FTX bankruptcy liability debate, spreading to law firm Fenwick… filing a lawsuit for 5.25 trillion won

The responsibility debate surrounding the FTX collapse has expanded once again. After the bankruptcy investigation results from Fenwick & West, a Silicon Valley law firm in the United States, were released—accusing the firm of being “deeply involved in nearly all illegal activities” of the FTX group—victims have filed a federal lawsuit totaling $525 million.

The civil lawsuit was filed on the 24th (local time) in the U.S. District Court in Washington, D.C. The plaintiffs are 20 victims from five countries who lost deposits and investments due to FTX’s collapse. They claim that Fenwick & West dressed up FTX with a “legitimacy” veneer, preventing them from withdrawing funds in a timely manner. Six individuals are listed as personal defendants.

The core of this lawsuit is based on the conclusions of the investigator appointed by the bankruptcy court. After reviewing more than 200k relevant documents, the investigator determined that Fenwick & West designed the corporate structure of FTX and its affiliated company Alameda Research, established shell companies used to hide fund flows, and even prepared post-factum contracts to conceal illegal transfers.

Particularly controversial is the establishment of North Dimension Inc. The complaint states that this Delaware company, although disguised as an electronics distributor, was actually used as a channel to transfer over $3 billion of customer funds. Additionally, the complaint includes allegations that Fenwick & West’s lawyers participated in formulating the “auto-delete” policy for the Signal messaging app. Prosecutors believe this practice increased the difficulty of uncovering fraud.

Internal whistleblower testimonies also add variables

In this case, Nishad Singh, the former head of engineering at FTX, has come to light. He admitted to fraud charges and testified at Sam Bankman-Fried’s trial. The complaint states that Singh directly informed Fenwick & West’s lawyers that client funds had been misappropriated, yet the law firm continued to provide advice on concealment methods.

After FTX filed for bankruptcy, Fenwick & West quietly removed FTX-related content from its official website, which is also pointed out as problematic in the lawsuit. It is reported that Fenwick & West had already hired lawyers from Gibson Dunn before another civil suit was filed to defend itself.

The plaintiffs have raised seven claims including negligence, fraud, and gross negligence, demanding over $525 million in damages, and requesting Fenwick & West to return all legal fees collected from FTX. They also made punitive damages claims against specific partners Tyler Newby and Daniel Friedberg.

On the other hand, Bankman-Fried faces mounting difficulties after his criminal trial. Federal Judge Lewis Kaplan rejected his motion for a new trial last month, calling his new evidence claims “ridiculous conspiracy theories” that are inconsistent with the record. Judge Kaplan sentenced him to 25 years in prison in 2024. His recent comments suggest that the responsibility for the FTX incident may extend from management to legal advisors.

Article summary by TokenPost.ai 🔎 Market interpretation: The scope of responsibility for FTX’s bankruptcy is expanding from founders to legal advisors. Well-known law firms have played a “credit guarantee” role, significantly influencing investor decisions. The future of the virtual asset industry may see stricter standards for legal and accounting advisors’ responsibilities. 💡 Strategic points: It is necessary to reassess the practice of judging investments solely based on the participation of large institutions (law firms, accounting firms). Confirming corporate structure and fund flow transparency is a core risk management element. Under stricter regulatory environments, the expansion of “assistance provider liability” could impact the entire market. 📘 Terminology explanations: Shell company: a company established to transfer funds with no actual business operations. Auto-delete messaging software: a feature that automatically deletes chat records over time. Punitive damages: additional compensation aimed at punishing illegal conduct.

💡 Frequently Asked Questions (FAQ)

Q. What is the core dispute in this lawsuit? The core issue is whether Fenwick & West law firm went beyond simple legal consulting and actively participated in FTX’s illegal activities. The plaintiffs question their involvement in designing corporate structures, hiding funds, drafting post-factum contracts, and other assisting behaviors, claiming these contributed to the expansion of investor losses. Q. Why is the law firm’s responsibility important? Large law firms are often seen as symbols of trust in the market. Investors tend to judge projects as safe solely based on their participation. If the firm’s responsibility is confirmed, legal and accounting advisory agencies may need to undertake stricter scrutiny of their clients’ potential illegal activities in the future. Q. What lessons can investors learn? Relying solely on the participation of well-known institutions to judge safety may be risky. Verifying corporate fund flows, governance structures, and transparency directly is crucial, especially for high-yield structures where risk checks are essential.

TP AI Notice: This article is summarized based on the TokenPost.ai language model. The main content may have omissions or inaccuracies.