FTX bankruptcy ‘on its way to becoming extremely costly’ upwards of $200mn in fees

An independent auditor has found that lawyers, advisors and other professionals working on the FTX bankruptcy collected $200 million in fees while attempting to reorganize the “smoldering pile of rubble” left after the collapse of the cryptocurrency exchange in November. Is.

In a 47-page filing Tuesday, the court-appointed fee examiner said he believed the amounts “invoiced by hundreds of attorneys from firms including Sullivan & Cromwell and Quinn Emanuel Urquhart & Sullivan, among other financial and tax advisors” Totally unfair”. ,

“FTX is hardly the first commercial organization to have been fronted by a slave,” wrote Katherine Stadler, in an apparent reference to company founder Sam Bankman-Fried.

“What makes these cases exceptional, however, is the largely unregulated financial system in which the debtors (and other similar fintech companies) operate, which is characterized by their global scope, complete absence of corporate records, and even combined with the non-existence of the most basic corporate governance,” he said.

Stadler’s report, which focused on fees sought for the first 90 days of bankruptcy proceedings, acknowledged that the litigation appeared to be “on track to be very expensive by any measure”. He said the amount sought to date represents more than 2 percent of FTX’s $5 billion in assets.

It detailed how the hourly rates for the 46 lawyers working on the case exceeded $2,000 an hour, with Sullivan & Cromwell alone billing approximately $42mn within the first 90 days of the bankruptcy filing.

Management consultants Alvarez & Marsal, acting as financial advisors to the FTX debtors, were the next highest billers, invoicing close to $28 million, while Paul Hastings, representing unsecured creditors, earned more than $5.5 million in fees. Did.

However, the report concluded “careful management of administrative expenses would translate into a better outcome for creditors”, and suggested only minor adjustments.

Sullivan & Cromwell, Alvarez & Marsal and Paul Hastings did not immediately respond to requests for comment.

Bankman-Fried, which is set to face trial in October, has challenged the appointment of Sullivan & Cromwell as FTX’s counsel following its filing for Chapter 11 bankruptcy protection last November, arguing that Its work for the Exchange predates the firm before its collapse. to act fairly. Delaware bankruptcy judge John Dorsey dismissed a similar challenge by two FTX clients in January, saying there was “no evidence of any actual conflict”.

Lawyers for the former crypto tycoon, who has pleaded not guilty to the federal charges brought against him, have also suggested that FTX debtors are improperly acting as a branch of the justice system, while Aiding the prosecution by withholding information from the defense.

FTX faces 1 million potential creditors in its bankruptcy proceedings, including former customers, suppliers and creditors, who will have to vie with each other for priority to receive repayment from the company’s remaining assets.