The court-appointed examiner, Robert J. Cleary, has launched an in depth report recommending extra investigations into a number of features of the collapsed FTX Group, notably specializing in FTX.US, its asset administration practices, and its authorized illustration by Sullivan & Cromwell (S&C).
Cleary’s report, submitted to the US Chapter Courtroom for the District of Delaware, outlines the need of three major investigations to additional make clear the circumstances surrounding FTX Group’s downfall.
Shortfalls
The primary key advice facilities on FTX.US stability sheet shortfalls. The report highlights important considerations over recurring “holes” or shortfalls in FTX.US’s stability sheet.
These gaps, notably evident in November 2022, counsel doable commingling of buyer and company belongings — indicating a possible misuse of funds.
The examiner emphasised the necessity for a complete investigation to find out the causes, frequency, and determination of those shortfalls, which can uncover extra misconduct and bolster public confidence within the chapter course of.
The examiner additionally really helpful a probe into the pre-bankruptcy sale of Ledger Holdings Inc. (LHI) to West Realm Shires Inc., looking for to establish potential avoidance actions towards former shareholders who may nonetheless maintain claims towards the property.
The inquiry might present deeper insights into the transactions main as much as the chapter and uncover extra belongings for restoration.
S&C’s illustration
The examiner referred to as for a targeted inquiry into the position of Sullivan & Cromwell LLP (S&C), the regulation agency representing FTX, notably regarding its illustration of Sam Bankman-Fried throughout his buy of Robinhood shares.
The investigation goals to find out whether or not S&C was conscious of the fraudulent actions inside FTX and whether or not there have been any conflicts of curiosity that the court docket ought to have thought-about when approving their retention as counsel.
If S&C’s illustration of Samuel Bankman-Fried throughout his buy of Robinhood Markets shares is discovered to be improper or conflicted, it might have authorized and monetary implications for Bankman-Fried and different people concerned.
This may embrace revisiting the transactions and doubtlessly reversing or renegotiating phrases. It might additionally disqualify the regulation agency from representing debtors additional within the chapter proceedings.
S&C controversy
S&C’s broader illustration of FTX has generated important controversy. Bankman-Fried claimed S&C pressured him out of business to earn authorized charges in December 2022, whereas former FTX CTO Daniel Friedberg alleged misconduct in January 2023.
Reviews in 2023 indicated that S&C billed FTX roughly $70 million over 5 months of chapter proceedings. As of April 2024, the agency has charged $170 million in cumulative charges, in line with Bloomberg.
The matter entered civil courts in February 2024, as former FTX investigators filed a category motion go well with alleging the agency aided FTX’s wrongdoing.