As a researcher with experience in the crypto industry and bankruptcy law, I find FTX’s new amended proposal raising serious concerns among creditors due to the inclusion of an exculpatory clause that potentially absolves Sullivan & Cromwell (S&C) from any liabilities.
FTX’s revised plan pledged “huge sums of reparation,” but creditors have expressed dissatisfaction over a specific provision concerning the role of law firm Sullivan & Cromwell (S&C) in the proceedings.
The revised proposal put forth by FTX on May 7 for reimbursing creditors includes a protective clause. This clause shields specified individuals from being held responsible for any resulting damages incurred throughout the bankruptcy proceedings.
As a researcher investigating the case of FTX, I’ve come across an intriguing perspective from Sunil, a prominent member and spokesperson for the FTX Customer Ad-Hoc Committee, which represents over 1,500 creditors. According to Sunil, Sam Bankman-Fried and his team at FTX may have intentionally included the controversial clause in their Settlement and Plan of Reorganization agreement to protect themselves from any potential future liabilities.
In a May 8 X post, Sunil wrote:
“S&C included an exculpation clause so they can not be held liable for misconduct — selling FTX assets at 70% to 90% discounts to their own clients and insiders (Ledger X, Galaxy), not restarting FTX 2.0, etc if we accept the plan.”
Approximately three months ago, a contentious provision emerged following a lawsuit filed by FTX’s leading creditors against bankruptcy firm Sullivan & Cromwell (S&C). The creditor’s accusation claimed S&C played an integral role in the “FTX Group’s alleged multibillion-dollar fraud,” suggesting that the law firm financially profited from the fraudulent activities of FTX, as detailed in a court document dated February 16.
“S&C knew of FTX US and FTX Trading Ltd.’s omissions, untruthful and fraudulent conduct, and misappropriation of Class Members’ funds. Despite this knowledge, S&C stood to gain financially from the FTX Group’s misconduct and so agreed, at least impliedly, to assist that unlawful conduct for its own gain.”
For over a century, Sullivan & Cromwell has been a leading law firm. Currently, they are managing the bankruptcy process for FTX. It was previously reported that this esteemed firm represented FTX in various transactions, such as its purchase of Voyager Digital’s assets and acquisition of LedgerX. For these services, Sullivan & Cromwell received substantial compensation.
As a researcher investigating the financial situation of FTX during late 2023, I came across compensation filings revealing that the law firm S&C was owed up to $1.45 billion in bankruptcy fees by FTX.
Will FTX’s amended plan be turned down?
FTX’s recently announced plan sparked significant backlash among crypto investors for several reasons, with a major concern being the inclusion of an exculpating clause. This provision could potentially influence creditors to oppose the proposal, including Rob, who is both a FTX creditor and the head of growth at Paradex. In his May 8 X post, Rob expressed his concerns publicly.
“Icing on the cake from the team that destroyed billions of potential value for FTX customers. This can’t be allowed. I’m voting NO on this plan.”
As a crypto investor, I can understand why some might not view the proposed payout by FTX debtors as unfair. When they mentioned giving over 98% of creditors an 11% payout and “billions in compensation” to the remaining ones, they were basing it on a Bitcoin price of $16,800. However, since the collapse, the price of Bitcoin has risen significantly, making the proposed payout seem less generous than it initially appeared. In my perspective, it’s essential to consider the context and fluctuations in the crypto market when evaluating such proposals.
According to Mike Belshe, the CEO of BitGo, none of the FTX creditors are willing to accept the proposed compensation structure as stated in his May 8 post on X.
“0% of FTX creditors agree that receiving $16800 for your bitcoin is fully compensated. I understand why the bankruptcy process needs to work this way but let’s not pretend victims are getting their money back or that FTX wasn’t as awful as it was.”
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2024-05-08 12:13