Key Takeaways
- FTX customers claimed that newly surfaced evidence from the criminal trial of former FTX chief executive Sam Bankman-Fried, along with ongoing bankruptcy investigations, demonstrates that Fenwick provided “substantial assistance” to the company.
- They argue that the law firm designed and approved corporate structures that facilitated fraudulent activities without meaningful safeguards.
In a major development, FTX users are seeking court approval to amend an existing lawsuit against Fenwick & West LLP, alleging the law firm played a significant role in enabling the exchange’s downfall. The move comes amid FTX scrambling for funds to repay its customers.
In a motion filed on Monday, plaintiffs claimed that newly surfaced evidence from the criminal trial of former FTX chief executive Sam Bankman-Fried, along with ongoing bankruptcy investigations, demonstrates that Fenwick provided “substantial assistance” to the company. They argue that the law firm designed and approved corporate structures that facilitated fraudulent activities without meaningful safeguards.
The complaint alleges that Fenwick helped establish and represent a network of interlinked entities, including FTX’s affiliated trading firm Alameda Research and its subsidiary North Dimension. According to the filing, these companies lacked internal controls to protect customer funds, enabling the transfer of billions of dollars for unauthorized purposes. Plaintiffs assert that Alameda misused customer deposits to finance speculative investments and cover trading losses, a practice they say was made possible through the legal frameworks Fenwick helped to craft.
“The FTX fraud was only possible because Fenwick provided substantial assistance by creating and approving the structures that allowed numerous frauds,” the filing states. It further claims that Fenwick knowingly managed “clearly conflicted companies” in a way that permitted the unchecked commingling of assets between entities.
Prosecutors have described the FTX scandal as one of the largest financial frauds in U.S. history. The case forms part of a multi-district class-action lawsuit that targets a wide range of defendants, from the bankrupt exchange and its executives to celebrities accused of endorsing FTX, as well as firms alleged to have supported its operations.
Fenwick has previously moved to dismiss the claims, arguing that it cannot be held liable for the actions of its clients if its work fell within the bounds of legal representation. The filing also references a similar case brought against another FTX legal adviser, Sullivan & Cromwell, which was dismissed due to insufficient evidence.
The law firm, which was first named in the lawsuit in August 2023, has denied wrongdoing. Bankman-Fried was convicted in November 2023 on multiple fraud and conspiracy charges and is awaiting sentencing.
