Customers of the bankrupt crypto exchange FTX are looking to update their lawsuit against Fenwick & West, one of the law firms once contracted by the company, claiming new information shows it was central to FTXโs collapse.
The criminal trial of former FTX CEO Sam Bankman-Fried and investigations in the exchangeโs bankruptcy proceedings โproduced specific evidence supporting that Fenwick played a key and crucial role in the most important aspects of why and how the FTX fraud was accomplished,โ FTX customers wrote in a court filing to amend their suit on Monday.
โSimply put, the FTX Fraud was only possible because Fenwick provided โsubstantial assistanceโ by creating and approving the structures that allowed numerous frauds,โ the group said.
They accused the law firm of agreeing to create, manage and represent โclearly conflicted companiesโ such as FTXโs sister trading firm Alameda Research and its subsidiary North Dimension, โwhich purposefully had no safeguards to prevent the billions of dollars that were admittedly stolen.โ
FTXโs fraud was once described by prosecutors as one of the biggest in US history.
The filing is part of a massive multi-district class-action lawsuit filed by FTX users after it collapsed in late 2022 that has brought claims against the exchange, celebrities accused of promoting FTX and multiple companies alleged to have worked with the firm, among others.
Fenwick has denied and moved to dismiss allegations in a previous complaint filed in August 2023. Fenwick & West did not immediately return Cointelegraphโs request for comment.
Bankman-Friedโs trial unearths new information, says complaint
The proposed amended complaint claimed that Bankman-Friedโs criminal trial last year had uncovered new information about how Fenwick had assisted FTX.
FTX co-founder Zixiao โGaryโ Wang, former Alameda CEO Caroline Ellison and FTXโs ex-engineering director Nishad Singh pleaded guilty and testified against Bankman-Fried, with a jury finding him guilty on seven charges relating to fraud and money laundering.
โAt SBFโs criminal trial, FTX Insider and co-founder Nishad Singh testified that he informed Fenwick of the misuse of customer funds, improper loans, and false representations, and that Fenwick advised on how to facilitate and hide these very acts,โ the filing said.
The group claimed in a separate filing that it โhas learned many more details on Fenwickโs relationship to FTX, based upon the interviews cooperation of the settled FTX Insiders.โย
Bankruptcy court finds Fenwick โdeeply intertwinedโ with FTX, customers claim
The filing claimed that an independent examiner appointed by the court handling FTXโs bankruptcy proceedings โreviewed over 200,000 internal documents (many related directly to Fenwick) and concluded that Fenwick specifically was deeply intertwined in nearly every aspect of FTX Groupโs wrongdoing.โ
According to the group, the examiner found Fenwick had โexceptionally close relationshipsโ with FTXโs executive team and โfacilitated conflicted intercompany transactions that misused customer assets.โ
They also said the examiner accused Fenwick of creating shell companies โto obscure asset movementsโ and was behind implementing auto-deleting messages sent between FTX executives via the encrypted messaging app Signal.
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The group accused Fenwick of also implementing โother concealment practices that regulators and prosecutors later cited as obstructionโ and claimed the law firm โknew that these actions would mislead investors and regulators.โ
Fenwick hit with two new securities claims
The proposed complaint adds two new state law claims, accusing Fenwick of violating securities laws in Florida and California over the exchangeโs cryptocurrency, FTX Token (FTT).
The group accused the law firm of playing โan active role in designing, promoting, and facilitating the saleโ of FTT, yield-bearing accounts offered by FTX and โinterests in other FTX-controlled instruments,โ which they claimed were unregistered securities.
Fenwick argued in its motion to dismiss the previous complaint filed in September 2023 that it canโt be held accountable for aiding a clientโs wrong as long as its โconduct falls within the scope of the representation of the client.โ
The group had also sued Sullivan & Cromwell, another law firm that FTX had contracted, accusing it of helping the exchange, but they later dropped the complaint due to a lack of evidence for their claims.
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