FTX’s Law Firm Hit With Queries on Work Before Crypto Collapse

FTX’s authorized troubles are reaching its legislation agency, Fenwick & West, which faces federal legislation enforcement subpoenas and a class-action lawsuit tied to the failed crypto trade.

Chapter counsel for FTX has mentioned “federal law enforcement subpoenas to Fenwick” with the legislation agency’s basic counsel, Kathryn Fritz, in keeping with a court document filed in March. The doc, which particulars work by Sullivan & Cromwell attorneys on FTX’s chapter in January, doesn’t say what the subpoenas requested or which investigation they pertained to.

Fenwick can also be amongst numerous firms focused with a class-action lawsuit alleging the agency helped assist an enormous fraud led by Sam Bankman-Fried, the FTX founder now dealing with 13 felony costs. Companies Fenwick supplied have been “central to SBF’s fraud,” in keeping with a February go well with filed in Miami federal court docket on behalf of a proposed class of buyers.

It’s awkward for any legislation agency to reply questions on actions for a shopper however significantly for Silicon Valley-founded Fenwick, which cemented its popularity as a go-to operation for the world’s high tech firms after it helped Steve Jobs incorporate Apple Inc. in 1976. The agency, whose purchasers have included Amazon.com Inc., Tesla Inc. and Meta Platforms Inc., practically doubled its income within the 5 years main as much as 2021.

“Any time you have even the hint of regulatory impropriety in the practice of law, you and the firm take a hit,” mentioned James Cox, a Duke College legislation professor. “It’s hard to say how long it lasts and how deep it is. But it’s certainly not a feather in your cap.”

Fenwick, Fritz and the agency’s exterior counsel within the class-action case, Florida’s Gunster, didn’t reply to requests for remark. Sullivan & Cromwell declined to remark.

Fenwick’s Function

Fenwick suggested FTX and its sister buying and selling store, Alameda Analysis, on areas together with logos, tax and litigation earlier than the crypto trade’s implosion out of business in November. It additionally helped arrange US-based firms affiliated with FTX and Alameda.

Daniel Friedberg, as soon as the Seattle-based chair of Fenwick’s funds apply, joined FTX in 2020 and would later turn out to be its chief regulatory officer. Former FTX basic counsel Can Solar was a previous Fenwick affiliate.

Fenwick has axed references to FTX on its web site. The agency trimmed FTX from a listing of distinguished purchasers on its homepage.

“Fenwick & West helped FTX to develop ‘compliance’ procedures designed to skirt FTX’s regulatory obligations or conceal its noncompliance,” the category motion go well with, which seeks unspecified financial damages from Fenwick, alleges. The criticism in addition to Fenwick targets 20 different third events with an alleged FTX connection, together with auditors and enterprise capital corporations.

Fenwick has but to file a response to the lawsuit.

Steep Hurdle

Discovering a third-party corresponding to a legislation agency accountable for any underlying fraud is a steep hurdle, mentioned Patrick Coughlin, a Scott & Scott lawyer who represented shareholders of Enron following its collapse.

“The biggest challenge here is demonstrating what a law firm knew or didn’t know and their participation in actual transactions,” Coughlin mentioned. “It’s going to be a lot harder to show that third parties—the accountants or the lawyers—were actually involved in the fraud.”

As for subpoenas, the principle goal stands out as the shopper and never the attorneys, mentioned New York College Faculty of Law Professor Jennifer Arlen. “The mere fact that a law firm was subpoenaed doesn’t mean that the firm is in legal jeopardy,” she mentioned.

Prosecutors sometimes gained’t achieve success issuing subpoenas to legislation corporations for conversations with purchasers, Arlen mentioned. Nor will subpoenas seize work produced or generated on behalf of purchasers due to attorney-client privilege, she mentioned.

However prosecutors do have the correct to paperwork {that a} shopper creates and owns and turned over to its legislation agency to carry on to, Arlen mentioned.

‘Principal’ Adviser

Some particulars about Fenwick’s relationship with FTX have been revealed in January, as Wall Road agency Sullivan & Cromwell confronted scrutiny over its previous work for the trade.

Fenwick was FTX’s “principal” adviser on “corporate, operational and corporate governance matters,” Sullivan & Cromwell accomplice Andrew Dietderich mentioned in a court docket declaration within the chapter proceedings.

He mentioned Fenwick supplied the company paperwork and organizational charts vital for the Chapter 11 petition, which Sullivan & Cromwell filed on behalf of FTX on Nov. 11.

Fenwick is amongst an extended checklist of third events now dealing with scrutiny stemming from their alleged connections to the crypto trade. Federal prosecutors in New York have accused Bankman-Fried of misappropriating billions of {dollars} in buyer funds for his private use and to make dangerous bets by Alameda Analysis.

The accountancies Prager Metis and Armanino are additionally defendants in a number of proposed class actions for allegedly aiding FTX’s fraud.

The businesses audited key FTX entities and authorized that the businesses had controls in place ample to guard class member funds, in keeping with the Feb. 22 criticism, “despite knowing full well that such controls were not in place.”

The motion towards Fenwick and others is at the moment at a standstill as events await a Might listening to centered on probably consolidating the personal actions related to the FTX collapse.

Skyrocketing Revenues

Since its founding a few half-century in the past, Fenwick has developed a distinct segment as a full-service agency for tech and life sciences purchasers, throughout areas together with mental property, company and litigation.

The agency reached $723 million in income in 2021—a 93% rise from the $374 million it earned 5 years earlier, in keeping with figures collected by The American Lawyer.

In the identical time-frame, the variety of attorneys on the agency jumped to 427 from 321. Fenwick hasn’t but launched monetary figures for 2022.

With long-established hyperlinks to the tech and startup house, Fenwick eagerly pushed into the digital property area. Along with its work with FTX, the agency suggested Coinbase, the largest crypto trade within the US, in its 2021 preliminary public providing.

The agency has suggested Coinbase on greater than 15 transactions. It has additionally represented Yuga Labs, the creator of the Bored Ape Yacht Membership assortment of nonfungible tokens, in transactional and litigation issues.

The ever-fluctuating state of crypto laws has made it tough for some corporations to advise purchasers as they attempt to scale their firms, and as corporations are desperate to develop their crypto apply teams, mentioned Eric Chason, a professor at William & Mary Law Faculty.

“You’re operating in kind of a vacuum,” Chason mentioned. “I can see it being tempting to be led to a place you don’t want to go.”

The case is O’Keefe v. Sequoia Capital Operations, LLC, S.D. Fla., 1:23-cv-20700, 2/22/23.

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