FTX Customers Sue Fenwick Over Role in Fraud and Securities Violations

FTX customers are seeking to amend their lawsuit against the law firm Fenwick & West, alleging new evidence from the trial of FTX co-founder Sam Bankman-Fried has revealed the firm’s active role in the cryptocurrency exchange’s fraudulent activities. The plaintiffs argue that the law firm assisted in structuring operations that misused customer funds and concealed improper transactions. The updated filing now includes claims of securities violations in Florida and California, expanding the legal scrutiny against Fenwick [1].

According to the updated lawsuit, FTX insiders who pled guilty and cooperated with the prosecution, including Zixiao “Gary” Wang, Caroline Ellison, and Nishad Singh, provided testimonies that Fenwick was aware of the misuse of customer assets and provided legal advice on how to obscure these activities. The plaintiffs cited that Nishad Singh, a former engineering director at FTX, informed Fenwick of the fraudulent practices and that the firm advised on ways to facilitate and hide them [2].

An independent examiner appointed in the FTX bankruptcy proceedings reviewed over 200,000 internal documents, many of which were directly related to Fenwick. The examiner concluded that the law firm was “deeply intertwined” in nearly every aspect of FTX Group’s wrongdoing. The report found that Fenwick had “exceptionally close relationships” with FTX executives, facilitated conflicted intercompany transactions, and helped implement practices such as using shell companies and encrypted messaging apps to obscure asset movements [3].

The updated lawsuit also accuses Fenwick of playing an active role in designing and promoting the sale of FTX Token (FTT) and other unregistered securities. The plaintiffs claim that the firm’s actions misled investors and regulators and were part of broader efforts to obstruct investigations. This marks a significant escalation in the legal battle, with the plaintiffs now seeking to hold the firm accountable under state securities laws [4].

Fenwick has denied the allegations and has filed motions to dismiss the claims, arguing that the firm’s actions were within the scope of its legal representation of FTX. The law firm previously defended itself in a 2023 motion by stating that it cannot be held liable for aiding a client’s wrongdoing as long as its conduct was within the bounds of client representation. The plaintiffs, however, are now leveraging new evidence from the criminal trial to challenge this defense [5].

The lawsuit has also previously targeted another law firm, Sullivan & Cromwell, which was accused of helping FTX. However, the plaintiffs later dropped the complaint due to insufficient evidence. The renewed focus on Fenwick reflects the ongoing legal complexity of the FTX case and the broader implications for law firms and financial advisors involved in high-profile crypto collapses [6].

As the legal proceedings continue, the case remains a focal point for investors and regulators seeking to understand the full extent of the fraud and accountability for those involved. The developments underscore the growing legal and regulatory scrutiny of the cryptocurrency industry and the roles played by various actors in its operations [7].

Source:

[1] FTX Customers Seek to Update Lawsuit Against Fenwick & West Following New Evidence from Bankman-Fried’s Trial (https://en.coinotag.com/ftx-customers-seek-to-update-lawsuit-against-fenwick-west-following-new-evidence-from-bankman-frieds-trial/)