DOJ Objects to FTX Hiring Law Firm, Senators Call for Independent Examiner

• The US Department of Justice (DOJ) has opposed FTX hiring Sullivan & Cromwell, the law firm tasked with the exchange’s investigation, citing potential conflicts of interest.
• The DOJ said the law firm’s disclosures are not sufficient to evaluate whether it meets the Bankruptcy Code’s conflict-free and disinterestedness standards and that there might be a conflict of interest due to a former S&C partner now being FTX US’ general counsel.
• A bipartisan group of four US senators have also called for an independent examiner to investigate FTX’s activities prior to its collapse in November.

The US Department of Justice (DOJ) has filed an objection to FTX hiring Sullivan & Cromwell, the law firm tasked with the exchange’s investigation, due to potential conflicts of interest. In a legal filing, the US Trustee said it is objecting to the FTX decision for two “overarching” reasons.

The first reason is that the law firm’s disclosures are not sufficient to evaluate whether it meets the Bankruptcy Code’s conflict-free and disinterestedness standards. The second reason is that there could be a conflict of interest due to Ryne Miller, general counsel of FTX US, previously working at S&C for eight years. This could place the law firm in the conflicted position of investigating itself and its former partner.

The DOJ also noted that the scope of S&C’s retention cannot be allowed as proposed since bankruptcy rules “specifically preclude debtors in possession from investigating themselves”. The DOJ asked the Court to deny S&C’s application.

In addition to the DOJ, a bipartisan group of four US senators have also called for an independent examiner to investigate FTX’s activities prior to its collapse in November. The group, which includes John Hickenlooper, Thom Tillis, Elizabeth Warren, and Cynthia Lummis, wrote a letter to Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware, stating that it is “critical that a strong, objective, and disinterested examiner is appointed in this case to conduct a searching investigation of FTX, FTX US and its related entities”.

The senators argued that a thorough investigation is necessary to ensure that customers, creditors, and other stakeholders are treated fairly and that the principles of justice and equity are upheld. The group also noted that FTX’s activities prior to its collapse could have included misconduct, fraud, or other violations of the law, and that an independent examiner is needed to identify any such violations.

The DOJ’s objection to FTX hiring Sullivan & Cromwell and the call for an independent examiner to investigate FTX’s activities highlight the importance of ensuring that investigations are conducted in a fair, transparent, and unbiased manner. It is essential that any investigation is conducted in accordance with the Bankruptcy Code’s conflict-free and disinterestedness standards, as well as with the principles of justice and equity, in order to ensure that customers, creditors, and other stakeholders are treated fairly.