Crypto Legal Liability and Corporate Governance Risks: The Accountability of Law Firms in Enabling Fraud

The cryptocurrency sector has long been a Wild West of innovation and risk, but 2025 marks a turning point in how legal professionals and corporate advisors are being held accountable for enabling fraud. As regulators sharpen their focus on accountability, law firms and financial advisors are facing unprecedented scrutiny for their roles in crypto-related misconduct. From high-profile lawsuits against FTX’s legal counsel to FBI warnings about fictitious recovery firms, the legal landscape is shifting toward a model where corporate governance failures carry tangible consequences.

The DOJ’s Enforcement Strategy: From Regulation to Accountability

The U.S. Department of Justice (DOJ) has recalibrated its approach to crypto enforcement, moving away from using prosecutions to define regulatory boundaries and instead prioritizing cases involving direct fraud and criminal misuse of digital assets [2]. This shift is evident in the DOJ’s recent actions against market manipulators, such as the 17 individuals charged in Massachusetts for using bots to inflate trading volumes [2]. Similarly, the conviction of Tornado Cash and Samourai Wallet developers for violating anti-money laundering (AML) laws underscores the DOJ’s focus on criminal liability over regulatory ambiguity [2].

However, the DOJ’s policy shift does not absolve law firms of responsibility. Fenwick & West, the law firm previously associated with FTX, is now defending itself in a lawsuit alleging it enabled the exchange’s $8 billion fraud by failing to establish adequate corporate safeguards [3]. The plaintiffs argue that the firm’s legal services helped conceal fraudulent activities, while Fenwick insists it provided “routine and lawful legal services” without knowledge of misconduct [3]. This case highlights a critical question: Can law firms be held liable for corporate governance failures in the absence of explicit regulatory frameworks?

The SEC’s Balancing Act: Clarity Over Enforcement

While the DOJ has doubled down on criminal accountability, the Securities and Exchange Commission (SEC) has adopted a more measured approach. In 2025, the SEC dismissed several high-profile cases, including those against Ripple, Coinbase, and Kraken, to focus on providing clearer guidance rather than retroactive enforcement [4]. This strategy has drawn criticism from some observers, who argue that it weakens investor protection. Yet, the SEC’s new guidance on custodied assets and mining activities suggests a long-term effort to create a stable regulatory environment [4].

This divergence in enforcement priorities has created a gray area for legal advisors. While the SEC avoids using enforcement actions to define regulatory boundaries, the DOJ’s aggressive stance on fraud means that law firms must navigate a dual risk: regulatory ambiguity from the SEC and criminal liability from the DOJ.

Fictitious Law Firms: A New Frontier of Scamming

Beyond institutional players, the FBI has sounded alarms about a growing threat: fictitious law firms preying on cryptocurrency scam victims. These entities impersonate legitimate offices and government agencies like the non-existent “International Financial Trading Commission” (INTFTC) to extract payments in cryptocurrency or gift cards [1]. Between February 2023 and February 2024, these scams reportedly defrauded victims of over $9.9 million [6].

The FBI’s advisories emphasize due diligence measures, such as verifying credentials through video calls and notarized identity checks [1]. For investors, this underscores a broader lesson: even in the aftermath of fraud, trust in legal professionals must be earned through transparency and accountability.

Legal Challenges in Digital Asset Fraud

The legal system’s adaptation to crypto fraud is not without friction. In United States v. Chastain, the Second Circuit Court of Appeals vacated a conviction for NFT insider trading, ruling that the information misused lacked “commercial value” under wire fraud statutes [3]. This decision complicates prosecutors’ ability to apply traditional fraud laws to digital assets, creating uncertainty for both law firms and their clients.

Meanwhile, civil forfeiture actions have become a key tool in recovering illicit crypto assets. The DOJ’s seizure of $225.3 million in funds tied to a money laundering network and the $325,000 linked to the “Triangular” investment platform fraud demonstrate the effectiveness of blockchain analysis in tracing illicit flows [1].

Implications for Investors and Legal Advisors

For investors, the evolving legal landscape demands vigilance. The proliferation of fictitious law firms and the DOJ’s focus on criminal liability mean that due diligence is no longer optional. Investors must verify the legitimacy of legal advisors and understand the governance structures of crypto projects they support.

For law firms, the message is clear: corporate governance in the crypto space cannot be an afterthought. The Fenwick & West case and the DOJ’s enforcement priorities signal that legal advisors will face liability for enabling fraud, even in the absence of explicit regulatory rules. As one legal expert notes, “The days of hiding behind regulatory ambiguity are over. If you’re advising crypto clients, you’re now on the hook for their compliance” [3].

Conclusion

The 2025 crypto enforcement landscape reflects a maturing regulatory environment where accountability is no longer theoretical. Law firms and advisors are being held to higher standards, with the DOJ and FBI prioritizing cases that directly harm investors. While the SEC’s focus on clarity provides some stability, the risk of criminal liability remains acute. For investors, the takeaway is straightforward: in a sector where innovation often outpaces regulation, legal accountability is the last line of defense.

Source:
[1] Fictitious Law Firms Targeting Cryptocurrency Scam Victims Offering to Recover Funds [https://www.ic3.gov/PSA/2025/PSA250813]
[2] Digital Assets Recent Updates - July 2025 [https://www.gibsondunn.com/digital-assets-recent-updates-july-2025/]
[3] Evaluating Legal and Reputational Risk in Crypto Exchanges [https://www.ainvest.com/news/evaluating-legal-reputational-risk-crypto-exchanges-fenwick-west-legal-stance-barometer-ftx-viability-2508/]
[4] Securities Enforcement 2025 Mid-Year Update [https://www.gibsondunn.com/securities-enforcement-2025-mid-year-update/]