FTX paid $12M retainer to a New York law firm before bankruptcy filing

Defunct crypto exchange FTX paid a retainer of $12 million to bankruptcy lawyers as security for payment of its fees and expenses amid Chapter 11 bankruptcy proceedings, shows a court filing dated Dec. 21.

Sullivan & Cromwell LLP (S&C), a law firm headquartered in New York City, received $12 million from West Realm Shires Services Inc. on behalf of FTX for legal services. In addition, the filing confirmed that over the past 90 days, i.e., since Aug. 26, 2022, FTX paid nearly $3.5 million to S&C.

Based on the information provided, FTX paid at least $15.5 million to avail and retain the legal services of S&C. The filing further revealed that S&C currently holds nearly $9 million of the $12 million retainer amount.

Following the series of payments, FTX filed for bankruptcy on Nov. 11, which was accompanied by the CEO Sam Bankman-Fried’s resignation. As a result of the subsequent shutdown of the crypto exchange, FTX investors lost access to the funds stored on the exchange.

For some exchanges, regaining investor confidence meant sharing evidence of the existence of users’ funds via proof-of-reserve (POR) initiatives. On the other end of the spectrum, Paxful CEO Ray Youssef, sided with the idea of Bitcoin (BTC) self-custody.

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District Judge Ronnie Abrams withdrew her participation from the FTX case after revealing that a law firm, where her husband works as a partner, had advised the exchange in 2021.

While clarifying that her husband had no involvement in any of these representations, she added:

“Nonetheless, to avoid any possible conflict, or the appearance of one, the Court hereby rescues itself from this action.”

Judge Abrams’ withdrawal from the FTX case was aimed at eradicating any conflict of interest in the FTX case.