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FTX customers have escalated their class-action lawsuit against the law firm Fenwick & West, alleging the firm was instrumental in facilitating the crypto exchange's collapse. New evidence from Sam Bankman-Fried's trial and bankruptcy proceedings suggests Fenwick played a crucial role in structuring the entities that enabled FTX's alleged fraud.
Fenwick's Alleged Role in FTX's Downfall
- FTX users claim Fenwick & West helped design and manage key FTX entities, including Alameda Research and North Dimension, allegedly without necessary safeguards to prevent the misuse of customer funds.
- The lawsuit asserts that Fenwick was "deeply intertwined" in FTX's operations, facilitating conflicted intercompany transactions and the creation of shell companies to obscure asset movements.
- The firm is also accused of advising on methods to conceal fraudulent activities, including the use of auto-deleting messages on encrypted platforms like Signal.
New Evidence Bolsters Claims
Testimony from former FTX insiders, such as Nishad Singh, FTX's former engineering director, is cited in the amended lawsuit. Singh reportedly informed Fenwick about the misuse of customer funds and improper loans, with the firm allegedly advising on how to hide these actions. An independent examiner's report, reviewing over 200,000 internal documents, concluded that Fenwick was "deeply intertwined" in FTX Group's misconduct and maintained "exceptionally close relationships" with FTX executives.
Securities Law Violations Alleged
The amended lawsuit introduces two new claims under Florida and California securities laws. Plaintiffs allege that Fenwick played an active role in the design, promotion, and sale of FTX Token (FTT) and other FTX-related instruments, which they contend were unregistered securities. This conduct, the lawsuit argues, misled investors and regulatory authorities.
Fenwick's Defense and Previous Actions
Fenwick & West has previously denied the allegations and moved to dismiss the original complaint. The firm argues that it cannot be held liable for a client's misconduct if its actions were within the scope of legal representation. The plaintiffs had previously pursued a similar case against another FTX law firm, Sullivan & Cromwell, but dropped it due to insufficient evidence.
Broader Legal Landscape
This legal action is part of a larger class-action effort targeting various entities and individuals allegedly involved in FTX's operations. The FTX fraud, described by prosecutors as one of the largest in U.S. history, involved the alleged theft of billions of dollars from investors.
Sources
- FTX Users Sue Law Firm Over Role in Crypto Exchange Collapse, AInvest.
- FTX Customers Amend Lawsuit Alleging Law Firm Enabled Fraud, AInvest.
- FTX Users Cite New Evidence in Lawsuit Against Law Firm Over Fraud Role, AInvest.
- FTX Customers Look To Update Lawsuit Against Fenwick & West, Cointelegraph.
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