FTX Trading: U.S. trustee objects to proposed bankruptcy counsel

By Sarah Lizee

Olympia, Wash., Jan. 17 – FTX Trading Ltd.’s application to retain Sullivan & Cromwell LLP as counsel drew an objection from Regions 3 and 9 U.S. trustee Andrew R. Vara, according to documents filed with the U.S. Bankruptcy Court for the District of Delaware.

FTX is seeking to retain the firm as its main bankruptcy counsel to manage its extremely complex, high-profile cases. There are already many ongoing investigations into the company’s collapse, and there will likely be more.

One of the firm’s duties, according to the application, would be to lead those investigations.

Vara said he objects to the application for two reasons.

First, the law firm’s disclosures are insufficient to evaluate whether it satisfies the bankruptcy code’s conflict-free and disinterestedness standards.

The U.S. trustee said publicly available information thus far raises the specter that Sullivan & Cromwell may have a conflict or not be disinterested given that a partner of eight years at the firm became general counsel for some of the debtors about 14 months before the petition date.

Second, the scope of the law firm’s retention can’t be allowed as proposed, Vara stated.

The bankruptcy code specifically precludes debtors in possession from investigating themselves, which is what they’re trying to do here, he said.

FTX has headquarters in The Bahamas. The company filed Chapter 11 bankruptcy on Nov. 11 under case number 22-11068.

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