(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Alison Frankel

May 28 (Reuters) - The California law firm that acted as

lead outside counsel for crypto exchange FTX until just before

its collapse in 2022 remains under investigation in the FTX

Chapter 11 bankruptcy, according to a report issued last week by

an independent court-appointed examiner.

Fenwick & West was the only law firm "entrusted with a

birds-eye view" of what was happening at FTX and its sister

hedge fund Alameda Research, according to bankruptcy examiner

Robert Cleary of Patterson Belknap Webb & Tyler, who was

appointed earlier this year at the behest of federal bankruptcy

watchdogs.

Fenwick's legal work for FTX and Alameda, the Cleary report

said, "closely intersected with core aspects of the FTX Group's

improper operations and management," including the diversion of

more than $2 billion in "founder loans" to FTX insiders as well

as efforts by FTX and Alameda executives to hide the close

relationship between the exchange and the hedge fund from

regulators.

Fenwick said in an email statement that it has and will

continue to cooperate with the ongoing investigation described

in Cleary's report.

"The examiner's status report did not include any finding of

wrongdoing on Fenwick's part," the law firm's statement said.

"Fenwick stands behind the integrity of the work we performed on

behalf of FTX."

Cleary's report referred to Fenwick & West only as Law

Firm-1, not by name. But because the examiner noted that lawyers

Daniel Friedberg and Can Sun moved from Law Firm-1 to in-house

roles at FTX and Alameda, it's clear that Law Firm-1 is Fenwick

& West, where the two attorneys previously worked.

Cleary's primary job as examiner was to assess whether FTX's

lead bankruptcy lawyers at Sullivan & Cromwell were conflicted

because of their work for the exchange in the months before its

collapse. As my Reuters colleague Dietrich Knauth reported last

week, the examiner concluded that Sullivan & Cromwell bankruptcy

lawyers were not complicit in FTX's fraud.

Cleary concluded that Delaware federal bankruptcy judge John

Dorsey acted within his discretion when he approved Sullivan &

Cromwell as lead counsel for the bankrupt exchange. The firm has

earned more than $180 million in that role.

The examiner did ask Dorsey to authorize additional

investigation of Sullivan & Cromwell's representation of former

FTX CEO Sam Bankman-Fried in his $500 million purchase of

Robinhood shares in 2022. Federal prosecutors subsequently

accused Bankman-Fried of using misappropriated customer funds to

buy his Robinhood stake. (Bankman-Fried was convicted last

November in a Manhattan federal jury trial.)

Sullivan & Cromwell said in an email statement that if the

court approves any additional investigation of its work on the

Bankman-Fried's Robinhood deal, it will cooperate with the

examiner. "Sullivan & Cromwell remains confident in our

prepetition work for FTX and the commencement of the Chapter 11

cases, and we welcome the examiner's findings to date rejecting

various baseless allegations about our work for FTX," the

statement said.

In addition to recounting his own findings on Sullivan &

Cromwell, Cleary disclosed investigations by FTX bankruptcy

lawyers from Quinn Emanuel Urquhart & Sullivan into potential

claims against scores of law firms and accountants that worked

for the crypto exchange. (The examiner does not appear to have

conducted an independent investigation of any of FTX's law firms

except for Sullivan & Cromwell.)

Cleary said Quinn found no evidence that most of FTX's

outside law firms were aware of misconduct by FTX insiders. But

according to his report, Quinn's extensive investigation of

Fenwick & West - which included the review of nearly 185,000

documents turned over by the law firm and nearly 70,000

documents Quinn obtained from FTX's internal database - shows

Fenwick lawyers were "directly involved" in matters that

allegedly helped FTX insiders misappropriate customer money and

hide that misconduct.

The examiner also noted that Fenwick and FTX executives used

the ephemeral messaging app Signal for many communications. Of

the 144 Signal conversations disclosed by Fenwick, only 18 still

show actual messages.

Cleary's report does not specifically assert that Fenwick

was aware of the insiders' misconduct. And notably, Quinn

Emanuel has not filed a complaint in the FTX bankruptcy against

Fenwick, which allegedly earned more than $22 million in legal

fees from FTX and Alameda between 2018 and 2022. Quinn has

brought lawsuits in FTX's Chapter 11 proceeding against such

defendants as Bankman-Fried's parents and FTX's former chief

compliance officer, a onetime Fenwick partner.

Cleary's report includes some interesting background on

FTX's relationship with Fenwick, which was originally selected

to represent the crypto exchange by Bankman-Fried's father,

Stanford Law School professor Joseph Bankman. He "maintained

unusually close personal relationships" with Fenwick lawyers,

the report said, "which sometimes translated into subsidizing

perks for certain attorneys, such as paying for travel

and admittance to sporting events."

Bankman did not immediately respond to an email query.

Both Fenwick & West and Sullivan & Cromwell have been sued

by FTX customers in consolidated litigation in Miami federal

court over the exchange's collapse. Both law firms, as I've told

you, have moved to dismiss the lawsuits, arguing that FTX

customers have offered no credible evidence that they were aware

of wrongdoing by Bankman-Fried and other FTX and Alameda

insiders.

Lawyers cannot be liable, the firms contend, for providing

routine legal services to fraudsters unless the lawyers knew of

the fraud.

The allegations discussed in the examiner's report overlap

substantially with claims in the customer lawsuits. A lead

lawyer in the customers' cases, Adam Moskowitz of The Moskowitz

Law Firm told me by email that Cleary's report lends support to

his lawsuits.

The examiner "specifically found Fenwick was intricately

involved with all of FTX's core functions and Sullivan

specifically gave FTX instructions and advice on how to hide

[Bankman-Fried's] purchase of millions of dollars in Robinhood

stock," Moskowitz said, adding that he's particularly gratified

that Cleary wants to continue investigating Sullivan &

Cromwell's role in Bankman-Fried's Robinhood stock purchase.

The examiner's report has no direct impact on the customers'

case, although Fenwick & West can't be too happy that Cleary

aired details about Quinn Emanuel's Chapter 11 investigation of

the firm just as U.S. District Judge Michael Moore of Miami is

weighing Fenwick's motion to dismiss the customers' lawsuit.

In the next few months, Fenwick should know if its FTX woes

are over - or just beginning.

Read more:

FTX bankruptcy lawyers were not complicit in fraud, report

finds

FTX law firm Sullivan & Cromwell says crypto customers'

lawsuit is 'innuendo masquerading as facts'

FTX lawyers from Fenwick defend 'routine legal services' for

imploded crypto exchange