An independent auditor has found that lawyers, advisers, and other professionals working on the FTX bankruptcy have accumulated $200 million in fees. Their goal is to reconstruct the “smoldering heap of wreckage” left behind by the cryptocurrency exchange’s collapse in November.
In a comprehensive 47-page filing on Tuesday, a court-appointed fee examiner expressed her belief that the amounts billed by hundreds of lawyers from firms such as Sullivan & Cromwell and Quinn Emanuel Urquhart & Sullivan, as well as other financial and tax advisers, were not “wholly unreasonable.”
Katherine Stadler, the fee examiner, made an apparent reference to FTX’s founder, Sam Bankman-Fried, who was charged by federal prosecutors last December in relation to the exchange’s spectacular implosion. She stated, “FTX is hardly the first business organization felled by a knave.”
Stadler added, “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.”
Focusing on the fees requested during the initial 90 days of the bankruptcy proceedings, Stadler’s report recognized that the litigation appears to be “on track to be very expensive by any measure.” She also noted that the amount sought to date represents more than 2 percent of FTX’s reported assets of $5 billion.
The report detailed how hourly rates for 46 lawyers involved in the case exceeded $2,000 per hour, with Sullivan & Cromwell alone billing nearly $42 million within the first 90 days of the bankruptcy filing. Following them were management consultants Alvarez & Marsal, who billed close to $28 million, and Paul Hastings, who accrued more than $5.5 million in charges representing unsecured creditors.
However, the report concluded that “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 have not responded to requests for comment at this time.
Sam Bankman-Fried, who is scheduled to go to trial in October, previously contested Sullivan & Cromwell’s appointment as counsel to FTX after the company filed for Chapter 11 bankruptcy protection in November. He argued that their previous work for the exchange would prevent them from acting impartially. In January, Delaware bankruptcy Judge John Dorsey dismissed a similar challenge by two FTX customers, stating that there was “no evidence of any actual conflict.”
Lawyers for Bankman-Fried, who has pleaded not guilty to the federal charges against him, have also suggested that FTX debtors are improperly assisting prosecutors while withholding information from the defense team, implying that they function as an extension of the justice system.
In its bankruptcy proceedings, FTX may face up to 1 million potential creditors, including former customers, suppliers, and lenders, who will need to compete for priority in receiving repayment from the company’s remaining assets.
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