Creditors of bankrupt crypto exchange FTX have filed a class-action lawsuit against a global law firm providing legal counsel to the former digital asset empire.
In a new court filing submitted on February 16th, FTX creditors allege Sullivan and Cromwell (S&C) engaged in civil conspiracy, aiding and abetting fraud, aiding and abetting fiduciary breach and violation of federal laws against racketeering.
The New York City-based law firm is overseeing the FTX bankruptcy proceedings and assisted the exchange in several deals, including the acquisition of the crypto derivatives platform LedgerX.
The suit alleges that S&C conspired with FTX despite knowing that it misappropriated customer funds and committed other forms of fraud.
The creditors claim that the law firm actively participated in the exchange’s multi-billion-dollar fraud for financial gain.
“S&C knew of and aided and abetted the fraud of FTX Trading Ltd. and FTX US. Through its representation of the FTX entities, S&C acquired knowledge of FTX Trading Ltd. and FTX US’s misrepresentations and omissions to customers, untruthful conduct, and misappropriation of Class Members’ funds. Despite this knowledge, S&C stood to gain financially from FTX Group’s misconduct and substantially assisted and encouraged the FTX Group’s misconduct.”
The suit also claims that S&C assisted and encouraged FTX’s breach of fiduciary duties by structuring business acquisitions and providing help in deceiving regulators.
“S&C gained knowledge of the misrepresentations and omissions to customers through its representation of the FTX entities and founders, including via actions such as the acquisition of LedgerX, a purchase designed to obfuscate the true nature of FTX’s business, and regulatory matters involving the CFTC (Commodities Futures Trading Commission), such as those related to the Know Your Customer policy.”
The filing says S&C’s employment with FTX also violated the Racketeer Influenced and Corrupt Organizations Act (RICO), the federal law against businesses with illegally derived income.
“The S&C formed an illegal agreement to violate the substantive provisions of the RICO statute set forth above and thus are jointly and severally liable for the acts of their co-conspirators…
By reason, and as a result thereof, S&C’s conduct and participation in the racketeering activity described herein has caused Plaintiffs and the Class Members to incur significant damages directly.”
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