Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Sam Bankman-Fried’s criminal conviction over the collapse of FTX should be vacated in part because the cryptocurrency exchange’s former lawyers at Sullivan & Cromwell “did an enormous amount of investigative work for the prosecution”, attorneys for the former billionaire have argued.
In a brief filed with the US Court of Appeals for the Second Circuit on Friday, Bankman-Fried’s counsel claimed he was denied a fair trial by “federal prosecutors eager for quick headlines” who co-opted former colleagues at the elite New York firm into gathering evidence for the government.
S&C, which advised FTX before providing counsel to the cryptocurrency exchange’s bankruptcy, “worked hand-in-glove with the prosecutors to charge and imprison Bankman-Fried, in ways that far exceeded normal ‘co-operation’,” they wrote.
In one instance, S&C lawyers “proactively recommended new areas of inquiry and helped guide prosecutorial strategy”, Bankman-Fried’s lawyers claimed, citing a December 2022 email to prosecutors, in which the law firm highlighted data “that resembles a transfer discussed by Sam Bankman-Fried in Signal chats” about a $45mn hole in an FTX balance sheet.
The firm collected more than 27mn documents for the government and provided notes of interviews with 24 FTX employees to prosecutors, they added.
Bankman-Fried, once one of the most celebrated American entrepreneurs, was sentenced to 25 years in prison in March over his role in the spectacular collapse of FTX, after being found guilty on seven counts of fraud and money laundering last year.
In their appeal against his conviction on Friday, Bankman-Fried’s lawyers claimed FTX had “faced a liquidity crisis, not a solvency crisis” at the time of its implosion and that the government’s allegation at trial that $10bn was “missing” was wrong, given that former account holders are set to receive cash worth more than 100 per cent of their official claims.
“The alleged victims didn’t ‘lose all their money’,” they wrote, adding that many of the investments Bankman-Fried made with customer deposits, such as a $500mn bet on AI start-up Anthropic, “were prescient”.
They further blamed the conviction on S&C and John Ray III, who was installed to oversee the bankruptcy, claiming the law firm was part of a disturbing trend in which prosecutors are handed inculpatory evidence “on a silver platter” while exculpatory evidence is withheld.
S&C has faced repeated questions over its role as FTX’s bankruptcy counsel, given the legal work it did for the exchange in the months leading up to its implosion in November 2022.
In a paper published in March, two prominent law professors claimed S&C put its own interests before that of the exchange’s stakeholders, writing that the firm’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 examiner and former prosecutor Robert Cleary, who was asked to look into the matter by the judge overseeing FTX’s bankruptcy.
In the first version of his report in May, Cleary largely absolved S&C of disqualifying conflicts of interest that would have undermined its restructuring advice. He recommended further inquiry into other matters, including some pre-bankruptcy transactions involving S&C, and is due to deliver his second report later this month.
In a previous court filing in Bankman-Fried’s criminal case, US 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 has previously called allegations against it “baseless”.
Sullivan and Cromwell, the FTX debtors and the US attorney’s office for the Southern District of New York, which brought the case, declined to comment.
