The FTX collapse has seen an never ending impact on the crypto market, with Silicon Valley law firm Fenwick & West LLP becoming the latest to face a $525 million lawsuit.
According to official reports on Wednesday, the top law firm is facing charges from 20 victims in the U.S. District Court in Columbia, alleging that the firm’s involvement gave the exchange a false air of legitimacy that stopped the victims from withdrawing their money.
The litigation claims that the plaintiffs lost their life savings in the FTX fallout, which could have been prevented had it been that the victims did not get false hopes from the law firm’s involvement.
The claims have been backed by Nishad Singh, the former director of engineering at FTX, who pleaded guilty to the infamous fraud charges. Singh has testified against FTX found Sam Bankman-Fried, stating that he had personally told Fenwick’s lawyers that the misuse of customer funds has been taking place under the table at FTX. Surprisingly, the testimony alleged that instead of walking away, the firm had advised to conceal the matter and hide the facts.
The FTX collapse was the bankruptcy of a major cryptocurrency exchange founded by Sam Bankman-Fried in November 2022. The crash stemmed from a liquidity crisis and allegations of commingling customer funds. The fallout resulted in the loss of between $8 billion and $10 billion of customer funds.
What does the lawsuit entail?
The lawsuit levels even broader accusations against Fenwick & West, alleging that the firm helped conceal user funds illegally. According to the complaint, attorneys at the firm helped establish North Dimension Inc., a Delaware shell company that appeared to operate as an electronics retailer.
However, the shell firm was allegedly used to channel more than $3 billion in customer funds tied to FTX. Plaintiffs claim the structure helped disguise how customer money was being moved behind the scenes.
The complaint further alleges that Fenwick played a role in implementing FTX’s Signal messaging policy, which automatically deleted internal communications after a set period of time.
Federal prosecutors had previously pointed to the same system during the criminal case against FTX, arguing that the disappearing-message setup made it significantly more difficult for regulators, auditors and investigators to uncover the alleged fraud and trace internal discussions.
Lawsuit takes reference from previous report
The lawsuit heavily references findings from a 2024 report prepared by a court-appointed bankruptcy examiner. The report was based on reviewing 200,000 documents tied to the collapse of FTX.
According to the complaint, the examiner found that Fenwick & West played a central role in building the corporate framework behind both FTX and Alameda Research.
The report alleges the firm helped create shell companies that obscured how money was being moved and drafted backdated agreements that were allegedly used to legitimize questionable fund transfers after the fact.
The examiner reportedly concluded that Fenwick was “deeply intertwined” with nearly every aspect of the wrongdoing connected to the FTX group.
The complaint further claims that after FTX filed for bankruptcy in November 2022, Fenwick quietly removed all mentions of the crypto exchange from its website. It also alleges the firm brought in high-profile defense attorneys from Gibson Dunn even before any civil cases had officially been filed against it.
The plaintiffs are now pursuing seven separate legal claims against Fenwick, including fraud, malpractice and gross negligence. They are seeking more than $525 million in damages, repayment of legal fees earned from FTX, and additional punitive damages against partners Tyler Newby and Daniel Friedberg over what the lawsuit describes as reckless professional conduct.
New development comes as court rejects SBF’s retrial
The new development in the FTX case comes just a month after a federal court rejected Bankman-Fried’s request for a new trial.
As The Coin Headlines reported earlier, the court ruled out Bankman-Fried’s claims regarding new evidence. Bankman-Fried said that three other former FTX executives would contradict the evidence presented by the government. However, according to Judge Lewis Kaplan, who had sentenced Bankman-Fried to 25 years in prison in 2024, he personally knew all three of them before the trial.
Bankman-Fried also said that the evidence submitted by Nishad Singh had been manipulated due to the pressure exerted by the prosecution. He added that Ryan Salame and Daniel Chapsky would also challenge the claims made by the government on the financial insolvency of FTX.