Fenwick & West 'closely intersected' with FTX's improper operations and management, examiner says
Fenwick & West was the only law firm “entrusted with a bird’s-eye view” of collapsed cryptocurrency exchange FTX Trading, according to a report by an independent court-appointed examiner in the bankruptcy of FTX and affiliated entities. (Image from Shutterstock)
Updated: Fenwick & West was the only law firm “entrusted with a bird's-eye view” of collapsed cryptocurrency exchange FTX Trading, according to a report by an independent court-appointed examiner in the bankruptcy of FTX and affiliated entities.
The report said Fenwick & West was “involved in an expansive range of matters, including those that closely intersected” with “improper operations and management” of FTX Trading and some of its affiliates, report Bloomberg Law, Law.com and the Wall Street Journal.
The report “largely cleared” another firm that worked for FTX, Sullivan & Cromwell, which now works as its bankruptcy counsel, according to the Wall Street Journal.
FTX founder Samuel Bankman-Fried was found guilty of fraud and conspiracy in November 2023 for diverting billions of dollars in customer money to his hedge fund, Alameda Research, and for using customer funds for his own purchases.
The report cited findings by Quinn Emanuel Urquhart & Sullivan, which was hired as conflicts counsel by new managers at FTX. Quinn Emanuel was tasked with investigating the work of FTX’s service providers, including its firms.
The examiner, former Unabomber prosecutor Robert J. Cleary, didn’t identify Fenwick & West as “Law Firm-1” in the report, but the reference to Fenwick & West was clear because of references to Fenwick & West lawyers, Bloomberg Law explains. Cleary is currently of counsel with Patterson Belknap Webb & Tyler.
Cleary’s report said Fenwick & West was “directly involved” in FTX management’s “efforts to obfuscate from government regulators and investors the close relationship between FTX Trading and Alameda.”
Fenwick & West was also involved in “founder loans” used to move at least $2 billion in cash and assets among FTX entities, “as well as directly into the personal accounts” of some FTX leaders, the report said.
Fenwick & West “stands behind the integrity of the work we performed on behalf of FTX,” a Fenwick & West spokesperson told the Wall Street Journal. “The examiner’s status report did not include any finding of wrongdoing on Fenwick’s part.”
Turning to the role of Sullivan & Cromwell, Cleary said there is no evidence that the firm was aware of FTX fraud before the bankruptcy, and there were no “red flags” in its work, according to a Reuters story.
Nor was there evidence that FTX general counsel Ryne Miller, a former Sullivan & Cromwell lawyer, was aware of the wrongdoing, the report said.
Cleary’s report also found no error in the bankruptcy judge’s decision to approve Sullivan & Cromwell as FTX’s bankruptcy counsel.
But there has apparently been no outside investigation of Sullivan & Cromwell’s advice to Bankman-Fried in connection with his purchase of $500 million in shares of the mobile trading platform Robinhood through a special-purpose entity, allegedly with misappropriated funds. Cleary recommended an investigation into the details to confirm that there were no conflicts of interest.
“Sullivan & Cromwell remains confident in our prepetition work for FTX and the commencement of the Chapter 11 cases, and we welcome the examiner’s findings to date rejecting various baseless allegations about our work for FTX,” the firm said in a statement forwarded to the ABA Journal. “If the court concludes that any points require further review, we will continue to cooperate fully with the examiner.”
Updated May 29 at 10:30 a.m. to add the full statement from Sullivan & Cromwell.
