Crypto Updates

FTX’s former external legal team disputes involvement in fraud allegations

FTX's former external legal team disputes involvement in fraud allegations

A law firm that previously provided services to the now-defunct cryptocurrency exchange FTX has refuted a class-action lawsuit brought against them claiming that it assisted in the exchange’s alleged fraud.

According to a Sept. 21 court filing, Fenwick & West, a United States law firm, denies all accusations of misconduct related to the provision of legal services during FTX operations:

“It is black-letter law that an attorney cannot be held liable for conspiracy or aiding and abetting a client’s wrong “‘as long as [his] conduct falls within the scope of the representation of the client.’”

The plaintiffs contend that while Fenwick provided regular legal services within the bounds of the law, Sam Bankman-Fried allegedly misused the advice to advance his fraudulent activities.

They further argued that Fenwick exceeded the norm in its service offerings to FTX.

“Plaintiffs allege that Fenwick can nevertheless be held liable because Fenwick purportedly “provided services to the FTX Group entities that went well beyond those a law firm should and usually does provide,” the filing noted.

Related: Crypto’s Lehman moment: Investors buy $250M of FTX claims — Report

Reportedly, employees of Fenwick eventually chose to depart from the firm and join FTX voluntarily.

The plaintiffs also outlined that Fenwick assisted in establishing corporations used by Bankman-Fried in his fraud, and advised FTX on regulatory compliance in the evolving crypto trading landscape.

However, Fenwick argued that it should not bear liability, as it was not the sole law firm representing FTX. It asserts that it played a relatively minor role in providing various aspects of legal advice to the bankrupt exchange.

“If Plaintiffs’ allegations were sufficient to state a claim against Fenwick for conspiracy and aiding and-abetting liability, then any lawyer could be hauled into court and forced to answer for his client’s misconduct. That is not the law.”

This comes after the FTX debtors filed a lawsuit against former employees of the Hong Kong-incorporated company Salameda, which was previously affiliated with the FTX group.

FTX has initiated legal action to reclaim $157.3 million, alleging that the funds were illicitly withdrawn shortly before the exchange’s bankruptcy filing.

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