The lawsuit stems from allegations that Fenwick & West helped facilitate fraud at FTX. At the same time, US crypto regulation is facing renewed scrutiny after New York prosecutors warned that the recently enacted GENIUS Act could weaken protections for fraud victims by giving major stablecoin issuers like Tether and Circle too much discretion over whether to freeze or recover illicit funds.
FTX Users Near Settlement With Fenwick
FTX users and law firm Fenwick & West have reached a proposed settlement in a class-action lawsuit that accused the firm of helping facilitate the fraud that led to the crypto exchange’s collapse. This is according to a joint court filing made on Friday.
Lawyers for Fenwick & West and attorneys representing FTX users told a Florida federal court that they plan to formally submit the settlement for approval on Feb. 27. While the filing did not reveal the financial or legal terms of the agreement, both sides requested that the court pause all existing deadlines and pending motions in the case while the settlement is finalized.
Joint filing from Fenwick & West and FTX users (Source: CourtListener)
The lawsuit against Fenwick & West was filed in 2023 and later amended in August as part of a multidistrict litigation that followed the dramatic collapse of FTX in late 2022. That litigation includes claims against former executives, celebrity promoters, and professional service firms that worked with the exchange.
In their complaint, FTX users alleged that Fenwick played “a key and crucial role” in enabling the fraud, and argued that the exchange’s misconduct would not have been possible without the firm’s legal guidance. The lawsuit claimed Fenwick provided “substantial assistance” by designing and approving corporate structures that allegedly allowed improper conduct to continue unchecked.
According to the plaintiffs, Fenwick advised FTX on how to structure its business in ways that avoided money transmitter registration requirements and had insight into the commingling of customer funds. The complaint further alleged that the firm had visibility into the blurred operational boundaries between FTX and its affiliated trading firm, Alameda Research.
Fenwick denied the allegations and fought to have the case dismissed by arguing that it was not liable for aiding and abetting a fraud it claimed to have no knowledge of. The firm maintained that it provided routine, lawful legal services and was not involved in or aware of any fraudulent activity at the exchange.
In November, however, the court allowed the amended complaint to proceed, rejecting Fenwick’s motion to dismiss and keeping the case alive. That ruling increased pressure on the parties to explore a negotiated resolution.
If approved, the Fenwick settlement will remove another major professional services defendant from the sprawling FTX litigation.
Prosecutors Raise Alarm Over Stablecoin Law
In other legal news, Several New York prosecutors raised concerns that a new US federal stablecoin law could weaken protections for fraud victims, and warned that it may give major issuers legal cover to avoid accountability.
According to a CNN report that was published Monday, New York Attorney General Letitia James and four New York district attorneys signed a letter criticizing the GENIUS Act, arguing that the legislation fails to adequately address fraud in stablecoin markets. The prosecutors said the law could allow stablecoin issuers to continue practices that make it difficult for victims to recover stolen funds, effectively shielding companies from responsibility.
(Source: Tokeny)
The letter specifically mentioned Tether and Circle, alleging that both firms have profited from criminal activity involving stablecoins. Prosecutors accused Tether of freezing only some suspicious USDT transactions and retaining broad discretion over whether to assist law enforcement. As a result, they argued, funds stolen and converted into USDT are often never frozen, seized, or returned to victims. The letter also criticized Circle by saying that while the company portrays itself as a partner in fighting financial crime, its policies were “significantly worse than those of Tether” when it comes to helping fraud victims recover funds.
Circle responded by defending its compliance record and regulatory posture. Chief strategy officer Dante Disparte said the company consistently prioritized financial integrity and adherence to US and global regulatory standards, and added that the GENIUS Act reinforces requirements for stablecoin issuers to comply with financial integrity rules while strengthening consumer protections. He said Circle has followed applicable rules as a US-regulated financial institution and intends to continue doing so.
Tether also rejected the criticism by stating that it takes fraud, consumer harm, and the misuse of USDT seriously and maintains a zero-tolerance policy toward illicit activity. However, the company explained that it does not have a blanket legal obligation to comply with state-level civil or criminal processes in the same way a US-regulated financial institution would. Tether is headquartered in El Salvador, outside US regulatory jurisdiction.
