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Scrapped FTX relaunch raises alarm over legal team’s profits

Former United States Securities and Exchange Commission (SEC) official John Reed Stark has suggested that the FTX restructuring plan might be a way for the legal team to profit from the bankruptcy process.

In a post on social media platform X, Stark said all FTX customers should receive a sarcastic “Thank You” note from the defunct exchange’s legal team, given the substantial profits it made during bankruptcy proceedings. Stark also sarcastically quipped that each legal team member might be able to afford a new beach house in 2024.

During a Jan. 31 hearing in the U.S. Bankruptcy Court for the District of Delaware, FTX lawyer Andy Dietderich of Sullivan & Cromwell clarified that, despite extensive efforts, there were no plans to relaunch FTX — known as FTX 2.0 — in the Chapter 11 bankruptcy framework.

Stark said he had foreseen that the Chapter 11 FTX reorganization plan was unlikely to succeed. He likened restructuring FTX to trying to reorganize a combination of “Murder Incorporated, The Cali Drug Cartel and Madoff Investment Advisory Services.”

Lawyers and the restructuring team managing bankrupt crypto exchange FTX billed over $200 million from November 2022 to June 2023. The fees were deemed reasonable by the court-appointed fee examiner, Katherine Stadler, who found the fees “not wholly unreasonable at the moment” in a report filed on June 20, 2023.

Related: FTX moves to offload 8% stake in Anthropic

However, in the quarter ending Oct. 31, 2023, FTX spent around $53,000 per hour on legal and advisory fees, according to recent compensation filings. Documents from Dec. 5 to Dec. 16, 2023, revealed that the bankruptcy legal team billed at least $118.1 million from Aug. 1 to Oct. 31, 2023, averaging $1.3 million per day or $53,300 per hour over the 92 days.

On Feb. 1, FTX submitted a request in a Delaware court to sell its $175 million claim against the bankrupt Genesis Global Capital. The associated hedge fund, Alameda Research, owns the claim. If granted, FTX can sell the claim entirely or in parts, timing the sales for optimal conditions.

FTX collapsed in November 2022 after irregularities were uncovered in its accounts. Genesis had $175 million tied up in its FTX account at the time, which it said did not impact its market-making activities.

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