FTX Users Cite New Evidence in Lawsuit Against Law Firm Over Fraud Role

Customers of the defunct cryptocurrency exchange FTX are seeking to strengthen their class-action lawsuit against Fenwick & West, a law firm previously engaged by the company, alleging that it played a central role in enabling the fraudulent activities that led to FTX’s collapse. The amended complaint incorporates new evidence from the criminal trial of former FTX CEO Sam Bankman-Fried and the ongoing bankruptcy proceedings, which the plaintiffs claim demonstrate Fenwick’s “key and crucial role” in the fraud [1].

According to the filing, former FTX executives, including Zixiao “Gary” Wang, Caroline Ellison, and Nishad Singh—each of whom has pleaded guilty and testified against Bankman-Fried—revealed that Fenwick provided legal advice on how to facilitate and conceal the misuse of customer funds. Nishad Singh specifically testified that he had informed the firm about improper loans and misrepresentations, and that Fenwick advised on methods to obscure these activities [1].

The plaintiffs also cite a report from an independent examiner appointed to oversee FTX’s bankruptcy proceedings, which reviewed over 200,000 internal documents and concluded that Fenwick was “deeply intertwined” in nearly every aspect of FTX Group’s misconduct. The firm was accused of maintaining “exceptionally close relationships” with FTX executives and of enabling conflicted intercompany transactions that misused customer assets. The examiner also noted that Fenwick was behind the creation of shell companies to hide asset transfers and the implementation of auto-deleting messages via Signal, a tactic later cited by regulators as obstruction [1].

In addition to the fraud allegations, the lawsuit now includes two new state law claims, accusing Fenwick of violating securities laws in Florida and California by playing an active role in the design, promotion, and sale of FTX Token (FTT) and other unregistered securities. The plaintiffs argue that the law firm’s conduct misled investors and regulatory authorities, and that it was aware of the consequences of its actions [1].

Fenwick has previously denied the allegations and moved to dismiss the original lawsuit, arguing that it cannot be held responsible for its client’s misconduct as long as its conduct remained within the scope of legal representation. The firm did not respond to a recent request for comment [1].

The lawsuit is part of a broader multi-district class-action effort that includes claims against FTX, its celebrity endorsers, and other companies involved in the firm’s operations. The plaintiffs had previously sued another law firm, Sullivan & Cromwell, but dropped the case due to insufficient evidence [1].

Source: [1] FTX users bolster lawsuit claiming law firm was 'key' to FTX fraud (https://cointelegraph.com/news/ftx-users-bolster-lawsuit-claiming-law-firm-was-key-to-ftx-fraud)