By Dietrich Knauth and Andrew Goudsward
(Reuters) -A U.S. judge on Friday signed off on FTX's choice of legal advisers to navigate its bankruptcy, after the collapsed crypto exchange told the court it had reached an agreement that resolved the U.S. Department of Justice's concerns about potential conflicts of interest.
The U.S. Trustee, the Justice Department's bankruptcy watchdog, and two of FTX's creditors had asked U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware not to approve FTX hiring Sullivan & Cromwell, arguing the New York law firm had not disclosed sufficient information about its past ties to FTX.
These ties, they said, include the fact that FTX's U.S. general counsel, Ryne Miller, is a former partner at the firm.
The U.S. Trustee and a Sullivan & Cromwell lawyer representing FTX told Dorsey at a hearing on Friday that the firm and the exchange provided the Justice Department additional disclosures about the firm's pre-bankruptcy work, which satisfied the department's concerns.
Dorsey said the objectors had not shown there was an active conflict of interest between FTX and the firm, and to the extent that conflicts could arise there were procedures in place to deal with them.
Former top FTX attorney Daniel Friedberg had also opposed Sullivan & Cromwell's hiring in court filings on Thursday, saying the law firm had overbilled for legal work and had conflicts of interest stemming from its connections to Miller.
Miller tried to "channel a lot of business to S&C" and "looked forward to returning as a partner to S&C" after his stint at FTX, Friedberg wrote.
FTX creditor Warren Winter asked Dorsey to delay the firm's approval until Friedberg’s allegations were investigated.
The judge denied the request, saying Friedberg’s court filing was not properly presented to the court and "full of hearsay, innuendo, speculation and rumors."
FTX has pushed back on the objections in court filings this week, saying it relies on Sullivan & Cromwell for high-stakes work like securing customer assets and sharing information with U.S. prosecutors and regulators.
Forcing it to find new lawyers, FTX has said, would disrupt efforts to clean up the mess left behind by founder Sam Bankman-Fried, who has been accused by U.S. prosecutors of orchestrating an "epic" fraud that may have cost investors, customers and lenders billions of dollars.
Bankman-Fried, who has pleaded not guilty, has repeatedly attacked Sullivan & Cromwell since FTX’s implosion, claiming he was strong-armed by lawyers at the firm into filing for bankruptcy and surrendering control of the company. The firm called those allegations false in court filings this week.
The firm also took aim at Friedberg's filing at Friday's hearing, accusing him of participating in Bankman-Fried's efforts to undermine the firm.
"They can’t throw stones at the U.S. Attorney's Office, but they can throw stones at debtors' counsel who are providing information" to prosecutors and regulators, Sullivan & Cromwell partner James Bromley said.
Sullivan & Cromwell has said it should not be disqualified simply because it performed some pre-bankruptcy work for FTX and that it never served as primary outside counsel to any FTX entity.
FTX filed for bankruptcy protection in November, saying it was unable to completely repay customers who had deposited funds on its exchange.
Serving as primary bankruptcy counsel to FTX would likely allow Sullivan & Cromwell to reap hundreds of millions of dollars in fees, legal experts have said. FTX has sought bankruptcy court permission to pay top Sullivan & Cromwell attorneys more than $2,000 per hour.
Bankruptcy judges usually allow companies to choose their bankruptcy attorneys, but conflicts of interest can result in attorney disqualification in rare cases.