FTX Users Strengthen Lawsuit Alleging Law Firm’s Central Role in Exchange’s Fraud
FTX customers pursuing legal action against a prominent U.S. law firm have bolstered their case, claiming the firm was a key player in enabling and concealing the alleged multibillion-dollar fraud at the now-bankrupt cryptocurrency exchange.
The plaintiffs representing thousands of former FTX users filed new court documents this week asserting that the law firm provided not only legal counsel but also structural guidance that allowed FTX and its sister trading firm, Alameda Research, to operate in ways that misled investors, violated regulations, and diverted customer assets. According to the filing, the firm’s involvement extended beyond routine legal services into active participation in developing corporate structures that obscured FTX’s financial risks and misappropriation of funds.
Lawyers for the FTX users allege that the firm designed, sanctioned, and defended complex corporate arrangements that facilitated the transfer of billions of dollars in customer deposits to Alameda for speculative trading, real estate purchases, and political donations. They further argue that the firm helped craft misleading public statements and regulatory filings that painted FTX as a safe and compliant exchange.
The expanded lawsuit follows months of evidence gathering since FTX’s sudden collapse in November 2022, which wiped out billions in user funds and triggered one of the largest fraud investigations in U.S. financial history. Former CEO Sam Bankman-Fried was convicted in 2023 on multiple counts of fraud and conspiracy, with prosecutors detailing how FTX customer assets were systematically siphoned off to Alameda. Several other executives have pleaded guilty and are cooperating with authorities.
Plaintiffs contend that the law firm’s close relationship with FTX executives allowed it to foresee or should have foreseen the misuse of customer funds. The filing states that this was not simply negligent representation. This was deliberate facilitation of a fraudulent enterprise that relied on legal validation to maintain its public credibility.
The law firm, which has not been charged in any criminal proceedings, has previously denied wrongdoing. In earlier court responses, it argued that it provided standard legal services and had no control over FTX’s internal decisions or financial activities. It also maintains that the attorney-client privilege limits the extent to which it can disclose communications related to the case.
Legal experts say the outcome of this case could have significant implications for professional liability in the crypto sector. If the plaintiffs succeed, it could set a precedent that law firms and potentially other service providers face greater accountability when advising high-risk or opaque cryptocurrency operations.
The lawsuit is part of a broader wave of litigation targeting banks, auditors, and advisers tied to FTX. Creditors and investors seek to recover some of the estimated $8 billion in customer assets lost in the exchange’s downfall. Meanwhile, FTX’s bankruptcy proceedings continue in Delaware, where liquidators are attempting to claw back funds from political donations, sponsorship deals, and other disbursements linked to the exchange.
A trial date for the civil suit against the law firm has not yet been set. Still, both sides are expected to engage in extensive discovery over the coming months, with testimony from former FTX insiders likely to shape the case.
