Two Indicted Masterminds of the FTX Fraud Were Clients of Big Law Firm Sullivan & Cromwell

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Two Indicted Masterminds of the FTX Fraud Were Clients of Big Law Firm Sullivan & Cromwell

By Pam Martens and Russ Martens: March 1, 2023 ~

Andrew (Andy) Dietderich, Law Partner at Sullivan & Cromwell

On January 17, Sullivan & Cromwell law partner Andrew Dietderich filed a declaration in the U.S. Bankruptcy Court for the District of Delaware that acknowledged – after much prodding by the U.S. Trustee – the more than 20 legal engagements Sullivan & Cromwell had been involved in with Sam Bankman-Fried’s FTX Group before it filed for bankruptcy on November 11, 2022. According to the declaration, the law firm’s legal work began 15 months prior to the collapse of the firm. (See our previous report, Sam Bankman-Fried, BlockFi and Sullivan & Cromwell: A Viper’s Nest of Conflicts and Intrigue.)

This does not look good for the 144-year old law firm because the Securities and Exchange Commission is now charging that FTX was a fraud from the very beginning and Sam Bankman-Fried illegally used FTX customer funds from the very beginning. Making the situation even more dicey for Sullivan & Cromwell, its former law partner, Ryne Miller, was employed as General Counsel at FTX US as this fraud was expanding.

Raising reputational risk not only to Sullivan & Cromwell but also to the federal court system, none of the above information stopped the presiding judge in the FTX bankruptcy case, Judge John Dorsey, from signing an order making Sullivan & Cromwell the lead law firm overseeing the bankruptcy proceedings of the more than 100 companies involved in Sam Bankman-Fried’s collapsed crypto house of cards. Sullivan & Cromwell has already billed more than $20 million in legal fees in the bankruptcy case along with more than $239,000 in expenses – including more than $20,000 for “Conference Room Dining” and “Meals – Overtime.” (See Judge John Dorsey Has Effectively Privatized Justice in the FTX Bankruptcy Case.)

The January 17 disclosures to the Delaware Bankruptcy Court by Sullivan & Cromwell revealed that in addition to the 20 legal engagements for corporate entities of FTX or Alameda Research (Sam Bankman-Fried’s hedge fund), Sullivan & Cromwell had also done legal work on an individual basis for Sam Bankman-Fried and the Head of Engineering at FTX, Nishad Singh.

Bankman-Fried has now been indicted by the U.S. Justice Department on 12 criminal counts. He has pleaded not guilty to the first eight counts and has not yet entered a plea on the additional four counts, one of which is bank fraud. Yesterday, Nishad Singh pleaded guilty to a 6-count criminal indictment. (Two other top lieutenants at Bankman-Fried’s crypto empire have been indicted: Caroline Ellison and Gary Wang. Both have pleaded guilty and are cooperating with prosecutors, as is Singh.)

Sullivan & Cromwell explained in its January 17 filing with the Bankruptcy Court that it had worked for Bankman-Fried from April 14, 2022 to August 5, 2022. The work involved Bankman-Fried’s purchase of more than half a billion dollars in the stock of Robinhood Markets (a trading app). Bankman-Fried used loans he took from Alameda Research to purchase the Robinhood stock. Federal prosecutors have charged that Alameda Research was looting FTX customer funds from the very beginning of the creation of FTX in 2019. The U.S. Department of Justice seized the Robinhood stock in early January. The rightful ownership of the stock is the subject of multiple court battles.

Sullivan & Cromwell’s January 17 disclosure also revealed that it had worked on an individual basis for Nishad Singh during a period when he was Head of Engineering at FTX. The disclosure explains: “The work was primarily performed out of the S&C London office and supervised by a partner resident in London. The representation started December 16, 2021 and ceased on August 8, 2022. The work was arranged, and paid for, by Alameda.” According to the bankruptcy court filing, Sullivan & Cromwell’s legal work for Singh concerned “tax matters and estate planning.”

It doesn’t appear that Nishad Singh will have much use for that “estate planning” work by Sullivan & Cromwell. Singh signed a forfeiture order with the criminal court in Manhattan yesterday in addition to pleading guilty to the six criminal counts. While the specific properties and assets that he will forfeit have been redacted in the filing, the forfeiture agreement includes anything that is traceable to the six counts of fraud to which he has pleaded guilty.

The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) also filed charges against Singh yesterday. The SEC’s complaint provides far more damning detail than does that of the Justice Department. The SEC writes, for example:

“In 2020 and 2021, Singh executed promissory notes with Alameda totaling approximately $577.5 million. The funds borrowed under the promissory notes (referred to internally at FTX as ‘Founders Loans’) in Singh’s name were generally not intended for Singh’s personal use but were instead used by Bankman-Fried for other purposes, including additional venture investments and acquisitions. Singh also borrowed millions to donate to political campaigns and causes, as well as philanthropic causes associated with effective altruism. Some of these donations were funded through a line of credit that Bankman-Fried authorized Singh to provide himself on his personal FTX account. In 2021, Singh also borrowed $10 million in an undocumented loan and provided the funds to friends and family…Moreover, in September and October of 2022, when Singh was already aware that FTX customer funds had been used by Alameda and that Alameda was unable to repay the debt, Singh withdrew approximately $6 million from FTX for personal use and expenditures, including the purchase of a multi-million-dollar house and donations to charitable causes.”

Estate planning indeed.

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