FTX Users Bolster Lawsuit Claiming Law Firm Was 'Key' to FTX Fraud

FTX customers have added new details to their class complaint against Fenwick & West, one of the law firms that was contracted by the bankrupt crypto exchange, claiming that the firm played a central role in the collapse of the company.

The proposed amended complaint comes as part of a massive multi-district class-action lawsuit filed by FTX users after it collapsed in late 2022. The lawsuit has brought claims against the exchange, celebrities accused of promoting FTX, and multiple companies alleged to have worked with the firm, among others. Fenwick & West had previously denied and moved to dismiss allegations in a previous complaint filed in August 2023.

The new information was uncovered during the trial of former FTX CEO Sam Bankman-Fried, who pleaded guilty and testified against himself on seven charges relating to fraud and money laundering. According to the group's filing, FTX co-founder Zixiao "Gary" Wang, former Alameda CEO Caroline Ellison, and FTX's ex-engineering director Nishad Singh all testified that Fenwick had advised on how to facilitate and hide acts of misuse of customer funds, improper loans, and false representations.

Furthermore, an independent examiner appointed by the court handling FTX's bankruptcy proceedings reviewed over 200,000 internal documents and concluded that Fenwick was "deeply intertwined" with FTX in nearly every aspect of its wrongdoing. The examiner found that Fenwick had "exceptionally close relationships" with FTX's executive team and facilitated conflicted intercompany transactions that misused customer assets.

The group also claimed that Fenwick created shell companies to obscure asset movements, implemented auto-deleting messages sent between FTX executives via the encrypted messaging app Signal, and was behind other concealment practices that regulators and prosecutors later cited as obstruction. They accused the law firm of knowing that these actions would mislead investors and regulators.

The proposed complaint adds two new state law claims, accusing Fenwick of violating securities laws in Florida and California over FTX's cryptocurrency, FTX Token (FTT). The group accused Fenwick of playing an active role in designing, promoting, and facilitating the sale of FTT, which they claimed were unregistered securities.

Fenwick & West did not immediately return Cointelegraph's request for comment on the updated complaint. Bankman-Fried's trial has produced new information that supports Fenwick's central role in the collapse of FTX, and customers are now seeking to update their lawsuit to reflect this new evidence.