A group of FTX investors voluntarily dismissed their proposed class action against U.S. law firm Sullivan & Cromwell on Wednesday in a Miami federal court.
The investors had accused the law firm of participating in FTX’s multibillion-dollar fraud and benefiting financially as the exchange’s lead bankruptcy counsel. Sullivan & Cromwell had represented FTX in about 20 matters before its collapse.
However, lead plaintiffs’ counsel Adam Moskowitz told Reuters that there was “no claim at this stage” against the New York-founded law firm.
Moskowitz pointed to the findings of FTX bankruptcy examiner Robert Cleary of Patterson Belknap Webb & Tyler, who in his May and September reports, determined that Sullivan & Cromwell was not complicit in the fraud that led to FTX’s downfall and did not ignore any red flags during its representation of FTX founder Sam Bankman-Fried.
“Bob Cleary’s second report gave us enough evidence that there was no claim there,” Moskowitz said.
A spokesperson for Sullivan & Cromwell stated that the firm is “pleased that the plaintiffs have withdrawn their meritless claims unconditionally,” and reaffirmed its focus on returning billions of dollars in recovered assets to FTX’s creditors.
The lawsuit had alleged that Sullivan & Cromwell had a deep understanding of FTX’s “convoluted organizational structure” and “dubious business practices” and had facilitated the exchange’s misconduct. In a May filing, the law firm countered that the allegations were legally flawed and based on “threadbare allegations” and “unwarranted assumptions.”
FTX filed for bankruptcy in November 2022 after claims that it had misused billions of dollars in customer deposits. A year later, Bankman-Fried was found guilty of defrauding FTX customers by using their funds to support risky investments.
Last week, the plaintiffs’ lawyers reached an agreement with the FTX bankruptcy estate over who has the right to sue on behalf of FTX’s customers. Moskowitz clarified that this deal was made independently of the decision to drop the lawsuit against Sullivan & Cromwell.
On Monday, FTX received court approval for its bankruptcy plan, which will enable it to repay customers with up to $16.5 billion in recovered assets since the exchange’s collapse.