The firm, which began representing FTX shortly before the exchange sought bankruptcy last fall, faced criticism from the U.S. Trustee and others for failing to disclose details about all of its work for FTX. But Bankman-Fried's successor as FTX's CEO, turnaround specialist John Ray, said the company needed Sullivan & Cromwell’s sophisticated counsel to pursue assets for FTX customers and to deal with criminal and Congressional investigations. A Delaware bankruptcy judge approved the firm’s engagement in January.
A Bankman-Fried spokesperson declined to comment on the new Sullivan & Cromwell brief, as did a spokesperson for the Manhattan U.S. Attorney’s Office. The Justice Department has long encouraged companies to cooperate with prosecutors when a corporate executive is accused of criminal conduct. Corporations that step forward to reveal wrongdoing and offer up evidence from their own internal investigations are often rewarded with deferred prosecution or non-prosecution agreements. But Bankman-Fried contends that Ray and FTX’s lawyers overstepped their bounds and became an “arm of the prosecution.” The filing alleged that bankruptcy records show FTX outside lawyers have provided “tens of millions of dollars of free work to the prosecution,” including at least 150 hours of consultation with prosecutors. In one notable instance, according to the filing, the government asked FTX lawyers to work up a presentation on whether FTX and its sister investment firm Alameda Research were operating an unlicensed money transmitting business. FTX outside counsel, according to Bankman-Fried, agreed to waive attorney-client privilege over thousands of documents related to prosecutors’ request and to present their analysis to the government. In a matter of weeks, Bankman-Fried’s brief alleges, the government had everything it needed to add money-transmitting allegations to a superseding indictment. And that is just one instance, according to Bankman-Fried, of FTX and its lawyers waiving privilege at the government’s request. FTX has even given prosecutors “read-outs” of its lawyers’ notes of witness interviews, the filing claims. But when Bankman-Fried has asked FTX and related entities to waive privilege, the filing said, “they have steadfastly refused.” None of this is surprising, Bankman-Fried acknowledged: FTX, he said, has no incentive to help the former CEO, who is a convenient scapegoat. But that is all the more reason, the defense brief argued, to assure that prosecutors do not capitalize on FTX's involvement to evade their obligation to protect Bankman-Fried’s rights as a defendant. The Justice Department, as I’ve reported, is under increasing scrutiny from white-collar defendants who claim to have been scapegoated by their companies after internal investigations. At a hearing last month, for instance, two former top executives from Cognizant Technology Solutions Corp questioned federal prosecutors and Cognizant outside counsel about the extent of Cognizant’s influence on the Justice Department’s Foreign Corrupt Practices Act investigation of the company. The executives, who claim violations of their 5th Amendment rights, are hoping, at a minimum, to suppress certain evidence that emerged in Cognizant’s internal investigation. In a 2019 case cited in Bankman-Fried’s brief, U.S. District Judge Colleen McMahon of Manhattan harshly criticized prosecutors for outsourcing a criminal investigation of alleged rate-rigging by Deutsche Bank AG traders to Deutsche Bank’s lawyers from Paul, Weiss, Rifkind, Wharton & Garrison. McMahon ultimately concluded, though, that an indicted trader’s constitutional rights were not violated because the government did not rely on his statement to Paul Weiss when it presented its case to a grand jury. It's not easy, in other words, for defendants to make much headway by claiming prosecutors have deputized corporate counsel. We will see if Bankman-Fried, who is not claiming a constitutional violation, at least gets some discovery from his effort. Read more: Indicted FTX founder Bankman-Fried urges court to toss charges
U.S. Justice Dept corporate crime policies face big test in Cognizant execs' hearing
FTX wins court approval to hire bankruptcy lawyers amid conflicts concerns (Reporting By Alison Frankel; editing by Leigh Jones)
