Creditors of bankrupt crypto exchange FTX have filed a class action lawsuit against a global law firm that provides legal advice to the former digital asset empire.
In a new court submit filed on February 16, FTX’s creditors allege that Sullivan and Cromwell (S&C) engaged in civil conspiracy, aiding and abetting fraud, aiding and abetting fiduciary breaches and violating federal racketeering laws.
The New York City-based law firm is overseeing FTX’s bankruptcy proceedings and assisting the exchange on several deals, including the acquisition of crypto derivatives platform LedgerX.
The lawsuit alleges that S&C conspired with FTX despite knowing it was embezzling customer funds and committing other forms of fraud.
The creditors claim that the law firm actively participated in the billion-dollar fraud on the stock exchange for financial gain.
“S&C was aware of the fraud committed by FTX Trading Ltd. and FTX US and assisted them. Through its representation of the FTX entities, S&C became aware of FTX Trading Ltd’s misrepresentations and omissions. and FTX US towards customers, untruthful conduct and misappropriation of Class Member funds. Despite this knowledge, S&C may have benefited financially from the FTX Group’s misconduct and substantially assisted and encouraged the FTX Group’s misconduct.”
The lawsuit also alleges that S&C aided and abetted FTX’s breach of fiduciary duties by structuring corporate takeovers and assisting in misleading regulators.
“S&C became aware of the misrepresentations and omissions to clients through its representation of the FTX entities and founders, including through actions such as the acquisition of LedgerX, a purchase intended to obscure the true nature of FTX’s business , and regulatory issues involving the CFTC. Commodities Futures Trading Commission), such as those related to the Know Your Customer policy.”
According to the filing, S&C’s employment with FTX also violated the Racketeer Influenced and Corrupt Organizations Act (RICO), the federal law against companies with illegally derived revenue.
“The S&C entered into an unlawful agreement to violate the substantive provisions of the RICO statute set forth above and are thus jointly and severally liable for the actions of their co-conspirators…
For reason, and as a result, S&C’s conduct and participation in the racketeering activity described herein caused Plaintiffs and the Class Members to directly suffer significant harm.”
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