Fenwick and West Denies Role in FTX Collapse

The law firm told a Florida judge that it merely provided routine legal services and had no knowledge of wrongdoing. Meanwhile, regulators are making moves to strengthen oversight in the wake of FTX’s downfall. The Commodity Futures Trading Commission is upgrading its outdated infrastructure by adopting Nasdaq’s real-time market surveillance software to detect insider trading and manipulation in both equities and crypto. However, the push for stricter monitoring sparked growing concern in the decentralized finance space.

Fenwick Calls FTX Lawsuit Allegations False

Fenwick & West pushed back against new allegations tying it to the collapse of FTX, and told a Florida federal judge that the claims are both outdated and unfounded. The law firm is fighting an attempt by FTX users to update a class-action lawsuit that was filed in 2023, which alleges that Fenwick played a “key and crucial role” in enabling the exchange’s massive fraud. In its response, Fenwick argued that the accusations mischaracterized its work as the firm only provided routine legal services and had no knowledge of wrongdoing.

Fenwick’s filing

The plaintiffs pointed to evidence from FTX’s bankruptcy proceedings and the criminal trial of co-founder Sam Bankman-Fried, and claimed it showed Fenwick was aware of the misuse of customer funds. However, Fenwick said this was a “false characterization,” and pointed out that testimony from FTX engineer Nishad Singh merely described the firm advising on the structuring of founder loans, which is a common corporate practice. The firm added that numerous witnesses testified the fraud was carried out without the knowledge of FTX’s in-house counsel, other executives, accountants, or outside professionals.

Fenwick also pushed back against new securities-related claims in the updated complaint, which accuse the firm of helping launch and promote FTX’s exchange token, FTT, in violation of state securities laws. The firm called these claims frivolous and untimely, and argued that they should have been raised at the beginning of the case and were instead added as an “eleventh-hour attempt” after most claims against celebrity promoters of FTX were dismissed. 

Fenwick said the lawsuit relies on “stale information” and is very similar to earlier allegations against Sullivan & Cromwell, another law firm that was eventually dropped from the case for lack of evidence. According to Fenwick, the same should apply here, as the plaintiffs failed to show the firm knowingly aided the fraud.

CFTC Turns to Nasdaq for Surveillance

Although the ripple-effects of the FTX collapse is still being felt, regulators are hard at work to make sure something similar does not happen again. The Commodity Futures Trading Commission (CFTC) is taking a major step to modernize its outdated surveillance infrastructure by adopting a financial monitoring tool developed by Nasdaq. 

Announcement from the CFTC

The regulator has long relied on systems dating back to the 1990s, but is now turning to technology that is more widely used in stock exchanges to identify and prevent abusive market behavior. Nasdaq’s software is designed to detect insider trading and market manipulation across equities and crypto markets, with tailored algorithms that identify suspicious activity unique to digital asset trading. 

Tony Sio, head of regulatory strategy and innovation at Nasdaq, explained that the platform provides real-time analysis of order book data across crypto venues while also offering cross-market analytics to track links between traditional and digital asset markets. He added that the data for the system will be sourced by the CFTC through its regulatory powers.

The decision to do this was made as financial surveillance is still one of the most divisive issues in the digital asset space. Supporters argue that improved oversight is essential to curb money laundering and manipulation, which would help pave the way for institutional adoption of cryptocurrencies. However, privacy advocates warn that monitoring risks could create a digital “prison” where user activity is constantly tracked and regulated, which undermines the open and pseudonymous nature of blockchain technology.

This tension is also playing out in the decentralized finance (DeFi) sector, where new regulatory proposals are causing growing concern. The US Treasury Department is reportedly considering embedding digital identity verification tools directly into DeFi smart contracts to fight illicit financial flows. 

Recommendations in the White House report

This initiative stems from recommendations in a July White House report on cryptocurrencies, which placed a lot of emphasis in combating illicit finance alongside proposals for taxation and digital asset market structures. The report urged the Treasury and the National Institute of Standards and Technology (NIST) to design stronger know-your-customer requirements for crypto while also revising federal digital identity guidelines and overhauling credential tools.

Critics of these ideas argue that forcing digital identity checks into DeFi protocols will betray the very foundation of decentralized systems. They believe that turning neutral, permissionless infrastructure into one restricted by government-approved credentials would fundamentally change its purpose.