The founder of cryptocurrency exchange FTX, Sam Bankman-Fried, faces fraud charges and now prepares to argue that he relied on the legal advice of California-based law firm Fenwick & West. His defense team recently requested that prosecutors hand over documents provided to the government by the firm between 2017 and 2022, claiming that this legal advice is crucial for preparing his defense.
Bankman-Fried’s lawyers argue that the advice provided by Fenwick & West, which includes the use of encrypted messaging apps, multimillion-dollar loans to FTX executives, and compliance with US banking regulations, directly relates to the fraud charges against him. This advice-of-counsel defense could potentially be used to counter suggestions that he knowingly intended to break the law.
As allegations of a years-long fraud surface, Bankman-Fried is accused of misusing billions of dollars in FTX customer funds for risky investments, personal expenses, and political donations. Fenwick & West’s involvement in the case sheds light on the unraveling relationship between the law firm and FTX.
Having represented FTX’s hedge fund affiliate, Alameda Research, in 2017, and becoming FTX’s main outside counsel after its founding in 2019, Fenwick & West now faces subpoenas from law enforcement and accusations from investors in a class-action lawsuit of aiding Bankman-Fried’s alleged fraud.
Among the documents requested by Bankman-Fried’s defense team are those related to the opening of a 2020 account with Silvergate Bank for FTX’s international exchange. Silvergate Bank initially informed him that he couldn’t open an account unless FTX was licensed as a money services business in the US. Although FTX’s US platform did register as such in 2020, Fenwick & West reportedly advised that its international division didn’t need to register, as it didn’t serve US customers.
Bankman-Fried is accused of creating a new company, North Dimension, to bypass Silvergate’s conditions and providing false information in his application. He counters that Fenwick & West gave “real-time advice” during the account’s opening process.
The embattled crypto boss has asked a New York federal judge to dismiss most of the criminal charges against him, with his lawyers claiming that several accusations were “dramatic” and turned “civil and regulatory issues into federal crimes.”
The unfolding situation between FTX, its founder, and Fenwick & West law firm highlights the complexities and ambiguities at play in the rapidly evolving cryptocurrency and blockchain space. This case may also serve as a cautionary tale for those seeking to navigate the landscape, emphasizing the importance of stringent compliance and transparent communication with relevant regulatory authorities.