Creditors of bankrupt cryptocurrency exchange FTX have filed a class action lawsuit against a global law firm providing legal advice to the former digital asset empire.
In a new court Deposit Filed on February 16, FTX's creditors allege that Sullivan & Cromwell (S&C) engaged in civil conspiracy, aiding and abetting fraud, aiding and abetting fiduciary breach and violating federal anti-racketeering laws.
The New York City-based law firm is overseeing FTX's bankruptcy proceedings and has assisted the exchange in several deals, including the acquisition of cryptocurrency derivatives platform LedgerX.
The lawsuit alleges that S&C conspired with FTX despite knowing that it misappropriated customer funds and committed other forms of fraud.
Creditors claim that the law firm actively participated in a multi-billion-dollar stock market fraud for financial gain.
“S&C learned of, aided and abetted the fraud committed by FTX Trading Ltd. and FTX US. Through its representation of the FTX entities, S&C gained knowledge of FTX Trading Ltd. and FTX US's misrepresentations and omissions to clients, dishonest conduct, and misappropriation of class member funds. Despite this knowledge, S&C was able to profit financially from FTX Group's misconduct and significantly aided and abetted FTX Group's misconduct.
The lawsuit also alleges that S&C aided and encouraged FTX's breach of fiduciary duties by structuring business acquisitions and providing assistance in deceiving regulators.
“S&C gained knowledge of misrepresentations and omissions to clients through its representation of the FTX entities and their founders, including through actions such as the acquisition of LedgerX, a purchase designed to obscure the true nature of FTX's business, and regulatory matters involving the CFTC (Commodity Futures Trading Commission), Such as those related to the “Know Your Customer” policy.
S&C's employment with FTX also violates the Racketeer Influenced and Corrupt Organizations (RICO) Act, the federal law against companies with illegally derived income, the filing says.
“S&C formed an illegal agreement to violate the substantive provisions of the RICO Act set forth above and are therefore jointly and severally liable for the actions of its co-conspirators…
By cause, and as a result, S&C's conduct and participation in the racketeering activity described herein directly caused Plaintiffs and Class Members to suffer significant damages.
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