FTX Customers Sue Law Firm Fenwick for Aiding Fraud

A Group of FTX customers has sued Silicon Valley Law firm Fenwick and West LLP for aiding the doomed crypto exchange in their fraudulent operations. It is the second time that the law firm has been sued for its connection with FTX.

In a class action complaint filed in the Northern District of California on Monday, August 7, FTX customers alleged that Fenwick provided services to the “FTX Group entities that went well beyond those a law firm should and usually does provide.” The law firm crafted not only creative but illegal strategies to aid FTX in corrupt business practices.

The complaint reads:

“Fenwick helped set up the shadowy entities through which Bankman-Fried and the FTX Insiders operated a fraud, structured acquisitions by the FTX US in ways to circumvent regulatory scrutiny, advised on FTX US’s regulatory dodge, more generally, and supplied personnel necessary to execute on the strategies that they proposed.”

Daniel Friedberg: The Key Man from Fenwick

Per the complaint, from FTX’s inception in 2017 to its implosion in 2022, Fenwick’s high-level associates served as legal counsel on a myriad of matters for FTX US and FTX international. Among them, attorney Daniel Friedberg was the key man from Fenwick and West LLP, who worked hand in hand with FTX. In June 2023, he was also sued by FTX’s bankruptcy management for paying hush money to whistleblowers.

Friedberg worked closely with FTX until 2019. In January 2020, he joined FTX US as chief Compliance Officer and  General Counsel of Alameda Research. He wore many hats at FTX Group. Due to this, there is no denying that Fenwick was aware of FTX’s shadowy business operations, convoluted organizational structure, abject lack of internal controls, and the misappropriation of customers’ funds.

According to the complaint, Fanwick and Friedberg helped FTX establish North Dimension and its sister company North Wireless Dimension to act as “the fake electronics retailer that Bankman-Fried employed as a front to conceal his wiring of Class Member funds into accounts held by Alameda.”

Daniel Friedberg: The Key Man from Fenwick

Furthermore, Fenwick advised on transactions that allowed FTX to attain certain regulatory licenses through acquisitions without applying directly to US regulators. The sole purpose of these acquisitions was to develop an air of legitimacy around FTX and conceal “the fraud that pervaded through their organization.” One such acquisition was CFTC-regulated derivatives exchange LedgerX.

Plaintiffs also accused “Fenwick helped FTX US to develop compliance procedures designed to skirt FTX’s regulatory obligations.” In return for these services, the law firm enjoyed hefty fees and bolstered its reputation “on the cutting edge of cryptocurrency issues.”

In May 2023, SBF said that he acted upon the advice of Fenwick in taking many of the actions for which he is now facing fraud charges. He requested the court to force prosecutors or subpoena Fenwick to hand over documents given to the government by the firm in a bid to mount a strong defence. However, his request was rejected by the judge, who said that a subpoena would be no more than an overbroad “fishing expedition.”