost” without the opportunity to respond to the criticisms. “It’s very difficult, your honor, to cross-examine a Tweet.”
The case is FTX Trading Ltd., 22-11068, US. Bankruptcy Court for the District of Delaware.
