FTX’s scrapped relaunch raises alarm on legal team’s profits

Former Securities Exchange Commission (SEC) official John Reed Stark described the FTX reorganization plan as a “highway robbery of highway robbers.”

Former Securities 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 X social media platform, Stark said all FTX customers should receive a sarcastic “Thank You” note from the bankrupt exchange’s legal team, given the substantial profits they made during the bankruptcy proceedings. Stark also remarked that each legal team member might 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 and Cromwell clarified that, despite extensive efforts, there were no plans to relaunch FTX, known as FTX 2.0, within the current Chapter 11 bankruptcy framework.

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The FTX bankruptcy team’s lawyers should send thank you notes to all FTX customers. Why? Because thanks to the FTX customers, each member of the FTX legal bankruptcy team can now probably… pic.twitter.com/P89w5tS54y

— John Reed Stark (@JohnReedStark) February 3, 2024

Stark asserted he had foreseen that the Chapter 11 FTX reorganization plan was unlikely. He likened restructuring FTX to trying to reorganize a combination of Murder Incorporated, The Cali Drug Cartel, and Madoff Investment Advisory Services. Consequently, he likely saw no need to invest in the legal team.

Lawyers and the restructuring team managing bankrupt crypto exchange FTX billed over $200 million from November 2022 till June 2023, 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.

Related: FTX moves to offload 8% stake in Anthropic

However, in the quarter ending Oct. 31, bankrupt crypto exchange FTX spent around $53,000 per hour on legal and advisory fees, according to recent compensation filings. Documents from Dec. 5 to Dec. 16 revealed that the bankruptcy legal team billed at least $118.1 million from Aug. 1 to Oct. 31, 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. FTX can sell the claim entirely or in parts, timing the sales for optimal conditions if granted.

FTX collapsed in November 2022 after irregularities were uncovered in its account books. Genesis had $175 million tied up in its FTX account then, but it said that did not impact its market-making activities.