FTX Fallout: DOJ Questions Law Firm's Binance Monitor Bid

DOJ reevaluates Sullivan & Cromwell's Binance monitor role due to its FTX ties amid a $4.3 billion plea deal scrutiny.

By Jack Wilson

4/15, 15:47 EDT
Bitcoin / U.S. dollar

Key Takeaway

  • DOJ reconsiders Sullivan & Cromwell for Binance monitor role due to its FTX controversy, highlighting concerns over potential conflicts of interest.
  • The firm's $170 million billing in FTX bankruptcy proceedings contrasts with criticism for not detecting fraud before the collapse.
  • Binance's plea deal includes a 3-year DOJ and 5-year FinCEN monitorship, emphasizing regulatory scrutiny on crypto exchanges.

Binance Monitorship Stalled

The Department of Justice (DOJ) is reconsidering its decision to appoint Sullivan & Cromwell as the independent monitor for Binance Holdings Ltd., due to the law firm's previous work for FTX, a former rival of Binance. This reevaluation comes after Binance's $4.3 billion plea agreement, admitting to violations of U.S. money-laundering regulations and trade sanctions, which mandated the appointment of an independent monitor. Despite the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) still intending to use Sullivan & Cromwell, the DOJ's concerns have led to a search for alternative options for this significant role.

FTX Controversy Affects S&C

Sullivan & Cromwell's involvement with FTX both before and after its November 2022 bankruptcy has drawn criticism and legal scrutiny. The firm's representation of FTX has been questioned due to its alleged failure to detect fraudulent activities by FTX co-founder Sam Bankman-Fried, who was recently sentenced to 25 years in prison. Despite Sullivan & Cromwell billing more than $170 million for its post-bankruptcy services to FTX, its prior work and the ongoing lawsuit from FTX customers have tainted its reputation, influencing the DOJ's reconsideration for the Binance monitorship.

Ethical and Legal Scrutiny

Two law professors, Jonathan Lipson of Temple University and David Skeel of the University of Pennsylvania, have published a paper criticizing Sullivan & Cromwell's role in FTX's bankruptcy, alleging conflicts of interest. They argue that the firm's prior knowledge of FTX's operations and decisions made during the bankruptcy proceedings could have compromised stakeholder recoveries. Despite earning $184 million in fees from FTX's estate, the firm's decisions, including not reviving the FTX exchange and selling the LedgerX unit, have been scrutinized for potentially compromising stakeholder recoveries.