FTX Customers Reach $66M Settlement With Former Law Firm and Auditor

TLDR

• Fenwick & West agreed to pay $54M to settle FTX customer fraud-related claims.
• FTX auditor Prager Metis agreed to pay $11.75M in the same settlement wave.
• Former NBA player Udonis Haslem agreed to pay $420,000 over FTX promotional claims.
• Fenwick denied wrongdoing and said it was not aware of fraud at FTX.
• The settlement still needs preliminary approval from U.S. District Judge K. Michael Moore.

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Fenwick & West, the former outside counsel for FTX US, and auditor Prager Metis have agreed to pay a combined $65.75 million to settle customer claims tied to the collapse of the crypto exchange, according to a federal court filing in Miami.

The proposed settlement includes $54 million from Fenwick & West, $11.75 million from Prager Metis and $420,000 from former NBA player Udonis Haslem, who promoted FTX before its failure. The filing was submitted before U.S. District Judge K. Michael Moore.

The settlement is part of a wider class action effort by FTX customers seeking recovery from law firms, auditors, executives and promoters connected to the exchange. The deal still requires court approval before it can move forward.

Fenwick Denies Wrongdoing

Customer lawyers alleged that Fenwick helped create and carry out strategies that allowed FTX’s misconduct to continue before the exchange collapsed in November 2022. Fenwick served as FTX US’s main outside law firm during the period before the bankruptcy.

Fenwick rejected the allegations. In a statement cited by Reuters, the firm said it was not aware of fraud at FTX, stands by its legal work and disputes wrongdoing of any kind.

The $54 million agreement does not resolve all legal exposure facing the firm. Fenwick is still named in a separate $525 million civil suit in Washington, D.C., brought by 20 FTX victims against the firm, several current and former Fenwick attorneys and other defendants.

That lawsuit alleges malpractice, fraud and gross negligence. The new Miami settlement does not end that case.

Second Settlement Wave Adds Auditor and Promoter

The latest agreements follow an earlier round of settlements with 15 defendants. Those earlier deals involved former FTX executives and promoters, including Sam Bankman-Fried, Caroline Ellison, Nishad Singh, Gary Wang and former Fenwick partner Dan Friedberg.

The earlier group also included celebrity and online promoters such as Shaquille O’Neal, Tom Nash, Kevin Paffrath, Graham Stephan, Andrei Jikh and Erika Kullberg.

Prager Metis, FTX’s former auditor, agreed to pay $11.75 million in the new settlement round. Haslem agreed to pay $420,000 related to his promotional work for the exchange.

The plaintiffs’ lawyers are asking the court to certify one class covering customers who held crypto or fiat on FTX, joined a yield product or bought FTT, the exchange’s token. The filing said FTX had more than 1.2 million users at its peak and that the proposed class may include millions of people.

Payment Plan Awaits Court Approval

The proposed settlement plan seeks to avoid double payments to customers who are already receiving funds through the FTX bankruptcy process. Under the proposed method, each customer’s bankruptcy recovery would be subtracted from the value of their lost crypto and fiat.

Crypto claims would be valued using CoinGecko prices from May 14. FTT would be counted only at the documented purchase price, while FTT received for free would be valued at zero.

The plaintiffs are also asking the court to appoint JND Legal Administration to manage settlement payments instead of the FTX bankruptcy estate. They cited cost and efficiency reasons for the request. JND previously handled administration for a Ripple Labs class settlement.

Not all investors support the proposal. A group of 18 individuals and three corporate plaintiffs from Hong Kong, Singapore, the United Kingdom, the European Union and South Korea said they have more than $500 million in losses and are pursuing their own lawsuit.

They asked the court not to issue orders that would include their claims before a separate motion is decided.

FTX collapsed in November 2022 after a liquidity crisis exposed misuse of customer funds. Bankman-Fried was later convicted of stealing about $8 billion from customers and is serving a 25-year federal prison sentence while appealing the conviction.

The FTX bankruptcy estate has separately returned more than $5 billion to creditors and has said most customers will recover more than their original dollar value. Judge Moore must grant preliminary approval before the new settlement agreements can take effect.

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