FTX cleared to retain Sullivan & Cromwell, despite trustee concerns

By Sarah Lizee

Olympia, Wash., Jan. 20 – FTX Trading Ltd.’s application to retain Sullivan & Cromwell LLP as counsel was approved on Friday by the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, the application drew an objection from Regions 3 and 9 U.S. trustee Andrew R. Vara.

FTX sought approval 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, is to lead those investigations.

Vara had said 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.

Vara also said the scope of the law firm’s retention can’t be allowed as proposed.

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

The court said Friday that entry of the order will not impede the court from directing relief with respect to the scope of professional services in the event an examiner is subsequently appointed, or prejudice or otherwise affect the rights of the U.S. trustee to object to the firm’s post-petition requests for compensation and reimbursement on any and all grounds.

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

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