Users of the collapsed crypto exchange FTX and Silicon Valley law firm Fenwick & West have reached a proposed settlement in a lawsuit accusing the firm of helping facilitate the fraud that preceded FTX’s downfall.
Key Takeaways:
- FTX users and Fenwick & West reached a proposed settlement in a lawsuit tied to the exchange’s collapse.
- The deal, whose terms are undisclosed, is set to be submitted for court approval on Feb. 27.
- The case is part of broader efforts by users to hold advisers and partners accountable after FTX’s failure.
In a joint filing submitted Friday to a federal court in Florida, Fenwick and lawyers representing FTX users said they intend to formally present the settlement for court approval on Feb. 27.
The filing did not disclose financial terms, but both sides asked the court to pause all pending deadlines and motions while the settlement is finalized.
FTX Collapse Triggers Wave of Lawsuits From Users
The case is part of a broader wave of litigation that followed FTX’s sudden collapse in November 2022, which left millions of customers unable to access their funds.
Users have brought claims against former executives, business partners, promoters and professional service providers tied to the exchange.
The lawsuit against Fenwick was first filed in 2023 and later amended in August.
It alleged that the firm played “a key and crucial role” in the conduct that enabled the FTX fraud, claiming Fenwick provided “substantial assistance” by designing and approving corporate structures that allowed misconduct to continue undetected.
According to the complaint, Fenwick advised FTX on structuring its operations in ways that avoided certain money transmitter registration requirements.
The suit also alleged the firm had visibility into the commingling of customer funds and the blurred operational boundaries between FTX and its sister trading firm, Alameda Research.
Fenwick has consistently denied the allegations. The firm previously sought to dismiss the case, arguing it had no knowledge of any fraud and that it provided routine, lawful legal services to its client.
In November, however, the court rejected Fenwick’s motion to dismiss, allowing the users’ amended complaint to proceed.
The proposed settlement comes after mixed results in users’ efforts to hold outside advisers accountable.
In February 2024, FTX users sued Sullivan & Cromwell, the exchange’s former primary outside counsel, alleging it played a role in the multibillion-dollar fraud.
That case was voluntarily dismissed eight months later, with plaintiffs citing insufficient evidence.
Sam Bankman-Fried Claims FTX Was Never Insolvent
As reported, Bankman-Fried has reignited debate over the FTX collapse, claiming the exchange always had enough assets to fully repay customers.
In a September 30 document, the former CEO argued that the $8 billion shortfall cited during bankruptcy “never left,” and that customer recoveries of up to 143% prove FTX suffered a liquidity crunch—not insolvency.
“There have always been enough assets to repay all customers—in full, in kind—both in November 2022, and today,” he wrote.
Bankman-Fried framed the collapse as a “classic bank run,” triggered by panic withdrawals that drained liquidity within days.
He maintained that FTX and Alameda’s assets exceeded liabilities up to mid-2022, and claimed that financing deals were underway before the bankruptcy filing.
His document disputes the bankruptcy team’s early reports of insolvency and blames their management for eroding value and prolonging creditor repayments.
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