Prestige Meets the Pitfall
Key Highlights
• Investors allege Fenwick & West knowingly helped design structures enabling FTX’s multibillion-dollar fraud.
• Testimony claims the firm advised on how to hide misuse of customer funds, lending FTX credibility with investors.
Yello Paradisers! FTX’s collapse is still producing legal aftershocks, and this time the tremors have reached a Silicon Valley law firm.
Investors have filed a lawsuit against Fenwick & West, accusing it of being “deeply intertwined” in the exchange’s demise, not as a clueless bystander, but as an alleged architect of the structures that enabled billions in customer funds to be siphoned away.
Out of more than 130 firms tied to FTX through multidistrict litigation, Fenwick & West stands alone in facing claims of actual knowledge and active assistance in the fraud. The accusations aren’t subtle: plaintiffs say the firm designed shell companies, such as North Dimension, that disguised customer deposits and withdrawals, allowing FTX to dodge regulatory oversight.
From Legal Advice to Alleged Conspiracy
According to testimony from former insiders, Fenwick’s role went far beyond paperwork. Nishad Singh, FTX’s ex–engineering director, claims he told the firm about the misuse of funds and sham loans, only to receive advice on how to “facilitate and hide” the activity. Caroline Ellison, the former Alameda Research CEO, reinforced the picture, admitting that FTX used customer money to bail out Alameda.
The Independent Examiner’s review of over 200,000 documents painted Fenwick as having “exceptionally close relationships” with key insiders, facilitating transactions that misused customer assets. Investors argue that the firm’s prestige lent FTX a veneer of credibility that helped it raise $1.3 billion while allegedly knowing insolvency was inevitable.
The Legal Tightrope
Legal experts caution that proving a law firm’s liability under RICO isn’t easy. It’s one thing to show broad client engagement; it’s another to prove the firm knowingly abetted fraud. Still, the allegations here are unusually detailed, right down to claims that a partner drafted FTX’s encrypted communications policy and helped connect the exchange to high-profile investors.
Why This Matters to Traders
If this lawsuit sticks, it could set a precedent that sends chills through corporate law firms, especially those advising high-risk startups in crypto and beyond. The ripple effect on investor confidence, venture capital flows, and exchange governance could be significant.
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When your lawyer stops protecting you from fraud and starts protecting the fraud itself, the collapse isn’t an accident, it’s an inside job with letterhead.
