Sullivan & Cromwell Cleared of Ignoring Red Flags in FTX and Robinhood Shares Deal: Examiner Report

• The legal intricacies surrounding Sullivan & Cromwell LLP’s advisory role to Sam Bankman-Fried during his acquisition of Robinhood shares have been a point of considerable scrutiny.
• In Robert Cleary’s examiner report, he details a recommendation for further investigation into potential conflicts of interest and the adequacy of advisory services provided by the firm.
• Cleary’s report emphasizes that Sullivan & Cromwell did not overlook warning signs that could have alerted them to possible malfeasance by FTX executives.

Examination of Sullivan & Cromwell’s Role in Bankman-Fried’s Robinhood Share Purchase

The Examiner’s Report and Its Implications

In his report, Examiner Robert Cleary highlighted the necessity of an in-depth investigation into Sullivan & Cromwell’s advisory services provided to Sam Bankman-Fried during his acquisition of shares in Robinhood Markets, Inc. The firm’s role has come under fire due to the substantial financial movements involved and the subsequent collapse of FTX.

The Context of Robinhood Shares Acquisition

In May 2022, Sam Bankman-Fried, through his controlled entity Emergent Fidelity Technologies Ltd., acquired over 7% of Robinhood’s stock, valued at approximately $648 million. This significant investment was facilitated with legal advice from Sullivan & Cromwell. However, the collapse of FTX later that year raised questions about the legitimacy of these transactions and the potential oversight by the legal advisors involved.

Sullivan & Cromwell’s Defense and Examiner’s Findings

The examiner’s report addresses the defense put forth by Sullivan & Cromwell, emphasizing that no “red flags” were overlooked during their advisory service. Cleary’s investigation suggests that the firm’s actions were in line with professional norms and that the firm’s attorneys did not have any conflicts of interest that would have disqualified them from providing advice to Bankman-Fried.

Email Correspondence and Its Relevance

The report includes details from email exchanges between FTX.US General Counsel Ryne Miller and Sullivan & Cromwell partners, discussing the hypothetical acquisition of a significant stake in a publicly traded company. These communications were routine in nature, according to the examiner, and not indicative of any underlying misconduct or suspicious activity. The firm’s guidance about filing a Form 13D was consistent with regulatory requirements for such substantial acquisitions.

Impact on Ongoing Bankruptcy Proceedings

With FTX’s bankruptcy proceedings still underway, the role of Sullivan & Cromwell continues to be critical. The firm’s current advisory capacity is integral to navigating the complexities of FTX’s financial downfall and ensuring that all aspects of the bankruptcy are managed with due diligence. The examiner’s report reinforces the importance of maintaining rigorous scrutiny over all advisory actions taken by legal and financial firms in such high-stakes scenarios.

Conclusion

Cleary’s investigation provides a nuanced view of Sullivan & Cromwell’s conduct, suggesting that the firm acted within its professional bounds while advising Sam Bankman-Fried. This scrutiny serves as a reminder of the ethical and professional standards that must be upheld in financial legal advisory roles. As the FTX bankruptcy proceeds, the implications of this report underline the critical nature of transparent and competent legal advice in high-profile financial transactions.