Evaluating Legal and Reputational Risk in Crypto Exchanges: Fenwick & West's Legal Stance as a Barometer for FTX's Viability

The collapse of FTX in 2022 remains one of the most scrutinized events in crypto history, with legal and reputational risks now serving as critical metrics for assessing the viability of crypto exchanges. At the heart of this scrutiny is Fenwick & West, a prominent U.S. law firm that has faced allegations of enabling FTX’s $8 billion fraud. While the firm has vehemently denied these claims, its legal stance offers a unique lens through which to evaluate the broader risks facing crypto platforms.

Fenwick & West’s recent opposition to an amended class-action lawsuit highlights the tension between legal accountability and corporate defense in the crypto sector. The plaintiffs argue that the firm designed corporate structures lacking safeguards, enabling the misuse of customer funds and the concealment of fraudulent activities [1]. Fenwick, however, has dismissed these allegations as “speculative” and “flawed,” emphasizing that it provided only routine legal services, such as structuring founder loans, and had no knowledge of FTX’s misconduct [2]. The firm further contends that the lawsuit relies on “stale information” and mirrors dismissed claims against another law firm, Sullivan & Cromwell, which was ultimately exonerated [3].

This legal back-and-forth underscores a critical issue: the role of legal advisors in crypto ecosystems. While Fenwick’s denials may shield it from liability, the mere existence of such lawsuits signals systemic vulnerabilities. For investors, the question is whether a law firm’s involvement in a crypto exchange inherently increases the platform’s risk profile. The plaintiffs’ reliance on testimony from FTX insiders, such as lead engineer Nishad Singh, who claimed Fenwick advised on covering up fund misuse, adds a layer of complexity [4]. Even if Fenwick’s defense succeeds, the reputational damage to FTX—and by extension, the crypto industry—remains profound.

A 2025 credit analysis from martini.ai reveals that Fenwick’s default probability spiked to 0.372 in May 2023 amid litigation but stabilized to 0.198 by August 2025 [2]. This fluctuation reflects the broader market’s sensitivity to legal risks in the crypto sector. For FTX, the implications are starker: its collapse has already eroded trust in crypto exchanges, and any legal entanglements—whether substantiated or not—could further deter institutional investors.

The case also raises questions about regulatory oversight. While Fenwick argues it had no role in FTX’s token promotion, the plaintiffs’ expanded claims suggest a growing appetite to hold legal and financial advisors accountable for their roles in crypto projects [5]. This trend could force law firms to adopt stricter due diligence protocols, potentially increasing operational costs for crypto exchanges.

For investors, the lesson is clear: legal and reputational risks are inseparable from financial viability in the crypto space. Fenwick’s legal battle, though centered on a single firm, serves as a microcosm of the challenges facing the industry. As the line between corporate responsibility and regulatory scrutiny blurs, due diligence must extend beyond financial metrics to include a thorough evaluation of legal partnerships and governance structures.

Source:
[1] Fenwick Law Firm Denies Involvement in FTX Fraud [https://coincentral.com/fenwick-law-firm-denies-involvement-in-ftx-fraud-seeks-lawsuit-dismissal/]
[2] Fenwick & West [https://martini.ai/pages/research/Fenwick%20%26%20West-ff7d471988221c21cba3f9f0bbcf7763]
[3] Fenwick Denies Lawsuit Claiming It Helped FTX Fraud [https://cointelegraph.com/news/fenwick-denies-lawsuit-claming-it-was-key-ftx-fraud?utm_campaign=rss_partner_inbound&utm_medium=rss&utm_source=rss_feed]
[4] FTX Customers Expand Lawsuit Against Fenwick & West Over $8 Billion Collapse [https://www.fxleaders.com/news/2025/08/12/ftx-customers-expand-lawsuit-against-fenwick-west-over-8-billion-collapse/]
[5] Law Firm Fenwick Rejects Claims It Helped Enable FTX Collapse [https://cryptorank.io/news/feed/501c0-law-firm-fenwick-rejects-claims-it-helped-enable-ftx-collapse]