January 10, 2023

Warren, Hickenlooper, Tillis, Lummis Raise Conflict of Interest Concerns about Law Firm’s Role in FTX Bankruptcy Investigation, Urge Court to Appoint Independent Examiner

FTX’s Legal Advisors Pre-Collapse, Sullivan & Cromwell, Have Asked to be Appointed to Oversee Investigation into Collapse

Text of Letter (PDF)

Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.), John Hickenlooper (D-Colo.), Thom Tillis (R-N.C.), and Cynthia Lummis (R-Wyo.) urged Judge John Dorsey, who is overseeing the FTX bankruptcy case, to appoint an independent examiner to oversee the investigation into FTX’s collapse. The senators highlighted the apparent conflict of interest of Sullivan & Cromwell, the law firm that advised FTX – which was once one of the world’s-largest digital asset exchanges – on compliance and corporate governance prior to its bankruptcy filing, and is now asking the court to be appointed to oversee the investigation into FTX’s collapse. 

“The law firm of Sullivan & Cromwell advised FTX for years leading up to its collapse and one of its partners even served as FTX’s general counsel. This same firm, Sullivan & Cromwell, is conducting the investigation into the apparent fraud and criminal activity that current FTX CEO John Ray identified during his December 13, 2022 testimony to the House Financial Services Committee,” wrote the senators. “As legal counsel is often central to major financial scandals, given their role in drafting financial agreements, risk management compliance practices, and corporate controls, it is perfectly reasonable to have concerns about the impartiality and manner that Sullivan & Cromwell will approach any investigation of FTX with.”

FTX and more than 130 affiliated entities filed for bankruptcy in November 2022. Sullivan & Cromwell admitted that it charged over $8.5 million in legal fees to FTX prior to its bankruptcy, advising FTX on legal matters including “acquisition transactions and specific regulatory inquiries related to certain U.S. business lines.” The senators note that these same issues may be considered by the Court and could be considered in future legal proceedings. 

Senator Warren has been an outspoken advocate for regulation and oversight of crypto to protect consumers, the environment, the energy grid, national security, and the safety and stability of the financial system. Since the collapse of FTX, she has worked to hold all responsible parties accountable for possible crimes:

  • On December 8, 2022, Senators Warren and Tina Smith (D-Minn.) sent letters to three key banking regulators: the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, raising concerns about the ties between the banking industry and crypto firms following FTX’s bankruptcy and asking each regulator how they assess the banking system’s exposure to crypto risks. 
  • On December 5, 2022, Senators Warren, Roger Marshall (R-Kan.), and John Kennedy (R-La.) sent a letter to Silvergate, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, seeking answers about the bank’s role in the loss of billions of dollars in customer funds. 
  • On November 30, 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to keep crypto out of the banking system following FTX’s collapse.
  • On November 23, 2022, Senators Warren and Sheldon Whitehouse (D-R.I.) sent a letter to the Department of Justice requesting personal accountability for former FTX CEO Sam-Bankman Fried and any complicit FTX executives for wrongdoing following the exchange’s collapse. 
  • On November 17, 2022, Senators Warren and Dick Durbin (D-Ill.) sent a letter to Sam Bankman-Fried, founder and former CEO FTX, and John Jay Ray III, the newly appointed CEO of FTX, seeking information on the reported misuse of billions of dollars of customer funds and other disturbing allegations that continue to emerge about the company’s fraudulent and illicit practices.
  • In September 2022, Senator Warren sent a letter to Treasury Secretary Janet Yellen calling on the Treasury Department and the Financial Stability Oversight Council to build a strong regulatory framework for the crypto market. The letter specifically warned about FTX’s market concentration as an example of the risks that crypto could pose to consumers and the financial system.