FTX faces legal battle as law firm disputes allegations

TL;DR Breakdown

  • Fenwick & West has firmly rejected allegations of assisting FTX in alleged fraudulent activities.
  • Fenwick’s liability arises from providing services to FTX Group entities that allegedly went well beyond the typical legal counsel scope.
  • The law firm asserts that it played a relatively minor role in providing various aspects of legal advice to the now-bankrupt exchange.

Description

In a recent legal development, United States-based law firm Fenwick & West has firmly rejected allegations of assisting the now-defunct cryptocurrency exchange FTX in alleged fraudulent activities. The class-action lawsuit, brought against the law firm, alleges that Fenwick provided extensive services to FTX that exceeded the norm for legal representation. Fenwick & West’s legal stand … Read more

In a recent legal development, United States-based law firm Fenwick & West has firmly rejected allegations of assisting the now-defunct cryptocurrency exchange FTX in alleged fraudulent activities. The class-action lawsuit, brought against the law firm, alleges that Fenwick provided extensive services to FTX that exceeded the norm for legal representation.

Fenwick & West’s legal stand

In a court filing, Fenwick & West unequivocally denied all accusations of misconduct related to the legal services it provided during FTX’s operations. The law firm contends that it cannot be held liable for conspiracy or aiding and abetting a client’s wrong as long as its conduct remains within the scope of the client’s representation. This principle forms the foundation of their defense against the class-action lawsuit.

The plaintiffs in the lawsuit maintain that while Fenwick provided regular legal services within the boundaries of the law, FTX’s founder, Sam Bankman-Fried, allegedly misused the legal advice to advance fraudulent activities. Furthermore, they argue that Fenwick exceeded the customary service offerings expected from a law firm in its engagement with FTX. 

The plaintiffs suggest that Fenwick’s liability arises from providing services to FTX Group entities that allegedly went well beyond the typical legal counsel scope. They also claim that former employees of Fenwick voluntarily departed from the firm to join FTX, insinuating a deeper connection between the law firm and the cryptocurrency exchange.

Additionally, the plaintiffs assert that Fenwick assisted in establishing corporations that were subsequently used by Bankman-Fried in his alleged fraudulent activities and provided advice to FTX on regulatory compliance in the evolving cryptocurrency landscape.

Fenwick, however, staunchly maintains that it should not bear liability in this case, primarily because it was not the sole legal representation for the troubled crypto exchange. The law firm asserts that it played a relatively minor role in providing various aspects of legal advice to the now-bankrupt exchange. They argue that if the plaintiffs’ allegations were sufficient to establish a claim against Fenwick for conspiracy and aiding and abetting liability, it could set a precedent where lawyers could be held accountable for their client’s misconduct, which is not in accordance with existing legal principles.

FTX debtors’ lawsuit against former employees of Salameda

This legal battle follows another lawsuit initiated by FTX debtors against former employees of Salameda, a Hong Kong-incorporated company previously affiliated with the troubled crypto exchange group. In this separate lawsuit, the troubled crypto exchange seeks to recover $157.3 million, alleging that these funds were illicitly withdrawn shortly before the exchange filed for bankruptcy.

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