According to a recent FTX proposal, bankruptcy law company S&C has been cleared of any wrongdoing.
This title refers to a specific clause in FTX’s updated bankruptcy plan that might protect Sullivan & Cromwell (S&C), a law firm, along with other related debtors from being held accountable for any future legal claims or liabilities.
An exculpation clause is a legal provision that limits or removes the liability of specific parties involved in certain actions or transactions. In the context of FTX’s plan, it means that if the clause is approved, S&C and other parties involved in the bankruptcy proceedings would not be subject to future legal action or obligations related to their role in the case.
Although FTX’s recently revised proposal pledged “billions in compensation,” creditors are dissatisfied with a specific provision concerning the law firm Sullivan & Cromwell (S&C).
The exculpatory language in FTX’s recently updated proposal to repay creditors, which was made public on May 7, absolves some parties of liability in the event that harm is caused while the bankruptcy procedure is being carried out.
Popular FTX creditor Sunil, who is a member of the largest group of over 1,500 FTX creditors, the FTX Customer Ad-Hoc Committee, suggests that S&C may have incorporated the clause in the instance of FTX to exonerate themselves from any potential obligations.
Sunil wrote in a post on May 8 X:
“S&C inserted an exculpation provision, meaning that if we approve the proposal, they cannot be held accountable for any misconduct—selling FTX assets to their own clients and insiders (Ledger X, Galaxy) at 70% to 90% discounts, not resuming FTX 2.0, etc.”
The contentious language was added over three months after S&C, the bankruptcy firm, was sued by the top creditors of FTX. The creditors claimed S&C profited financially from the “multibillion-dollar fraud” committed by the “FTX Group,” and they claimed S&C participated actively in this scheme. A court document dated February 16 says:
S&C was aware of the misuse of class members’ monies, dishonest and fraudulent behavior, and omissions by FTX US and FTX Trading Ltd. Even with this information, S&C agreed—at least tacitly—to support the FTX Group’s illegal activity in order to benefit financially from it.
The century-old legal practice managing the FTX bankruptcy process is called Sullivan & Cromwell. Prior to that, the company is said to have provided outside legal guidance to the exchange in a number of transactions, such as FTX’s acquisition of LedgerX and its offer for the Voyager Digital assets, for which it was paid a substantial sum.
According to compensation documents dated December 2023, FTX owed the S&C law firm up to $1.45 billion in legal bankruptcy fees.
Related: The first synthetic dollar backed by Bitcoin will start with a 25% yield.
Will FTX's revised proposal be rejected?
Due mostly to the exculpatory language in FTX’s new plan, which could lead creditors—including Paradex’s head of growth and FTX creditor Rob—to vote against it, the plan has infuriated cryptocurrency investors. Rob wrote in a May 8 X post:
“The cherry on top from the group that ruined billions of dollars’ worth of potential value for FTX clients. We cannot permit this. In favor of this idea, I vote no.
Some believe that the FTX debtors’ payout of 11% to over 98% of creditors and “billions in compensation” to the remaining creditors is not unjust, given that the holders are being compensated based on a $16,800 Bitcoin BTC. ticks lower at $62,408 cost, which has greatly increased since the crisis.
The CEO of BitGo, Mike Belshe, stated in a May 8 X post that none of the creditors of FTX will accept this remuneration arrangement.
“0% of FTX creditors concur that getting $16800 in exchange for your bitcoin is adequate payment. I can see why the bankruptcy process must operate in this manner, but let’s not act as though victims are receiving their money back or that the financial crisis at FTX wasn’t as bad as it was.
