Unlock the Editor’s Digest for free
Sam Bankman-Fried’s criminal conviction over the collapse of FTX should be dropped in part because the cryptocurrency exchange’s former lawyers at Sullivan & Cromwell “did a tremendous amount of investigative work for the prosecution,” lawyers for the former billionaire have argued.
In a brief filed Friday with the U.S. Court of Appeals for the Second Circuit, Bankman-Fried’s counsel alleged that he was denied due process by “federal prosecutors eager for quick headlines,” who were former colleagues of the elite New York firm had co-opted evidence gathering for the government.
S&C, which advised FTX before consulting on the crypto exchange’s bankruptcy, “worked hand-in-hand with prosecutors to indict and imprison Bankman-Fried in ways that far exceeded normal ‘cooperation’,” they wrote.
In one case, S&C attorneys “proactively recommended new areas of investigation and helped guide the prosecution strategy,” Bankman-Fried attorneys alleged, citing a December 2022 email to prosecutors in which the law firm highlighted data “ that resemble a transfer discussed by Sam Bankman -Fried in Signal chats” about a $45 million hole in an FTX balance sheet.
The company collected more than 27 million documents for the government and provided prosecutors with notes from interviews with 24 FTX employees, she added.
Bankman-Fried, once one of America’s most celebrated entrepreneurs, was sentenced in March to 25 years in prison for his role in the spectacular collapse of FTX, after being found guilty last year of seven counts of fraud and money laundering.
In their appeal against his conviction on Friday, Bankman-Fried’s lawyers argued that FTX was “facing a liquidity crisis, not a solvency crisis” at the time of the implosion and that the government’s claim at trial that $10 billion “missing” was incorrect. as former account holders are expected to receive more than 100 percent of their official claims in cash.
“The alleged victims did not lose all their money,” they wrote, adding that many of the investments Bankman-Fried made with customer deposits, such as a $500 million bet on AI startup Anthropic, “were prescient.”
They further blamed S&C and John Ray III, who was appointed to oversee the bankruptcy, claiming the law firm was part of a disturbing trend in which prosecutors are given incriminating evidence “on a silver platter” while exculpatory evidence is withheld .
S&C has faced repeated questions about its role as bankruptcy counsel to FTX, given the legal work it did for the stock exchange in the months leading up to its implosion in November 2022.
In an article published in March, two leading law professors alleged that S&C was putting its own interests above those of the exchange’s stakeholders. They wrote that the company’s “apparent conflicts of interest permeated FTX’s bankruptcy filing and every aspect of the case.”
The law firm’s alleged conflicts are also being investigated by independent investigator and former prosecutor Robert Cleary, who was asked to investigate the matter by the judge overseeing FTX’s bankruptcy.
In the first version of its report in May, Cleary largely dismissed S&C from ruling out conflicts of interest that would have undermined the restructuring advice. He recommended further investigation into other matters, including some pre-bankruptcy transactions involving S&C, and will release his second report later this month.
In an earlier court filing in the Bankman-Fried criminal case, U.S. prosecutors said the FTX debtors and S&C “had no involvement in any significant aspect of the government’s investigation and prosecution.” Sullivan and Cromwell previously called the allegations “baseless.”
Sullivan and Cromwell, the FTX debtors and the U.S. Attorney’s Office for the Southern District of New York, which brought the case, declined to comment.