FTX Customers Claim Law Firm Had ‘Key’ Role In Fraud

Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure In a new legal development, FTX customers claim that law firm Fenwick & West was a “key” player in the multi-billion-dollar fraud, alleging that the Silicon Valley firm was intertwined in many aspects of the crypto exchange’s operations.

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On Monday, FTX customers filed a motion to amend their complaint against Silicon Valley law firm Fenwick & West, claiming that it played a central role in the crypto exchange’s fraud before its collapse in 2022.

The filing, which is part of a multi-district litigation (MDL), follows the June 2023 complaint that alleged the law firm exceeded the norm in its services provided to the crypto exchange and that it could be liable for “conspiring in, and aiding and abetting, Bankman-Fried’s purported fraud, negligence, fiduciary breach and conversion of customer funds.”

Notably, the law firm denied the claims in September 2023 with a motion to dismiss the lawsuit, arguing that each of the eight claims should be dismissed with prejudice because Plaintiffs “have failed to plausibly allege any of those claims,” and “are unable to amend their Complaint to state a valid claim for relief.”

Nonetheless, the FTX users consider the amended complaint to be “extremely unique” as the District Court for the Southern District of Florida has the “advantage” of reviewing all the completed related investigations over the past 2 and a half years:

This is the first substantive amendment to the FTX Law Firm Track complaint. In the nearly two years that have transpired since Plaintiffs filed this MDL, much has transpired outside of this litigation that highlights that Plaintiffs’ claims here are meritorious, and they could even be considered “prevailing parties” at this stage. Rather than press forward with the original Complaint filed two years ago, Plaintiffs seek to streamline issues in this MDL: Law Firm Track. This MDL Track will now proceed with just one Defendant, Fenwick & West.

In the proposed amended complaint, the crypto exchange’s customers requested that the Court enter an order granting leave to amend their complaint to address these new facts and deny the Motion to Dismiss as moot.

Fenwick Accused Of Crucial Role In Fraud

The 220-page document explains that out of the 130 different law firms that offered services to the crypto exchange, only Fenwick is named in the MDL because the FTX Independent Examiner concluded that the firm was deeply intertwined in “nearly every aspect” of the crypto company’s fraud and wrongdoing.

Excerpt of the amended complaint agaisnt Fenwick & West. Source: Courtlistener

According to the filing, the firm had “actual knowledge” of the crypto exchange’s fraud and provided “substantial assistance.” Additionally, Fenwick, in violation of federal racketeering laws, allegedly served as an “essential member” of the FTX enterprises and promoted the sale of “unregistered securities,” in violation of the Florida (FSIPA) and California Laws (CSL).

The FTX Fraud was only possible because Fenwick provided “substantial assistance” by creating and approving the structures that allowed numerous frauds, including the theft of hundreds of millions of dollars in “loans” by convicted FTX Insiders from the injured class, and Fenwick agreed to create, managed and represented clearly conflicted companies (such as Alameda Research, FTX, North Dimension, etc.), which purposefully had no safeguards to prevent the billions of dollars that were admittedly stolen.

The Plaintiffs highlighted that the evidence from SBF’s trial shows that FTX insiders needed the law firm’s backing and representation, as well as the ability to use the “great Fenwick name” on all related promotions to gain instant credibility on their targeted customer class and help the crypto exchange “locate and obtain billions of dollars in venture capital investments.” Moreover, the law firm also allegedly helped satisfy all concerns by state and federal tax and securities regulators.

Ultimately, the amended complaint alleges that at best, Fenwick committed professional negligence that directly caused billions of dollars in damages, and at worst was a “key and crucial” player in the crypto exchange’s fraud.

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