Top City Law Firm Loses Funds In FTX Crash

A prestigious City of London law firm has lost some $120,000 $120,000 (£95,500) in the collapse of cryptocurrency exchange FTX, as insurers are reportedly limiting or denying coverage to firms with exposure to the bankrupt exchange.

Herbert Smith Freehills (HSF), a multinational law firm founded in 1882 and considered to be one of the “Silver Circle” of elite London firms, was named as the second-largest unsecured creditor of Alameda Research that was not an insider, according to bankruptcy filings.

Alameda was the crypto trading business founded by FTX chief executive Sam Bankman-Fried, and which US regulators last week claimed was used by him to misappropriate clients’ funds.

FTX collapsed in November after a multibillion-dollar hole was found in its balance sheet.

Digital appeal

Bankman-Fried was arrested a week ago in the Bahamas, a day before he was due to testify before Congress about what had been one of the world’s biggest crypto exchanges.

HSF previously claimed in a report about the blockchain and crypto industry that it was “one of the few leading international law firms to have expert and dedicated technology and digital teams across Europe and Asia Pacific” and to have “deep understanding” of the sector, the Daily Telegraph noted.

In a recent briefing note that discussed FTX, HSF said “high-profile insolvencies in the crypto market” were likely to lead to a “scramble for assets” given the uncertainty of the law surrounding crypto businesses.

Amazon Web Services (AWS) was named as Alameda’s top creditor with an unsecured claim of $4.6m.

‘Massive fraud’

Last week US authorities alleged Fried had overseen a “massive, years-long fraud” as he allegedly used customers’ funds from FTX to pay for expenses and debts and to make investments on behalf of Alameda.

Bankman-Fried made “undisclosed private venture investments, political contributions, and real estate purchases” using the FTX funds, the SEC said. In addition to the SEC’s civil charges he faces criminal charges with a potential combined prison sentence of 170 years.

Insurers have begun denying or limiting coverage to clients with exposure to FTX, leaving crypto traders and exchanges without coverage for losses from hacks, theft or lawsuits, Reuters reported.

Insurers are requiring more transparency from crypto companies and are also proposing policy exclusions from claims arising from the FTX failure, the report said.