Under the new FTX proposal, bankruptcy law firm S&C was cleared of misconduct
Creditors are unhappy with a separate clause linked to law firm Sullivan & Cromwell (S&C) despite FTX's revised proposal promising “billions in compensation”.
Released on May 7, FTX's newly revised proposal to pay creditors is a provision that relieves certain parties of liability if damages are incurred in the conduct of bankruptcy proceedings.
According to Sunil, a prominent FTX lender who is part of the largest group of 1,500 FTX lenders, S&Cs may have included a clause to insulate themselves from any liability.
In a May 8 post, Sunil wrote:
“S&C included a release clause so they wouldn't be held responsible for their losses – selling FTX assets at a 70% to 90% discount to their customers and insiders (Ledger X, Galaxy), not relaunching FTX 2.0, etc. if we accepted the plan,” he said.
The controversial clause comes nearly three months after FTX's top creditors sued bankruptcy firm S&C. The creditors allege that S&C actively participated in “FTX Group's multibillion-dollar fraud,” claiming that the company benefited financially from FTX's fraud. A February 16 court filing says:
“S&C about FTX US and FTX Trading Ltd. They knew omissions, untruths and fraudulent practices, and misappropriation of class members' funds. Despite this knowledge, S&C stood to gain financially from FTX Group's wrongdoing and at least implicitly agreed to facilitate that illegal activity for its benefit.
Sullivan & Cromwell is a century-old law firm handling FTX's bankruptcy proceedings. In the past, the company has served as an external advisor to the turnaround, receiving significant fees for its services, including FTX's bid for Voyager's digital assets and acquisition of LedgerX.
FTX owes the S&C law firm up to $1.45 billion in legal damages, according to settlement documents dating back to December 2023.
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Will FTX's updated plan be rejected?
FTX's new plan has caused widespread outrage among crypto investors, mainly because of the exhibit clause that could force lenders to vote no, including anonymous FTX lender Rob, who is head of development at Paradex. In a May 8th post, Rob wrote:
“I'm not icing on the cake for a team that has cost FTX customers billions. This cannot be allowed. I'm voting NO on this plan.”
While FTX borrowers claim to pay more than 98% of lenders 11% and the rest “billions in compensation”, some do not see this as unfair, with borrowers being compensated based on the value of 16,800 Bitcoin (BTC), which has appreciated significantly since the crash.
Writing in a May 8 X post, Bitgo CEO Mike Belshe said none of the FTX lenders accept this compensation structure.
“0% of FTX's creditors agree that receiving $16800 in bitcoins for you is full compensation. I understand why the bankruptcy process had to be done this way, but let's not pretend that victims are getting their money back, or that FTX wasn't as bad as it was.”
Related: FTX addresses transfer of $8.3M one day before revised proposal deadline
