FTX’s legal difficulties are achieving its legislation company, Fenwick & West, which faces federal law enforcement subpoenas and a class-motion lawsuit tied to the unsuccessful crypto exchange.
Personal bankruptcy counsel for FTX has talked about “federal legislation enforcement subpoenas to Fenwick” with the legislation firm’s general counsel, Kathryn Fritz, in accordance to a courtroom document submitted in March. The doc, which specifics get the job done by Sullivan & Cromwell lawyers on FTX’s individual bankruptcy in January, doesn’t say what the subpoenas asked for or which investigation they pertained to.
Fenwick is also amid a range of organizations qualified with a course-action lawsuit alleging the firm served help a substantial fraud led by Sam Bankman-Fried, the FTX founder now facing 13 criminal costs. Products and services Fenwick supplied were “central to SBF’s fraud,” in accordance to a February accommodate submitted in Miami federal courtroom on behalf of a proposed class of buyers.
It’s uncomfortable for any legislation agency to answer concerns about actions for a client but specially for Silicon Valley-started Fenwick, which cemented its name as a go-to operation for the world’s prime tech firms just after it assisted Steve Positions incorporate Apple Inc. in 1976. The organization, whose shoppers have integrated Amazon.com Inc., Tesla Inc. and Meta Platforms Inc., almost doubled its profits in the five yrs foremost up to 2021.
“Any time you have even the trace of regulatory impropriety in the follow of law, you and the organization just take a strike,” explained James Cox, a Duke College legislation professor. “It’s difficult to say how extensive it lasts and how deep it is. But it’s definitely not a feather in your cap.”
Fenwick, Fritz and the firm’s outside counsel in the course-action case, Florida’s Gunster, did not answer to requests for remark. Sullivan & Cromwell declined to comment.
Fenwick’s Job
Fenwick advised FTX and its sister buying and selling store, Alameda Investigate, on locations together with trademarks, tax and litigation prior to the crypto exchange’s implosion into bankruptcy in November. It also served established up US-based mostly providers affiliated with FTX and Alameda.
Daniel Friedberg, as soon as the Seattle-centered chair of Fenwick’s payments exercise, joined FTX in 2020 and would afterwards come to be its chief regulatory officer. Former FTX common counsel Can Sun was a earlier Fenwick affiliate.
Fenwick has axed references to FTX on its site. The business trimmed FTX from a checklist of notable customers on its homepage.
“Fenwick & West served FTX to build ‘compliance’ methods created to skirt FTX’s regulatory obligations or conceal its noncompliance,” the class motion match, which seeks unspecified monetary damages from Fenwick, alleges. The complaint moreover Fenwick targets 20 other third events with an alleged FTX relationship, like auditors and venture capital firms.
Fenwick has yet to file a reaction to the lawsuit.
Steep Hurdle
Discovering a 3rd-party this kind of as a law firm liable for any fundamental fraud is a steep hurdle, claimed Patrick Coughlin, a Scott & Scott attorney who represented shareholders of Enron pursuing its collapse.
“The biggest challenge below is demonstrating what a law organization knew or didn’t know and their participation in precise transactions,” Coughlin said. “It’s heading to be a large amount harder to demonstrate that 3rd parties—the accountants or the lawyers—were truly included in the fraud.”
As for subpoenas, the major focus on could be the consumer and not the legal professionals, mentioned New York College University of Legislation Professor Jennifer Arlen. “The mere fact that a law firm was subpoenaed does not indicate that the company is in lawful jeopardy,” she mentioned.
Prosecutors normally won’t be prosperous issuing subpoenas to legislation firms for conversations with consumers, Arlen stated. Nor will subpoenas capture operate made or generated on behalf of clients for the reason that of legal professional-customer privilege, she claimed.
But prosecutors do have the ideal to files that a consumer makes and owns and turned in excess of to its regulation business to maintain on to, Arlen explained.
‘Principal’ Adviser
Some information about Fenwick’s romantic relationship with FTX have been revealed in January, as Wall Street business Sullivan & Cromwell faced scrutiny in excess of its past work for the trade.
Fenwick was FTX’s “principal” adviser on “corporate, operational and corporate governance issues,” Sullivan & Cromwell partner Andrew Dietderich explained in a court declaration in the individual bankruptcy proceedings.
He claimed Fenwick offered the company documents and organizational charts vital for the Chapter 11 petition, which Sullivan & Cromwell filed on behalf of FTX on Nov. 11.
Fenwick is amongst a extended checklist of third functions now struggling with scrutiny stemming from their alleged connections to the crypto trade. Federal prosecutors in New York have accused Bankman-Fried of misappropriating billions of bucks in customer cash for his own use and to make risky bets by means of Alameda Exploration.
The accountancies Prager Metis and Armanino are also defendants in many proposed course actions for allegedly aiding FTX’s fraud.
The firms audited key FTX entities and certified that the organizations experienced controls in area adequate to protect course member resources, according to the Feb. 22 criticism, “despite recognizing entire properly that these kinds of controls had been not in location.”
The action against Fenwick and others is currently at a standstill as functions await a May perhaps listening to targeted on maybe consolidating the personal actions connected to the FTX collapse.
Skyrocketing Revenues
Due to the fact its founding about a 50 percent-century back, Fenwick has made a niche as a entire-services company for tech and lifetime sciences clientele, throughout locations including intellectual house, corporate and litigation.
The business arrived at $723 million in income in 2021—a 93% rise from the $374 million it acquired five yrs previously, according to figures collected by The American Lawyer.
In the exact time frame, the number of legal professionals at the agency jumped to 427 from 321. Fenwick has not however released monetary figures for 2022.
With extensive-proven back links to the tech and startup place, Fenwick eagerly pushed into the electronic property arena. In addition to its function with FTX, the agency encouraged Coinbase, the biggest crypto exchange in the US, in its 2021 preliminary community presenting.
The business has recommended Coinbase on a lot more than 15 transactions. It has also represented Yuga Labs, the creator of the Bored Ape Yacht Club selection of nonfungible tokens, in transactional and litigation matters.
The at any time-fluctuating state of crypto polices has built it difficult for some firms to suggest shoppers as they try to scale their firms, and as companies are eager to expand their crypto exercise groups, stated Eric Chason, a professor at William & Mary Legislation College.
“You’re working in variety of a vacuum,” Chason reported. “I can see it remaining tempting to be led to a put you don’t want to go.”
The circumstance is O’Keefe v. Sequoia Money Operations, LLC, S.D. Fla., 1:23-cv-20700, 2/22/23.
