A $700 Million Bonanza for the Winners of Crypto’s Collapse: Lawyers

The collapse in cryptocurrency prices last year forced a procession of major firms into bankruptcy, trigging a government crackdown and erasing the savings of millions of inexperienced investors.

But for a small group of corporate turnaround specialists, crypto’s implosion has become a financial bonanza.

Lawyers, accountants, consultants, cryptocurrency analysts and other professionals have racked up more than $700 million in fees since last year from the bankruptcies of five major crypto firms, including the digital currency exchange FTX, according to a New York Times analysis of court records. That sum is likely to grow significantly as the cases unfold over the coming months.

Large fees are common in corporate bankruptcies, which require complex and time-intensive legal work to untangle. But in the crypto world, the mounting fees have sparked widespread outrage because many of the people owed money are amateur traders who lost their personal savings, rather than corporations with the ability to weather a financial crisis. Every dollar in fees is deducted from the pool of funds that will be returned to creditors at the end of the bankruptcies.

Among the biggest winners from the five cases are two major law firms. Sullivan & Cromwell, which is managing FTX’s bankruptcy, has charged more than $110 million in legal fees and recorded over $500,000 in expenses. Kirkland & Ellis has billed $101 million for its work on three of the crypto bankruptcies, with $2.5 million in expenses, according to The Times’s analysis.

More than 50 other professionals have also profited, including specialized start-ups that analyze crypto transactions as well as accountants, consultants and investment bankers, according to the analysis.

The ballooning costs reflect the broken promises of crypto, a renegade industry that was pitched to amateur traders as a force for equality in the ultra-stratified world of high finance. After months of rising prices and social media hype, the crypto market last year spiraled into a crisis that cost investors billions in savings and allowed lawyers, bankers and other traditional power brokers to reap immense profits.

A spokesman for FTX’s new management said the bankruptcy was “extraordinary in almost every conceivable way,” requiring professionals to recreate records from scratch and track down missing funds. Andrew Dietderich, a partner at Sullivan & Cromwell, said in a statement that the lack of clear crypto regulations made the cases more complex and time-consuming, driving up costs.

A Kirkland & Ellis spokeswoman declined to comment.

Over the past few decades, corporate bankruptcy has become a big business. John J. Ray III, the executive whom Sullivan & Cromwell tapped to run FTX after its collapse, has made a career of managing distressed companies like Enron and Fruit of the Loom. He has billed $2.8 million for his work on the FTX bankruptcy, court records show.

Bankruptcy cases were not always so expensive. The average hourly rate for bankruptcy lawyers at Sullivan & Cromwell rose to $2,000 this year from $1,300 in 2018, according to Reorg, a credit and bankruptcy data provider. And research by the legal experts Lynn LoPucki and Joseph Doherty shows that professional fees in bankruptcies grew about 10 percent a year between 1998 and 2007.

When the crypto market tumbled last year, Celsius and Voyager, which had styled themselves as experimental crypto banks, were the first to go under, costing investors more than $6 billion. FTX failed in November, erasing as much as $9 billion in user funds. That was followed by the demise of BlockFi and Genesis, which had also overseen billions of dollars.

Lawyers, accountants and consultants sprang into action. Kirkland & Ellis is managing the Celsius, Genesis and Voyager bankruptcies, while Alvarez & Marsal, a turnaround management firm, has charged more than $125 million for its work on FTX, Celsius and Genesis.

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