Fenwick & West aided FTX fraud by creating 'shadowy entities,' proposed class action alleges
“The relationship between Fenwick and FTX was exceedingly close in large part because Fenwick supplied a pipeline of key personnel to FTX Group,” according to an. Aug. 7 lawsuit. Image from Shutterstock.
Updated: A proposed class action lawsuit filed Monday alleges that Fenwick & West aided fraud by cryptocurrency exchange FTX and Samuel Bankman-Fried, its founder.
The Aug. 7 suit, filed on behalf of FTX investors, alleges that Fenwick & West structured acquisitions in ways that “dodged regulatory scrutiny” and set up “shadowy entities” that hid wrongdoing.
Reuters and Law360 have coverage.
Bankman-Fried is facing criminal and civil securities charges in connection with the collapse of FTX. A civil complaint by the U.S. Securities and Exchange Commission alleges that Bankman-Fried raised $1.8 billion from investors who bought an equity stake in FTX without revealing that he was diverting assets to his privately held crypto hedge fund, Alameda Research.
The new suit says the FTX platform “was truly a house of cards, a Ponzi scheme where the FTX Group shuffled customer funds between their opaque affiliated entities, using new investor funds … to pay interest and investment withdrawals to the old ones.”
The suit is the second to target Fenwick in FTX’s collapse, according to Reuters and Law360. The first suit was filed in February on behalf of FTX customer Connor O’Keefe.
The new suit alleges that, through its representation of FTX entities, Fenwick acquired knowledge of FTX’s misrepresentations to customers, its “untruthful conduct” and its misappropriation of customer funds. Investors across the globe ended up losing billions of dollars, the suit says.
“The relationship between Fenwick and FTX was exceedingly close in large part because Fenwick supplied a pipeline of key personnel to FTX Group,” the suit says.
One of those people was lawyer Daniel Friedberg, who worked with his former law firm to conceal Bankman-Fried’s fraud, the suit alleges.
Friedberg became chief compliance officer of FTX U.S. and general counsel of Bankman-Fried’s hedge fund, Alameda Research. Friedberg also had roles at many FTX Group entities.
Lawyers filed the suit in the U.S. District Court for the Northern District of California, but they hope to transfer the litigation to the Southern District of Florida, where several consolidated suits are pending, according to Reuters and Law360.
The suit alleges that Fenwick engaged in a civil conspiracy; facilitated a racketeering enterprise; and aided and abetted fraud, negligence, breach of fiduciary duty and conversion.
Gibson, Dunn & Crutcher partner Kevin S. Rosen is representing Fenwick in both suits. He declined to comment when contacted by the ABA Journal.
The suit is Cabo v. Fenwick & West.
Updated Aug. 11 at 12:19 p.m. to report that Gibson, Dunn & Crutcher partner Kevin S. Rosen declined to comment.
