Bankrupt cryptocurrency exchange FTX announced last month that it would abandon plans to relaunch the exchange and instead focus on fully compensating its creditors. Former Director of the SEC Cyber Enforcement Office, John Reed Stark, recently criticized FTX’s previous restructuring plan, suggesting that it may have been a strategy for the company’s legal team to profit from the bankruptcy proceedings.
FTX, a cryptocurrency exchange, filed for bankruptcy protection under Chapter 11 of the US Bankruptcy Code in November 2022, seeking to reorganize. However, FTX’s legal team announced during a court hearing at the end of last month that they had decided to abandon the relaunch of the exchange and instead focus on fully compensating the creditors. This implies that FTX may proceed with liquidation under Chapter 7 of the Bankruptcy Code.
In response, John Reed Stark, former Director of the SEC Cyber Enforcement Office, analyzed in a tweet on the 3rd that FTX’s previous restructuring plan may have been a way for its legal team to profit from the bankruptcy proceedings. He sarcastically mentioned that considering the substantial profits obtained by FTX’s legal team during the bankruptcy process, all FTX clients should receive a big thank you from the FTX legal team, as each member of the FTX legal team may be able to afford a new waterfront villa by 2024.
John Reed Stark mentioned that he had long anticipated that the FTX restructuring plan implemented under Chapter 11 of the US Bankruptcy Code would be unlikely to succeed. He even compared the restructuring of FTX to attempting to reorganize a combination of “Murder, Inc., drug trafficking organizations, and Madoff investment advisory services.”
According to Cointelegraph, from November 2022 to June 2023, FTX’s lawyers and restructuring team billed over $200 million. However, Katherine Stadler, the court-appointed fee examiner, stated in a report submitted on June 20th last year that these fees were “not currently entirely unreasonable.”
FTX’s hourly expenditure on legal and consulting fees reached up to $53,000. Compensation documents released from December 5th to December 16th last year showed that FTX’s bankruptcy legal team charged at least $118.1 million from August 1st to October 31st. This averaged to $1.3 million per day, equivalent to an average hourly rate of $53,300.
John Reed Stark pointed out that according to some estimates, the average fees charged by FTX’s bankruptcy legal team and other experts reached $1,800 per hour (top law firm partners reaching $2,375 per hour), earning up to $1.5 million per day. The total fees earned so far amount to nearly $250 million, which is quite excessive and essentially gouging.
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