Customers of the bankrupt crypto exchange FTX are seeking to update their lawsuit against Fenwick & West, a law firm previously hired by the company, claiming new evidence shows the firm played a central role in FTX’s downfall.
In a court filing submitted Monday, FTX customers stated that the criminal trial of former CEO Sam Bankman-Fried, along with investigations during the exchange’s bankruptcy, “revealed specific evidence that Fenwick was key and crucial in enabling the core elements of the FTX fraud.”
The group argued, “The FTX fraud was only possible because Fenwick provided ‘substantial assistance’ by designing and approving the structures that facilitated multiple fraudulent activities.”
They accused Fenwick & West of knowingly creating, managing, and representing “clearly conflicted companies” such as Alameda Research—FTX’s sister trading firm—and its subsidiary North Dimension, entities that intentionally lacked safeguards to prevent billions of dollars from being stolen.
Prosecutors have called the FTX fraud one of the largest in U.S. history.
This filing is part of a broad multi-district class-action lawsuit filed by FTX users following the exchange’s collapse in late 2022. The lawsuit includes claims against the exchange itself, celebrities accused of promoting FTX, and several companies alleged to have collaborated with the firm.
Fenwick has denied and moved to dismiss allegations in a previous complaint filed in August 2023. Fenwick & West did not immediately return Cointelegraph’s request for comment.
Complaint reveals new information uncovered during Bankman-Fried’s trial
The proposed amended complaint alleges that Bankman-Fried’s criminal trial last year revealed new details about Fenwick’s involvement with FTX.
FTX co-founder Zixiao “Gary” Wang, former Alameda CEO Caroline Ellison, and FTX’s former engineering director Nishad Singh all pleaded guilty and testified against Bankman-Fried, who was subsequently found guilty by a jury on seven charges related to fraud and money laundering.
The filing states, “At SBF’s criminal trial, FTX insider and co-founder Nishad Singh testified that he informed Fenwick about the misuse of customer funds, improper loans, and false representations, and that Fenwick advised on how to facilitate and conceal these actions.”
In a separate filing, the group claimed it “has uncovered many additional details regarding Fenwick’s relationship with FTX, based on interviews and cooperation from the settled FTX insiders.”
Customers claim bankruptcy court finds Fenwick “deeply involved” with FTX
The filing stated that an independent examiner appointed by the court overseeing FTX’s bankruptcy reviewed over 200,000 internal documents—many directly involving Fenwick—and concluded that the law firm was deeply intertwined in nearly every aspect of the FTX Group’s misconduct.
The examiner reportedly found that Fenwick maintained “exceptionally close relationships” with FTX’s executive team and facilitated conflicted intercompany transactions that misappropriated customer funds.
Additionally, the examiner accused Fenwick of creating shell companies to conceal asset movements and orchestrating the use of auto-deleting messages exchanged between FTX executives through the encrypted messaging app Signal.
The group further alleged that Fenwick implemented other concealment tactics later cited by regulators and prosecutors as obstructive, and that the law firm was aware these actions would mislead investors and regulators.
Fenwick faces two new securities allegations
The proposed complaint introduces two new state law claims, accusing Fenwick of violating securities laws in Florida and California related to FTX’s cryptocurrency, FTX Token (FTT).
The plaintiffs allege that Fenwick played “an active role in designing, promoting, and facilitating the sale” of FTT, yield-bearing accounts offered by FTX, and “interests in other FTX-controlled instruments,” which they claim were unregistered securities.
Fenwick responded in a motion to dismiss the previous complaint filed in September 2023, arguing that it cannot be held liable for assisting a client’s wrongdoing as long as its actions fall within the scope of its representation of the client.
The group had also sued Sullivan & Cromwell, another law firm hired by FTX, accusing it of aiding the exchange, but later dropped that complaint due to insufficient evidence.
