Lawyers, advisers and other professionals working on the FTX bankruptcy have racked up $200mn in fees as they attempt to restructure the “smouldering heap of wreckage” left behind by the cryptocurrency exchange’s collapse in November, an independent auditor found.
In a 47-page filing on Tuesday, a court-appointed fee examiner said she believed the amounts invoiced by hundreds of lawyers from firms including Sullivan & Cromwell and Quinn Emanuel Urquhart & Sullivan, alongside other financial and tax advisers, were not “wholly unreasonable”.
“FTX is hardly the first business organisation felled by a knave,” Katherine Stadler wrote, in an apparent reference to the company’s founder Sam Bankman-Fried, who was charged by federal prosecutors last December over his exchange’s spectacular implosion.
“What makes these cases extraordinary, however, is the largely unregulated financial system in which the debtors (and other similar financial technology companies) operate, combined with their global scope, the complete absence of corporate records, and the non-existence of even the most basic corporate governance,” she added.
Stadler’s report, which focused on the fees requested for the first 90 days of the bankruptcy proceedings, conceded that the litigation appears to be “on track to be very expensive by any measure”. The amount sought to date represented more than 2 per cent of FTX’s $5bn in reported assets, she added.
It detailed how hourly rates for 46 lawyers working on the case exceeded $2,000 an hour, with Sullivan & Cromwell alone billing almost $42mn within the first 90 days of the bankruptcy filing.
Management consultants Alvarez & Marsal, which are acting as financial advisers to the FTX debtors, were the next-highest billers, invoicing close to $28mn, while Paul Hastings, which is representing unsecured creditors, accrued more than $5.5mn in charges.
However, the report concluded “careful stewardship of administrative expenses will translate to 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, who is set to face trial in October, has previously challenged Sullivan & Cromwell’s appointment as counsel to FTX following its filing for Chapter 11 bankruptcy protection last November, arguing that its work for the exchange prior to its collapse prevents the firm from acting impartially. Delaware bankruptcy Judge John Dorsey dismissed a similar challenge by two FTX customers 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 FTX debtors are improperly acting as an arm of the justice system by aiding prosecutors while withholding information from the defence team.
FTX faces as many as 1mn potential creditors in its bankruptcy proceedings, including former customers, suppliers and lenders, who will have to vie with each other for priority to receive repayment out of the company’s remaining assets.
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