A significant legal development has emerged from the fallout of the FTX cryptocurrency exchange collapse. Users of the defunct platform and law firm Fenwick & West have reached a proposed settlement in a class-action lawsuit, marking a potential turning point in ongoing efforts to recover losses from the platform's implosion two years ago.
Allegations of Enabling Fraud
The 2023 lawsuit accused Fenwick & West of playing a "key and crucial role" in the FTX fraud. Users alleged that the firm provided "substantial assistance" by advising on the creation and approval of business structures that enabled numerous fraudulent activities. Specifically, the lawsuit claimed Fenwick advised FTX on how to structure its operations to avoid money transmitter registrations and had "visibility of fund commingling and blurry lines" between FTX and its sister trading firm, Alameda Research. These allegations suggested that Fenwick's legal counsel was instrumental in facilitating the mechanisms through which the multi-billion-dollar fraud was perpetrated.
Fenwick's Defense and Path to Resolution
Fenwick & West vehemently denied the accusations, asserting they merely provided "routine and legitimate legal services" and were unaware of any fraudulent schemes. The firm sought to dismiss the lawsuit, arguing it was not responsible for aiding and abetting fraud of which it had no knowledge. However, a court denied Fenwick's motion to dismiss in November, allowing the users' amended complaint to proceed. Despite their differing stances, both parties have now jointly filed a request to suspend all pending deadlines and motions, indicating their intent to present the proposed settlement for court approval on February 27. While the specific terms of the agreement have not been disclosed, this development signals a significant step towards resolving a prominent legal dispute arising from the FTX scandal.
