FTX Users Strengthen Lawsuit, Alleging Law Firm Was ‘Key’ to Massive Fraud
FTX users have strengthened their lawsuit against Fenwick & West, alleging the law firm enabled structures that made the multi-billion-dollar FTX fraud possible.
Customers of the bankrupt crypto exchange FTX are moving to strengthen their ongoing lawsuit against Fenwick & West LLP, a Silicon Valley-based law firm that previously served as legal counsel to FTX. The plaintiffs argue that newly uncovered evidence reveals the firm was a central enabler of what prosecutors have described as one of the largest frauds in U.S. history.
New Evidence From Trials and Bankruptcy Proceedings
The fresh allegations come in light of revelations from two major developments:
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The criminal trial of Sam Bankman-Fried, FTX’s founder and former CEO,
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Ongoing investigations connected to FTX’s complex bankruptcy process.
Allegations of Substantial Assistance
According to the court filing, the FTX fraud “was only possible because Fenwick provided ‘substantial assistance’” by designing and approving corporate frameworks that allowed multiple fraudulent activities to occur without adequate oversight.
The plaintiffs claim Fenwick agreed to create, manage, and represent “clearly conflicted companies” — including FTX’s sister trading firm, Alameda Research, and its subsidiary, North Dimension. These entities allegedly had no safeguards in place to protect customer funds, making them vulnerable to the unauthorized transfers that became central to the collapse.
Role of Alameda Research and North Dimension
Plaintiffs accuse Alameda Research, which was deeply intertwined with FTX’s operations, of using customer deposits to fund risky bets and investments. They allege that Fenwick’s legal structuring allowed Alameda to maintain a system where commingling of funds went unchecked.
They also claim that FTX used North Dimension, another entity tied to the exchange, to handle payments in ways that concealed the true movement of funds. According to the filing, Fenwick approved these arrangements, further enabling the misappropriation.
Part of a Larger Multi-District Lawsuit
The case against Fenwick is just one thread in a sprawling multi-district class-action lawsuit filed by FTX users in the wake of the exchange’s collapse in November 2022.
The broader suit targets not only FTX executives but also:
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Celebrities accused of promoting the exchange without disclosing financial incentives,
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Partner companies alleged to have enabled or profited from FTX’s operations,
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Other professional firms said to have assisted in the company’s misleading practices.
While lawsuits against law firms in connection with client fraud are rare, the plaintiffs insist Fenwick’s deep involvement in structuring and overseeing operations crossed the line from standard legal services into active facilitation.
One of the Biggest U.S. Financial Frauds
FTX’s downfall sent shockwaves across the global cryptocurrency industry. At its peak, investors valued the exchange at over $32 billion and regarded it as one of the most trusted platforms for both retail and institutional traders.
When it imploded, prosecutors alleged that executives misused billions in customer deposits to fund high-risk trades, political donations, luxury real estate purchases, and more.
The U.S. government has called it one of the largest and most brazen financial frauds in the nation’s history.
What’s Next in the Case
If the amendment is accepted by the court, Fenwick will face heightened legal scrutiny, potentially opening the door to significant liability. The law firm has not yet issued a public statement regarding the latest filing.
Legal analysts note that to succeed, the plaintiffs must prove not just negligence but active participation or willful blindness to fraudulent conduct. Such claims can be challenging to prove, but the plaintiffs believe the new evidence provides exactly that — a paper trail of legal work designed to shield wrongdoing.
