FTX Investors Target Fenwick & West in Amended Class-Action Suit
A top Silicon Valley law firm, Fenwick & West, is under fire in an amended class-action lawsuit filed by former FTX customers, who allege the firm played a central role in the $8 billion fraud perpetrated by the crypto exchange.
The lawsuit was originally filed in 2023 in the Southern District of Florida and updated with additional data and evidence from FTX’s bankruptcy proceedings and the criminal trial of founder Sam Bankman-Fried.
The lawsuit claims Fenwick enabled the misappropriation of customer funds and structured improper loans to FTX insiders, which resulted in the November 2022 meltdown of the exchange.
The accusations, detailed in a filing, point to testimony from FTX’s former chief engineer, Nishad Singh, and bankruptcy filings, which state Fenwick’s lawyers allowed customer deposits to be mixed with Alameda Research money, a related hedge fund, for high-risk trading and executives’ personal gain.
The case is part of a multidistrict suit that combines FTX-related lawsuits, targeting the conduct of professional service providers behind the crypto industry’s fallout.
Initially, the lawsuit also targeted Sullivan & Cromwell, but claims against that firm were dismissed due to insufficient evidence. It also singled out celebrities for FTX endorsements, although most state securities charges against them were dropped, with the exception of those under Florida and California law, which remain active.
Fenwick Calls FTX Fraud Claims ‘Misleading’ and ‘Flawed’
In a motion filed in Florida federal court, Fenwick & West sought to dismiss the amended complaint, describing the allegations as “facile,” “flawed,” “untimely,” and “misleading.”
The law firm asserts that it only provided “routine and lawful legal services” to FTX, consistent with standard legal practices, and was unaware of any fraudulent activities.
While addressing Singh’s testimony, Fenwick clarified that its advice was limited to typical loan structuring for a closely held company, not a cover-up of any crime.
The court documents from Bankman-Fried’s trial, cited by Fenwick, reveal that dozens of witnesses confirmed the fraud was hidden from FTX’s in-house counsel, employees, and other professionals, including the law firm.
Fenwick further argued that the plaintiffs’ claims rely on “stale information” from public records available years earlier, accusing them of using delay tactics to revive previously dismissed claims.
The firm also rejected new securities allegations under Florida and California laws as “far-fetched,” framing them as an eleventh-hour desperate attempt to support a failing case.
Fenwick’s defense relies on its assertion that its role was confined to legitimate legal work, with no involvement in the $8 billion fraud.
Can Law Firms Be Held Accountable?
The FTX collapse, one of the largest financial frauds in history, saw $8 billion in customer funds misappropriated, leaving investors shocked.
Bankman-Fried was convicted in November 2023 on seven counts of fraud and money laundering charges and sentenced to 25-year imprisonment in March 2024.
The ongoing litigation against Fenwick is proof of the challenges law firms face while holding professional service providers like law firms accountable in the loosely regulated crypto sector.
Legal experts hope that this case could set precedents for defining liability for law firms advising crypto companies, especially under RICO laws.
