FTX Customers Sue Fenwick & West: Legal Fallout from Exchange Collapse Intensifies
Another day, another crypto lawsuit—but this one cuts deep. FTX customers just dragged Silicon Valley's elite law firm Fenwick & West into the wreckage of Sam Bankman-Fried's collapsed empire. Here's why it matters.
The Blood in the Water
Plaintiffs allege Fenwick & West didn't just advise FTX—they allegedly helped architect the legal loopholes that let the exchange operate like a Wild West casino. We're talking about the kind of creative compliance that would make a Wall Street quant blush.
The Irony Is Rich
Funny how the 'innovative legal strategies' touted during the bull market suddenly look like negligence in hindsight. But hey—that's crypto lawyering: you win the fees during the party, then bolt before the hangover hits.
What's Next?
Discovery could unearth smoking guns about who knew what when. Meanwhile, Fenwick joins the growing list of 'reputable' firms learning the hard way that crypto clients pay in exposure as much as billable hours.
Another reminder that in decentralized finance, the lawsuits remain satisfyingly centralized.
FTX customers sue Fenwick & West for alleged involvement with the exchange's criminal activities
Customers are alleging that Silicon Valley law firm Fenwick & West had a direct involvement in the criminal activities of defunct crypto exchange FTX, according to a filing on Monday to a District Court in the Southern District of Florida.
The investors claim that Sam Bankman-Fried's criminal trial and FTX's bankruptcy proceedings have uncovered evidence showing that "Fenwick played a key and crucial role in the most important aspects of why and how the FTX fraud was accomplished."
The filing indicates that Fenwick had "actual knowledge of the FTX fraud, and provided 'substantial assistance'." Investors argued that the firm allegedly created and approved structures that permitted the looting of millions of dollars in customer funds by convicted FTX insiders.
"Fenwick agreed to create, managed and represented clearly conflicted companies (such as Alameda Research, FTX, North Dimension, etc.), which purposefully had no safeguards to prevent the billions of dollars that were admittedly stolen," the filing stated.
It also claims that FTX and founder Sam Bankman-Fried (SBF) used Fenwick's status and reputation to gain credibility and attract investment from venture capital firms.
Fenwick & West served as one of 130 different law firms retained by FTX before its collapse in 2022 and is the only named firm in the amended filing as an accomplice with the exchange and its founder.
After reviewing more than 200,000 documents, an Independent Examiner in the FTX bankruptcy concluded that Fenwick was "deeply intertwined in nearly every aspect of FTX Group's fraud and wrongdoing," according to the filing.
During his trial, SBF claimed he relied on legal advice from Fenwick & West on many business matters, including communication and compliance policies, suggesting that some of his actions were based on legal counsel.
However, Fenwick reportedly denied the claims from SBF and FTX customers, stating that it only provided standard legal services to the FTX Group. It also claims that under the law, it cannot be held responsible for the alleged misconduct.
FTX filed for bankruptcy in November 2022 after allegedly misappropriating customer funds and engaging in high-risk investments through its sister trading firm Alameda Research. Following the bankruptcy proceedings, Sam Bankman-Fried was arrested and later convicted in 2023, resulting in a 25-year prison sentence.
