FTX Investors’ Loss Is Wall Street Lawyers’ Gain
Attorneys are charging upwards of $2,000 an hour and $12 million retainers as they attempt to restore funds to the million-odd creditors of Sam Bankman-Fried’s failed empire.
With founder Sam Bankman-Fried in FBI custody, his senior lieutenants cutting deals with prosecutors, and as many as 1 million creditors still waiting to get their money back, there seem to be few winners from the collapse of the FTX crypto exchange.
However, one group is definitely set to gain – the many law firms and consultants that will have to untangle the mess left by Bankman-Fried.
Court filings issued Wednesday detailed the terms under which FTX’s partners will be reimbursed for their efforts. The filings also detail the fees charged by lawyers, tax advisers, restructuring specialists and the company’s own new senior management, including John J. Ray III, who took over from Bankman-Fried as chief executive officer on Nov. 11.
To that list of lawyers can now be added Paul Hastings, hired to be counsel for a representative committee of nine FTX creditors.
Those legal and advisory services don’t come cheap. Sullivan & Cromwell (S&C), FTX’s New York-based law firm, charges as much as $2,165 an hour for work by partners and special counsel, Wednesday court filings show. Appointed to lead the winding up of the company on Nov. 9, S&C received some $3.4 million from FTX in the three months prior to its collapse, most of which was paid on Nov. 3.
West Realm Shires, the subsidiary of FTX that owned the U.S. business, also paid a $12 million retainer at S&C before West Realm filed for bankruptcy on Nov. 14, according to the filings.
Meanwhile, staff at financial advisers Alvarez and Marsel charge an hourly rate of as much as $1,375 and received $4 million in retainers prior to the bankruptcy. Ray, via his company Owl Hill, charges a similar hourly rate. Upon completion of the Chapter 11 bankruptcy plan he will get a further $3 million bonus. Fellow law firm Landis Rath and Cobb, restructuring specialists Kroll, and tax advisers Ernst & Young will all claim their stake, too, according to court filings.
Though amazing to the ordinary person, these numbers are not exceptional in the complex world of bankruptcy proceedings. It is skilled work, with those involved also facing the threat and cost of personal litigation. A job well done could ultimately benefit creditors.
“Sullivan & Cromwell believes that it is essential [for FTX to have] immediate and uninterrupted access” to sophisticated legal advice as they attempt to unwind its affairs, and charges reflect reasonable and competitive compensation, the filings said.
The sums also pale in comparison to the size of the estate. Lawyers and staff are currently trying to safeguard over $1 billion in cash, plus other assets such as cryptocurrency and real estate.
As of the time of FTX’s Chapter 11 filing on Nov. 11, the company’s current management alleges that unauthorized actions led hundreds of millions of dollars to go missing. Though those charges are in dispute, the numbers give some idea of what’s at stake if proceedings aren’t run competently.
Bahamas Attorney General Ryan Pinder has claimed something untoward has been going on by the U.S. lawyers involved in the bankruptcy. “It is possible that the prospect of multi-million-dollar legal and consultant fees is driving both their legal strategy and the intemperate statements,” Pinder said in a Nov. 27 speech, referring to comments made by new FTX CEO Ray.
For their part, FTX’s lawyers have accused the Bahamas government of seeking to control the entire bankruptcy proceedings, and of having “colluded” with the now-jailed Bankman-Fried. In congressional testimony last week, Ray said his goal is to maximize value for customers and creditors.
A dispute over jurisdiction that spirals into an international incident would spell bad news for those still waiting to get their money back – and will only increase the hefty legal bills.
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