Key takeaways:
- The law firm that managed the FTX bankruptcy was found to have been ignorant of the severe financial circumstances and underlying fraud that caused the exchange to collapse.
- Following a string of unsettling events that led to the exchange’s complete collapse, FTX filed for Chapter 11 bankruptcy on November 17, 2022.
The law firm that managed the FTX bankruptcy, Sullivan & Cromwell LLP, was found to have been ignorant of the severe financial circumstances and underlying fraud that caused the once-thriving exchange to collapse, according to an independent investigation into the firm.
Former US prosecutor Robert Cleary conducted the investigation, finding that although Sullivan & Cromwell lawyers had made fraudulent claims while defending FTX, they had done so without realizing it.
Following the public release of the investigation’s results, Sullivan & Cromwell issued the following statement:
“Sullivan & Cromwell remains confident in our pre-petition work for FTX and the commencement of the Chapter 11 cases, and we welcome the examiner’s findings to date rejecting various baseless allegations about our work for FTX.”
Following widespread suspicion and condemnation of Sullivan & Cromwell by FTX creditors and clients seeking relief, an investigation was ordered.
Concerned creditors and former platform users, who believed that the law firm’s pre-bankruptcy cooperation with FTX threatened the integrity and neutrality of the legal powerhouse, reacted negatively to the law firm’s original appointment to oversee the bankruptcy proceedings.
Following a string of unsettling events that led to the exchange’s complete collapse, FTX filed for Chapter 11 bankruptcy on November 17, 2022.
A week prior to the now-famous crash, Binance made efforts to purchase FTX and started a non-binding contract to buy out the exchange and assume daily management.
The announcement of the acquisition caused the market to react unfavorably, and in a single trading day, the FTX Token (FTT) value fell from almost $22 to $5.50.
One day later, Binance called off the tentative agreement, citing issues with FTX’s financial standing, the comingling of user assets, and news of early US government inquiries into the popular exchange.
The deal’s cancellation compounded the pervasive suspicions that something was amiss at FTX, compounding the company’s demise.
There were rumors in the media that FTX was missing almost $1 billion in customer funds a few days after Binance proposed and withdrew the agreement. Customers frantically attempted to extract their money from the failing platform, leading to additional exchange runs.
