Silicon Valley law firm Fenwick & West has agreed to a $54 million settlement with FTX customers, addressing allegations that the firm played a role in enabling Sam Bankman-Fried’s alleged fraud. This agreement is part of a broader second phase of settlements for the bankrupt cryptocurrency exchange, which also includes a $11.75 million payment from auditor Prager Metis and $420,000 from former NBA player Udonis Haslem, who had promoted FTX.
Key Takeaways
- Fenwick & West will pay $54 million to settle claims related to its role as FTX US’s primary outside counsel.
- The settlement is part of a larger second wave of FTX customer claims resolution.
- Auditor Prager Metis and former FTX promoter Udonis Haslem are also part of this wave of settlements.
- Fenwick & West denies wrongdoing and states it was unaware of any fraudulent activities at FTX.
- The law firm still faces a separate $525 million lawsuit in Washington, D.C. related to the FTX collapse.
Customer representatives asserted in a court filing that Fenwick & West “helped to craft and implement strategies that facilitated FTX’s fraud.” In response, Fenwick & West issued a statement asserting that it “was not aware of the fraud at FTX, stands by the integrity of its legal work, and disputes wrongdoing of any kind.” The $54 million settlement is a significant component of a second round of class action settlements filed before U.S. District Judge K. Michael Moore in Miami federal court. This follows an initial wave of settlements that included Bankman-Fried, former FTX executives, and celebrity promoters.
The legal team representing the customers, including Adam Moskowitz and David Boies, is also seeking to certify a single class encompassing all individuals who held assets on FTX or engaged with its yield products or exchange token, FTT. The proposed class could include millions of users, given FTX’s reported peak of over 1.2 million users.
Plaintiffs have also requested that the court appoint JND Legal Administration to manage settlement payouts, citing potential cost and efficiency benefits over the FTX bankruptcy estate. This proposed administrative body is noted to have experience with similar distributions, such as in the recent Ripple Labs class settlement. The allocation plan aims to prevent double recovery by deducting any amounts customers receive from the FTX bankruptcy proceedings from their claimed losses. Asset values are to be determined using CoinGecko prices from May 14, with FTT valued only at its documented purchase price, and any FTT received for free having no credited value.
However, not all claimants are in agreement with the proposed settlements. A group of international plaintiffs, representing over $500 million in losses across Hong Kong, Singapore, the UK, the EU, and South Korea, are pursuing their own independent lawsuit. They have formally requested that the court not issue any orders that would encompass their claims until a pending motion is adjudicated.
Despite the settlement with its customers, Fenwick & West continues to face a separate $525 million civil suit in Washington, D.C. This action, brought by 20 FTX victims, names the firm, several current and former attorneys, and other defendants, alleging malpractice, fraud, and gross negligence. This particular case remains unresolved by the recent settlement.
The settlement with Fenwick & West follows the voluntary dismissal of a lawsuit against Sullivan & Cromwell, FTX’s bankruptcy counsel, by the same plaintiffs’ team in October 2024. This dismissal occurred after a court-appointed examiner concluded that Sullivan & Cromwell was not complicit in the FTX fraud. The FTX bankruptcy estate has been actively working to return assets, having already distributed over $5 billion to creditors and aiming to compensate most customers for their losses.
Potential Regulatory Precedent
The settlement involving Fenwick & West highlights a growing trend of professional services firms facing significant legal and financial repercussions for their alleged roles in facilitating or failing to prevent major corporate misconduct, particularly within the financial and technology sectors. This case could set a precedent for how legal and auditing firms are held accountable when their services are perceived to have enabled fraudulent schemes, especially in rapidly evolving industries like cryptocurrency. The scrutiny applied here may encourage greater due diligence and risk management protocols within these professional services, potentially influencing regulatory expectations globally. While the FTX collapse predates comprehensive frameworks like the EU’s Markets in Crypto-Asset (MiCA) regulation, the fallout continues to inform discussions on liability and oversight for entities supporting digital asset operations. Similar legal actions against other professional service providers in the crypto space could emerge, driven by this case’s outcome and the increasing demand for regulatory clarity and investor protection.
Judge Moore has yet to grant preliminary approval for the second-wave settlements. The plaintiffs have proposed a final approval hearing to take place 90 days following preliminary approval. Attempts to solicit comments from Fenwick & West, Moskowitz, and Anthony Scordo, representing the foreign plaintiffs, were not immediately successful.
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