Just earlier than FTX collapsed in November, considered one of its outdoors attorneys on the regulation agency Sullivan & Cromwell emailed a colleague at one other agency, insisting that the cryptocurrency trade’s funds have been secure.

Rumors of FTX’s demise have been “silliness,” the lawyer, Andrew Dietderich, wrote. “FTX is rock solid, doesn’t use customer funds or take credit risk at all,” he mentioned.

Four days later, FTX filed for bankruptcy. Mr. Dietderich shortly organized for Sam Bankman-Fried, the trade’s founder, to step down so {that a} new chief govt, John Jay Ray III, a specialist in company turnarounds, could lead on the corporate. When Mr. Ray wanted attorneys to handle the chapter, a profitable project, he asked a judge to appoint the identical ones who had helped get him the job: Sullivan & Cromwell.

Now, with Mr. Bankman-Fried set to go on trial subsequent month on fraud charges stemming from FTX’s failure, Sullivan & Cromwell’s tangled historical past with the trade is drawing scrutiny — particularly from Mr. Bankman-Fried’s attorneys and household.

For months, Mr. Bankman-Fried has attacked Sullivan & Cromwell in courtroom papers and on social media, arguing that the agency’s attorneys set him up as the autumn man for FTX’s implosion whereas downplaying their very own involvement with the trade. The dispute turned much more private this week when FTX sued Mr. Bankman-Fried’s parents, searching for to claw again hundreds of thousands of {dollars} and claiming the trade had operated like a “family business.”

Criticism of Sullivan & Cromwell has change into extra widespread just lately, because the agency has racked up over $100 million in legal fees from FTX’s chapter. This summer season, its attorneys clashed with representatives for FTX’s hundreds of thousands of disgruntled collectors over the agency’s authorized technique and the tempo of its efforts to get well billions in lacking property.

“They were involved before the bankruptcy,” mentioned Sunil Kavuri, an FTX creditor who misplaced greater than $2 million within the collapse. “They should’ve been aware of what was going on.”

The dispute over Sullivan & Cromwell’s relationship with FTX reveals the vary of highly effective establishments that have been keen to assist Mr. Bankman-Fried throughout his rapid rise, at the same time as he resisted primary due diligence and eschewed conventional company governance. And it presents a preview of a battle that will unfold at Mr. Bankman-Fried’s trial in Manhattan, the place he’s anticipated to shift a number of the blame for FTX’s chapter to Sullivan & Cromwell and a second regulation agency that suggested him, Fenwick & West.

In courtroom filings, Mr. Bankman-Fried’s attorneys have advised that they might increase a so-called advice of counsel defense to argue that those firms authorised lots of FTX’s actions. Prosecutors have argued that the decide overseeing the trial shouldn’t allow Mr. Bankman-Fried responsible his attorneys, as a result of the founder typically lied about how his enterprise was utilizing its cash. They additionally mentioned he should have to disclose whether or not he relied on authorized recommendation from his mother and father, who’re longtime Stanford regulation professors.

A spokesman for FTX mentioned Mr. Bankman-Fried’s claims have been “a biased story line” meant to unfairly blame the professionals making an attempt to get well cash. A consultant for Sullivan & Cromwell declined to remark. In courtroom, the regulation agency has mentioned that FTX was by no means a “regular client,” and that the agency had put in place procedures to protect towards conflicts of curiosity through the chapter.

A spokesman for Mr. Bankman-Fried declined to remark. The FTX founder has pleaded not responsible to costs that he orchestrated a scheme to funnel billions in buyer cash into enterprise investments, actual property purchases and political donations. His trial is scheduled to start on Oct. 3.

One of the oldest regulation corporations in New York, Sullivan & Cromwell started dealing with authorized issues for FTX in summer season 2021 after considered one of its companions, Ryne Miller, was employed as common counsel of FTX.US, the trade’s American arm.

Over the subsequent yr and a half, the agency labored on 20 authorized issues for FTX and its sister hedge fund, Alameda Research, court records show, together with discussions with federal regulators on the Commodity Futures Trading Commission. Sullivan & Cromwell obtained a complete of about $8.5 million for the work.

Mr. Bankman-Fried has mentioned that past these particular issues, he worked out of Sullivan & Cromwell’s places of work in New York whereas visiting from FTX’s Bahamas headquarters. And when FTX began teetering in November, Mr. Dietderich emailed a lawyer engaged on the chapter of Voyager Digital, a crypto agency that FTX was making an attempt to accumulate, to guarantee him that the trade “doesn’t lend” its clients’ cash.

It turned out he was improper. As FTX plunged into disaster the subsequent day, Mr. Miller sought a $4 million retainer for Sullivan & Cromwell so the agency may work on a attainable chapter submitting, based on messages he despatched on the time. Soon, Sullivan & Cromwell attorneys alerted the authorities to attainable prison malfeasance at FTX, whereas Mr. Dietderich inspired Mr. Bankman-Fried to let Mr. Ray take over the trade.

In essence, Sullivan & Cromwell labored either side of the disaster. When FTX was a darling of the corporate and political elite, the agency’s attorneys helped Mr. Bankman-Fried navigate Washington as he pushed to loosen laws. After FTX failed, Sullivan & Cromwell labored intently with federal prosectors, supplying them with key company data.

In January, the U.S. trustee assigned to FTX’s chapter raised the prospect of eradicating Sullivan & Cromwell from the case, citing its failure to reveal all of its previous work for FTX. Around the identical time, 4 U.S. senators launched a letter arguing that Sullivan & Cromwell had a conflict of interest as a result of the agency would possibly bear some accountability for FTX’s failure. But the trustee backed down after the agency made a extra detailed disclosure, and a decide allowed the attorneys to proceed overseeing the chapter, saying he noticed “no evidence of any actual conflict.”

Mr. Bankman-Fried has remained fixated on Sullivan & Cromwell. His attorneys have argued that the agency is providing evidence to the prosecutors that displays poorly on Mr. Bankman-Fried, whereas withholding materials that might assist the protection. Prosecutors have denied that declare, writing in court papers that FTX and its attorneys “have been responding to the government’s document requests voluntarily.”

After Mr. Bankman-Fried’s arrest, his mom, Barbara Fried, contacted considered one of her Stanford colleagues, the authorized ethics scholar Bill Simon, and requested him to guage Sullivan & Cromwell’s conduct within the chapter. Mr. Simon, a household good friend, spent about 9 hours discussing the case with Mr. Bankman-Fried in June, he mentioned in an interview, earlier than writing an unpublished article criticizing the agency, which he shared with The New York Times.

“It is hard to see how the lawyers could have done their jobs during the period in which they represented FTX,” he wrote, with out familiarizing themselves with practices that “are now condemned as irresponsible or worse.”

Rebecca Roiphe, a former prosecutor and a professor at New York Law School, mentioned it was truthful to lift questions on potential conflicts of curiosity when a regulation agency represented an organization each earlier than and through a authorities investigation that may contain associated work.

“But this is not uncommon and doesn’t necessarily prove wrongdoing,” she mentioned, including that Mr. Simon had requested her to overview his article.

At the identical time that Sullivan & Cromwell has clashed with Mr. Bankman-Fried, the agency has confronted pushback from FTX’s collectors. They have complained that the regulation agency has failed to maximise proceeds from the sale of the trade’s property. So far, the attorneys say they’ve recovered about $7 billion, nevertheless it’s unclear how a lot of that can be returned to clients, who’ve filed $16 billion in claims, courtroom filings present.

The dispute spilled into public in July when a gaggle appointed to signify FTX’s collectors within the case said Sullivan & Cromwell had ignored its recommendations about the best way to resolve the chapter. The regulation agency responded that some creditors were engaging in “unprofessional conduct” — the attorneys had been left perturbed after a gathering through which at the least one creditor used a four-letter phrase to specific frustration, two individuals aware of the trade mentioned.

None of these conflicts have stemmed the circulation of funds to Sullivan & Cromwell, which has greater than 200 attorneys, paralegals and help employees members engaged on FTX’s chapter, probably the most senior of whom cost $2,165 an hour.

In its most up-to-date month-to-month invoice, Sullivan & Cromwell mentioned it was owed greater than $10 million for its work on the chapter, together with over 100 costs for conferences, calls or correspondence with the federal prosecutors pursuing Mr. Bankman-Fried.