Man who wants Sullivan & Cromwell booted from FTX case lost $350,000 on the platform

Right now it looks like he is winning.

The man trying to have law firm Sullivan & Cromwell removed as counsel to the debtors in the FTX bankruptcy case is Warren Winter, an FTX customer who has lost almost $350,000 in the collapse of Samuel Bankman-Fried’s crypto exchange. [Image of SBF: Wikimedia, CC]

Sullivan & Cromwell is controversial because “the debtors” currently in control of the shell of FTX need an independent law firm to investigate the company and all its assets to figure out where all the missing money might be. Normally, S&C would be a good choice for this type of task — it’s a prestigious law firm.

However, Winter is arguing that S&C is hopelessly compromised. (We have not yet seen S&C’s defence). The law firm would be in the position of investigating itself, he claims, and the firm’s own money is at stake in the result. 

He has alleged in papers filed in US federal bankruptcy court that S&C’s conflicts of interest include:

• FTX’s general counsel was Ryne Miller, a former partner at S&C who spent eight years at the firm before joining FTX.

• During the chaos, Miller at one point sent a message to other FTX leaders insisting “I’m in charge now”.

• FTX Ventures general counsel Tim Wilson was also a Sullivan & Cromwell alumni.

• S&C was paid $20.5 million by FTX before it went bankrupt, for various legal services.

• $15.4 million of that was paid within 90 days of the bankruptcy, a during which S&C must have come to suspect that FTX was in trouble, Winter alleges. 

• That $15.4 million might be subject to “preference claims” from creditors in the FTX bankruptcy — implying S&C might be forced to pay back some or all of it if the debtors’ investigators find S&C should not have been paid those fees.

• S&C actively pressured SBF to place the company into bankruptcy in early November, Winter alleges.

• S&C worked for multiple units of FTX.

• Perhaps most damaging for S&C, Winter claims the firm filed a misleading statement to the court that vastly underplayed its links with FTX. Its application only mentioned $8.5 million in fees:

S&C defended itself (via the Financial Times) saying:

In response, Sullivan earlier this week said it “never served as primary outside counsel to any FTX entity” and “had a limited and largely transactional relationship with FTX and certain affiliates”.

SBF and a second source, however, also stated to the FT that:

“To claim that [Sullivan’s] relationship with FTX was a ‘limited and largely transaction relationship’ is highly misleading if not outright false,” 

SBF, on his infamous blog, said: “When I would visit NYC, I would sometimes work out of S&C’s office.”

The FT’s second source said:

“We worked with them on a near-daily basis.”

Winter’s request to have S&C booted from the case has gotten attention. The office of the US Trustee in the case — the trustee’s job is to monitor the bankruptcy to make sure that the debtors in control of the corpse of FTX work fairly — has also asked for S&C to be removed, after reading Winter’s complaint.

And several US senators have written to the judge to ask for S&C to be canned.

S&C was contacted for comment and I’ll update this post if they respond. Winter’s lawyer, Marshal Hoda of The Hoda Law Firm, told CLT:

“It took one determined creditor and a small firm like ours to stand up and say something. We're proud to have helped set off the widespread scrutiny of Sullivan & Cromwell's role we're now seeing. It proves that in our great legal system, it's always possible for a cat to look at the king.”

In a separate filing, Winter described his desperate attempt to rescue more than one third of a million in crypto from the dying FTX exchange. He made his first deposit on February 21, 2021 and by October 2022 had nearly $350,000 on the platform. Winter provided a large number of screen grabs from his FTX account to demonstrate his deposits.

FTX filed for bankruptcy on November 11, 2022, and Winter began engaging with the company’s customer service people to find out what happened to his holdings.

On November 23, FTX insisted that he was never a customer of the company he thought he had deposited money with. He believed his money was with the FTX EU division of the company, but they told him he was actually with FTX International — and thus the EU unit declined to help him.

Worse, Winter has now forgotten his account number and cannot retrieve it now that the site has closed:

In the process of collecting evidence concerning my FTX account in November and December 2022, I neglected to capture my FTX account number. Because the FTX.com website is no longer accessible, I no longer have access to that information.