Crypto Journalist
Anas Hassan
Crypto Journalist
Anas Hassan
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FTX creditors have filed an updated class action lawsuit against Silicon Valley law firm Fenwick & West, alleging the firm was a “key” participant in the $8 billion fraud that led to the crypto exchange’s collapse.
The complaint accuses Fenwick of having actual knowledge of the fraud while providing substantial assistance in its perpetration, including creating corporate structures that enabled billions in customer fund misappropriation and drafting backdated agreements to mislead regulators.
Legal Firms Face Mounting Scrutiny Over FTX Collapse Role
The lawsuit follows similar legal action against law firm Sullivan & Cromwell last year, which was accused of billing $8.5 million in fees while serving as primary counsel during the 16 months preceding FTX’s collapse.
Both firms face allegations of enabling Sam Bankman-Fried’s fraud scheme that commingled customer assets with Alameda Research’s trading operations.
The filing comes as FTX continues its distribution process, having returned $6.2 billion to creditors across two major payment rounds since February 2025.
However, the exchange now seeks to dispute claims from 49 restricted jurisdictions worth $800 million, with Chinese users accounting for 82% of the disputed value despite representing only 5% of allowed claims.
Fenwick Accused of Engineering Fraudulent Corporate Architecture
The complaint alleges Fenwick created “all of the corporate structures, company controls, and agreements for both Alameda and FTX” that the FTX Independent Examiner later deemed “complete failures of corporate control.“
The firm allegedly formed shell entities like North Dimension Inc. to funnel and conceal customer funds while drafting backdated agreements to justify illicit transfers retroactively.
Fenwick’s tax team allegedly drafted intercompany loan agreements and bonus payments enabling billions in transfers of misappropriated funds without oversight.
The firm allowed issuance of “founder loans” secured by customer funds while concurrently representing multiple conflicted entities, including SBF, Nishad Singh, Gary Wang, FTX, FTX US, North Dimension, and Alameda.
Partner Tyler Newby allegedly authored FTX’s encrypted communications policy, which explicitly allowed Signal’s disappearing messages, a feature prosecutors said helped enable the fraud.
Fenwick also advised FTX on avoiding money transmitter registrations by routing funds through shell entities.
The FTX Independent Examiner reviewed over 200,000 internal documents and found Fenwick had “exceptionally close relationships” with FTX insiders while facilitating conflicted transactions.
Nishad Singh testified that he informed Fenwick of customer fund misuse and that the firm advised on facilitating and hiding these acts.
Fenwick allegedly promoted FTX’s reputation to gain credibility with customers and secure billions in venture capital investments.
Most surprisingly, the firm’s deletion of all FTX-related references from its website after the collapse allegedly is the most significant pointer to its awareness of its promotional role and exposure.
Recovery Process Faces Geographic and Legal Complications
FTX has distributed funds through two major rounds since beginning payouts in February 2025.
The first distribution totaled $1.2 billion for convenience class creditors with claims under $50,000, while the second reached $5 billion for larger claimants.
Dotcom Customer Entitlement Claims received 72% distributions, while US Customer Entitlement Claims received 54% payouts.
General Unsecured Claims and Digital Asset Loan Claims both received 61% distributions, with convenience claims receiving a full 120% reimbursement, including 9% annual interest.
The exchange announced its next distribution round will begin September 30, covering Class 5 Customer Entitlement Claims, Class 6 General Unsecured Claims, and newly approved Convenience Claims. The record date for eligible claimants is August 15.
Notably, as FTX continues the “fast-tracked” payout, Chinese creditor Weiwei Ji, representing over 300 users with $15 million in claims, opposes FTX’s proposal to restrict payouts in 49 jurisdictions.
Ji argues Chinese users should not be penalized due to regulatory assumptions, especially with legal pathways through Hong Kong.
Presumably as a result of this conflict, Backpack Exchange launched a non-profit claims marketplace enabling creditors to sell bankruptcy claims to third-party buyers rather than waiting for official distributions.
The platform offers complete processing without fees, addressing growing secondary market demand for immediate liquidity.
The arrested founder, Sam Bankman-Fried, remains imprisoned until December 2044 after receiving a 25-year sentence for fraud charges.
He was recently transferred to Federal Correctional Institution Terminal Island in Los Angeles, while accomplices Caroline Ellison and Ryan Salame have also received prison sentences.
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